<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NUMBER 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAMCO INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 3533 13-3517570
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
7030 ARDMORE
HOUSTON, TEXAS 77054
(713) 747-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RONALD R. RANDALL, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CAMCO INTERNATIONAL INC.
7030 ARDMORE
HOUSTON, TEXAS 77054
(713) 7477-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
CURTIS W. HUFF
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77010-3095
(713) 651-5151
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Merger described herein.
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. [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value........... 13,798,184 Not Applicable $624,951,555 $78,480
- -----------------------------------------------------------------------------------------------------------------------
Rights to Purchase Shares of Common
Stock................................ 13,798,184
=======================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of Common Stock and associated
Rights issuable upon consummation of the Merger described herein.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, the proposed
maximum offering price is calculated as $624,951,555 (representing
10,613,987 shares of Production Operators Corp common stock, $1.00 par
value, multiplied by $58.88, which is the average of the high and low sales
price for such stock on May 9, 1997, as reported by the Nasdaq Stock
Market).
(3) Pursuant to Rule 457(b) under the Securities Act of 1933, the registration
fee included with this Registration Statement has been offset by $110,900,
which is the fee previously paid by the Registrant with the filing of
preliminary proxy materials on Schedule 14A (which contained the Joint Proxy
Statement/Prospectus included herein) filed on March 27, 1997.
---------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
CAMCO INTERNATIONAL INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
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<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Cover of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page of Prospectus;
Table of Contents; Available Information;
Table of Contents; Incorporation of Certain
Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Forward Looking Statements; Summary;
General Information about the Meetings;
Terms of the Merger; Comparative Rights of
Stockholders of Camco and Production
Operators; Unaudited Pro Forma Financial
Information; Camco International Inc. and
Production Operators Corp Unaudited
Adjusted Pro Forma Statement of Operations;
Camco International Inc. and Production
Operators Corp Combined Unaudited Adjusted
Pro Forma Balance Sheet; Notes to Unaudited
Pro Forma Financial Statements; Market
Price of Common Stock and Dividend
Information; Camco; Production Operators;
Management
4. Terms of the Transaction................... Summary; The Merger; Terms of the Merger;
Comparative Rights of Stockholders of Camco
and Production Operators
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Financial
Information; Camco International Inc. and
Production Operators Corp Unaudited
Adjusted Pro Forma Statement of Operations;
Camco International Inc. and Production
Operators Corp Combined Unaudited Adjusted
Pro Forma Balance Sheet; Notes to Unaudited
Pro Forma Financial Statements
6. Material Contracts with the Company Being
Acquired................................... Summary; Terms of the Merger; Management
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information with Respect to S-3
Registrants................................ Available Information; Incorporation of
Certain Documents by Reference; Summary;
Camco
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
---------------- --------------------------
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11. Incorporation of Certain Information by
Reference.................................. Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.......... Not Applicable
15. Information with Respect to S-3
Companies.................................. Available Information; Incorporation of
Certain Documents by Reference; Summary
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................. Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Incorporation of Certain Documents by
Reference; Summary; General Information
About the Meetings; Terms of the Merger;
Management; Stockholders' Proposals
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Not Applicable
</TABLE>
<PAGE> 4
CAMCO INTERNATIONAL INC.
7030 ARDMORE
HOUSTON, TEXAS 77054
May 14, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Camco International Inc. ("Camco") to be held at 9:00 a.m.
on Friday, June 13, 1997, at Chevron Tower Auditorium, 1301 McKinney, Houston,
Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of
February 27, 1997 (the "Merger Agreement"), by and among Camco, a wholly owned
subsidiary of Camco ("Sub") and Production Operators Corp ("Production
Operators"), pursuant to which Camco will acquire Production Operators through a
merger of Sub with and into Production Operators (the "Merger"). The Merger
Agreement provides that, upon completion of the Merger, each outstanding share
of Production Operators common stock, $1.00 par value, will be converted into
the right to receive 1.30 shares of Camco common stock, $.01 par value. As a
result, an aggregate of approximately 13,800,000 shares of Camco Common Stock
would be issued or reserved for issuance pursuant to outstanding employee
benefit awards (representing approximately 35.4% of the outstanding shares of
Camco Common Stock on a fully diluted basis) pursuant to the Merger Agreement.
A summary of the basic terms and conditions of the Merger, certain
financial and other information relating to Camco and Production Operators and a
copy of the Merger Agreement are set forth in the enclosed Joint Proxy
Statement/Prospectus. Please review and consider the enclosed materials
carefully. In connection with its approval of the Merger on February 27, 1997,
the Board of Directors received and took into account the opinion of Credit
Suisse First Boston Corporation ("CSFB"), Camco's financial advisor, to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the common stock exchange ratio of 1.30 was fair to
Camco from a financial point of view. A copy of the opinion of CSFB dated
February 27, 1997 is included in the accompanying Joint Proxy
Statement/Prospectus as Appendix B and should be read carefully in its entirety.
The Board of Directors has unanimously approved the Merger Agreement and
the related transactions. THE BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE
PROPOSED MERGER IS IN THE BEST INTERESTS OF CAMCO AND THE STOCKHOLDERS OF CAMCO
AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR ITS APPROVAL.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AND VOTED. ACCORDINGLY, WE ASK THAT YOU MARK, DATE,
SIGN AND RETURN YOUR PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. If you have
multiple stockholder accounts and receive more than one set of these materials,
please be sure to vote each proxy and return it in the respective postage-paid
envelope provided.
Thank you for your continued interest and cooperation.
Very truly yours,
/s/ GARY D. NICOLSON
Gary D. Nicholson
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 5
CAMCO INTERNATIONAL INC.
7030 ARDMORE
HOUSTON, TEXAS 77054
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Camco
International Inc. ("Camco") will be held at 9:00 a.m. on Friday, June 13, 1997,
at Chevron Tower Auditorium, 1301 McKinney, Houston, Texas, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated February 27, 1997 (the "Merger
Agreement"), by and among Camco, Plane Acquisition Corp., a wholly owned
subsidiary of Camco ("Sub"), and Production Operators Corp ("Production
Operators"), providing for the merger of Sub with and into Production
Operators and pursuant to which each outstanding share of Production
Operators common stock, $1.00 par value, will be converted into the right
to receive 1.30 shares of Camco's common stock, $.01 par value ("Common
Stock"). As a result, an aggregate of approximately 13,800,000 shares of
Camco Common Stock would be issued or reserved for issuance pursuant to
outstanding employee benefit awards (representing approximately 35.4% of
the outstanding shares of Camco Common Stock on a fully diluted basis)
pursuant to the Merger Agreement.
2. To consider and take action upon any other business that may
properly come before the Special Meeting, or any adjournment or
postponement thereof.
THE BOARD OF DIRECTORS OF CAMCO HAS CAREFULLY CONSIDERED THE TERMS OF THE
MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, CAMCO AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.
The Board of Directors has fixed the close of business on May 12, 1997, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment or postponement thereof. Only
stockholders of record at the close of business on the record date are entitled
to notice of and to vote at such meeting. A complete list of such stockholders
will be available for examination at the Special Meeting and at Camco's offices
at 7030 Ardmore, Houston, Texas, during ordinary business hours, after June 3,
1997, for the examination of any such stockholder for any purpose germane to the
Special Meeting.
By order of the Board of Directors,
/s/ RONALD R. RANDALL
Ronald R. Randall
Secretary
May 14, 1997
---------------------
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. EVEN IF
YOU PLAN TO BE PRESENT, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 6
PRODUCTION OPERATORS CORP
11302 TANNER ROAD
HOUSTON, TEXAS 77041
May 14, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Production Operators Corp ("Production Operators") to be
held at 10:00 a.m. on Friday, June 13, 1997, at the office of Production
Operators, 11302 Tanner Road, Houston, Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of
February 27, 1997 (the "Merger Agreement"), by and among Camco International
Inc. ("Camco"), a wholly owned subsidiary of Camco ("Sub"), and Production
Operators, pursuant to which Camco will acquire Production Operators through a
merger of Sub with and into Production Operators (the "Merger"). The Merger
Agreement provides that, upon completion of the Merger, each outstanding share
of Production Operators common stock, $1.00 par value, will be converted into
the right to receive 1.30 shares of Camco common stock, $.01 par value. After
the Merger, Production Operators will be a wholly-owned subsidiary of Camco.
A summary of the basic terms and conditions of the Merger, certain
financial and other information relating to Camco and Production Operators and a
copy of the Merger Agreement are set forth in the enclosed Joint Proxy
Statement/Prospectus. Please review and consider the enclosed materials
carefully. In connection with its approval of the Merger on February 27, 1997,
your Board of Directors received and took into account the opinion of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), an investment banking firm
retained by Production Operators, to the effect that, as of that date, the
common stock exchange ratio of 1.30 was fair to the stockholders of Production
Operators from a financial point of view. Morgan Stanley subsequently delivered
its written opinion dated February 27, 1997, that, as of that date, the exchange
ratio was fair to the stockholders of Production Operators from a financial
point of view. A copy of the Morgan Stanley opinion is included in the
accompanying Joint Proxy Statement/Prospectus as Appendix C.
The Board of Directors has approved the Merger Agreement and the related
transactions. THE BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE PROPOSED
MERGER IS IN THE BEST INTERESTS OF PRODUCTION OPERATORS AND THE STOCKHOLDERS OF
PRODUCTION OPERATORS AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR ITS APPROVAL.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AND VOTED. ACCORDINGLY, WE ASK THAT YOU MARK, DATE,
SIGN AND RETURN YOUR PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. If you have
multiple stockholder accounts and receive more than one set of these materials,
please be sure to vote each proxy and return it in the respective postage-paid
envelope provided.
Thank you for your continued interest and cooperation.
Very truly yours,
/s/ CARL W. KNOBLOCH, JR.
Carl W. Knobloch, Jr.
Chairman of the Board
<PAGE> 7
PRODUCTION OPERATORS CORP
11302 TANNER ROAD
HOUSTON, TEXAS 77041
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Production Operators Corp, a Delaware corporation ("Production Operators"), on
Friday, June 13, 1997. The Special Meeting will be held at the office of
Production Operators, 11302 Tanner Road, Houston, Texas at 10:00 a.m., Houston
time. As described in the accompanying Joint Proxy Statement/Prospectus, the
Special Meeting will be held for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of February 27, 1997 (the "Merger
Agreement"), by and among Camco International Inc. ("Camco"), Plane
Acquisition Corp., a wholly owned subsidiary of Camco ("Sub"), and
Production Operators, pursuant to which, among other things, (a) Sub would
be merged with and into Production Operators (the "Merger"), and (b) each
issued and outstanding share of Production Operators common stock (other
than shares held directly or indirectly by Camco, Sub or Production
Operators) would be converted into the right to receive 1.30 shares of
Camco common stock, all as more fully described in the accompanying Joint
Proxy Statement/Prospectus and the Merger Agreement, a copy of which is
attached as Appendix A.
2. To consider and take action upon such other business that may
properly come before the meeting or any adjournment or postponement
thereof.
THE BOARD OF DIRECTORS OF PRODUCTION OPERATORS HAS CAREFULLY CONSIDERED THE
TERMS OF THE MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, PRODUCTION OPERATORS AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER.
The Board of Directors has fixed the close of business on May 12, 1997, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment or postponement thereof. Only
stockholders of record at the close of business on such record date are entitled
to notice of and to vote at such meeting. A complete list of such stockholders
will be available for examination at the Special Meeting and at Production
Operators' offices at 11302 Tanner Road, Houston, Texas, during ordinary
business hours, after June 3, 1997, for the examination of any such stockholder
for any purpose germane to the Special Meeting.
By Order of the Board of Directors,
/s/ CARLA KNOBLOCH
Carla Knobloch
Secretary
May 14, 1997
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE PROMPTLY COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE AT THE SPECIAL MEETING.
YOU SHOULD NOT RETURN CERTIFICATES FOR PRODUCTION OPERATORS COMMON STOCK
WITH THE ENCLOSED PROXY. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES UNTIL
YOU HAVE RECEIVED A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
<PAGE> 8
CAMCO INTERNATIONAL INC. PRODUCTION OPERATORS CORP
JOINT PROXY STATEMENT
SPECIAL MEETINGS OF STOCKHOLDERS TO BE HELD JUNE 13, 1997
---------------------
CAMCO INTERNATIONAL INC.
(COMMON STOCK, $.01 PAR VALUE)
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Camco International Inc., a Delaware corporation ("Camco"), in connection with
the solicitation of proxies by its Board of Directors for use at the Special
Meeting of Stockholders of Camco (the "Camco Special Meeting") scheduled to be
held on Friday, June 13, 1997, at 9:00 a.m., at Chevron Tower Auditorium, 1301
McKinney, Houston, Texas, and any adjournment or postponement thereof, and to
stockholders of Production Operators Corp, a Delaware corporation ("Production
Operators"), in connection with the solicitation of proxies by its Board of
Directors for use at the Special Meeting of Stockholders of Production Operators
(the "Production Operators Special Meeting") scheduled to be held on Friday,
June 13, 1997 at 10:00 a.m., at the office of Production Operators, 11302 Tanner
Road, Houston, Texas, and any adjournment or postponement thereof.
At the Camco Special Meeting and the Production Operators Special Meeting,
the holders of Camco's common stock, $.01 par value ("Camco Common Stock"), and
the holders of Production Operators' common stock, $1.00 par value ("Production
Operators Common Stock"), respectively, will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger dated February
27, 1997 (the "Merger Agreement"), among Camco, Plane Acquisition Corp, a wholly
owned Delaware subsidiary of Camco ("Sub"), and Production Operators, pursuant
to which Sub will merge with and into Production Operators (the "Merger") and
the holders of the issued and outstanding shares of Production Operators Common
Stock will be entitled to receive 1.30 shares (the "Exchange Ratio") of Camco
Common Stock, together with the associated rights to purchase Camco Common Stock
pursuant to Camco's Rights Agreement dated as of December 15, 1994, by and
between Camco and First Chicago Trust Company of New York, as Rights Agent
("Rights"), for each share of Production Operators Common Stock held by them as
of the effective time of the Merger. See "The Merger" and "Comparative Rights of
Stockholders of Camco and Production Operators -- Camco Common Stock Purchase
Rights". A copy of the Merger Agreement is attached as Appendix A. It is
anticipated that the Merger will be effected as soon as practicable following
the Special Meetings.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Camco pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the issuance of up to 15,000,000 shares of Camco Common Stock
and associated Rights in connection with the Merger.
Based on the 10,222,574 shares of Production Operators Common Stock
outstanding as of May 12, 1997, and the 391,413 shares of Production Operators
Common Stock reserved for issuance pursuant to outstanding Production Operators
options, an aggregate of 13,289,347 shares of Camco Common Stock will be issued
to the current Production Operators stockholders in the Merger and an additional
508,837 shares of Camco Common Stock will be reserved for issuance to the
holders of outstanding Production Operators options. As a result, an aggregate
of 13,798,184 shares of Camco Common Stock would be issued or reserved for
issuance (representing approximately 35.4% of the outstanding shares of Camco
Common Stock on a fully diluted basis) pursuant to the Merger Agreement. Based
on the market price of the Camco Common Stock as of May 12, 1997, the market
value of the consideration to be paid to the holders of the Production Operators
Common Stock in the Merger would be $62.73 per share of Production Operators
Common Stock for an aggregate total consideration for all outstanding shares and
options of $665.8 million.
This Joint Proxy Statement/Prospectus is first being mailed to stockholders
of Camco and to stockholders of Production Operators on or about May 15, 1997.
On May 12, 1997, the closing prices of Camco Common Stock and Production
Operators Common Stock, as reported on the NYSE and the Nasdaq National Market,
respectively, were $48 1/4 and $62 1/4.
---------------------
THE SHARES OF CAMCO COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY 14, 1997.
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION........................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 4
FORWARD LOOKING STATEMENTS...................... 5
SUMMARY......................................... 6
The Companies................................. 6
The Special Meetings.......................... 6
The Merger.................................... 7
The Combined Companies........................ 7
Opinions of Financial Advisors................ 8
Terms of the Merger........................... 8
Comparative Rights of Stockholders of Camco
and Production Operators.................... 13
Market Prices and Dividend Information........ 13
CAMCO INTERNATIONAL INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION...... 14
PRODUCTION OPERATORS
SUMMARY HISTORICAL FINANCIAL INFORMATION...... 15
CAMCO INTERNATIONAL INC. AND PRODUCTION
OPERATORS COMBINED
SELECTED FINANCIAL INFORMATION................ 16
COMPARATIVE PER SHARE INFORMATION............... 17
GENERAL INFORMATION ABOUT THE SPECIAL
MEETINGS...................................... 18
Date, Time and Place of Special Meetings...... 18
Record Date and Outstanding Shares............ 18
Purposes of the Special Meetings.............. 18
Vote Required................................. 18
Voting and Revocation of Proxies.............. 19
Solicitation of Proxies....................... 19
Other Matters................................. 19
THE MERGER...................................... 20
General Description of the Merger............. 20
Background.................................... 20
Camco's Reasons for the Merger................ 23
Recommendation of Camco's Board of
Directors................................... 25
Production Operators' Reasons for the
Merger...................................... 25
Recommendation of Production Operators' Board
of Directors................................ 26
Opinions of Financial Advisors................ 26
TERMS OF THE MERGER............................. 35
Effective Time of the Merger.................. 35
Manner and Basis of Converting Shares......... 35
Conditions to the Merger...................... 36
Representations and Warranties of Camco and
Production Operators........................ 38
Conduct of Business of Production Operators
and Camco Prior to Merger................... 38
Conduct of Business of the Combined Company
Following Merger; Management................ 40
No Solicitation by Production Operators;
Payments in the Event of Certain Takeover
Proposals................................... 40
Termination or Amendment of Merger
Agreement................................... 42
Indemnification............................... 42
Production Operators Options and Stock
Plans....................................... 43
Employee Matters.............................. 43
Irrevocable Proxy............................. 44
Certain U.S. Federal Income Tax
Consequences................................ 44
</TABLE>
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PAGE
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Accounting Treatment.......................... 45
Governmental and Regulatory Approvals......... 45
NYSE Listing.................................. 46
Interests of Certain Persons in the Merger.... 46
Restrictions on Resales by Affiliates......... 47
No Dissenters' Rights......................... 48
COMPARATIVE RIGHTS OF STOCKHOLDERS OF CAMCO AND
PRODUCTION OPERATORS.......................... 48
Special Vote Required for Certain
Combinations................................ 48
Vote Required for Corporate Transactions and
Other Matters............................... 50
Disposition of Assets......................... 50
Action by Written Consent..................... 50
Calling of Special Meetings................... 50
Quorum Requirements for Directors' Meetings... 51
Removal of Directors.......................... 51
Bylaws........................................ 51
Shareholder Nominations and Proposals......... 51
Camco Common Stock Purchase Rights............ 51
UNAUDITED PRO FORMA FINANCIAL INFORMATION....... 53
Pooling of Interests.......................... 53
Acquisitions and Divestitures................. 53
Camco International Inc. and Production
Operators Corp Unaudited Adjusted Pro Forma
Statement of Operations....................... 54
Camco International Inc. and Production
Operators Corp Combined Unaudited Adjusted Pro
Forma Balance Sheet........................... 55
Notes to Unaudited Pro Forma Financial
Statements.................................... 56
MARKET PRICE OF COMMON STOCK AND DIVIDEND
INFORMATION................................... 57
CAMCO........................................... 58
General....................................... 58
Oilfield Equipment Segment.................... 58
Oilfield Services Segment..................... 58
Recent Development............................ 58
PRODUCTION OPERATORS............................ 59
General....................................... 59
Contract Gas Compression...................... 59
Recent Developments........................... 60
MANAGEMENT...................................... 61
Directors and Executive Officers of Camco..... 61
Stock Ownership of Principal Stockholders and
Management of Camco......................... 63
Directors and Executive Officers of Production
Operators................................... 64
Stock Ownership of Principal Stockholders and
Management of Production Operators.......... 65
RELATIONSHIPS WITH INDEPENDENT PUBLIC
ACCOUNTANTS................................... 67
LEGAL MATTERS................................... 67
EXPERTS......................................... 67
STOCKHOLDERS' PROPOSALS......................... 67
APPENDIX A...................................... A-1
APPENDIX B...................................... B-1
APPENDIX C...................................... C-1
</TABLE>
2
<PAGE> 10
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CAMCO OR
PRODUCTION OPERATORS. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS JOINT PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF CAMCO OR PRODUCTION OPERATORS SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
Camco and Production Operators are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by Camco and Production
Operators with the Commission can be inspected at the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material of Camco and Production Operators may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet Website at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements and other
information filed by Camco may also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which the Camco
Common Stock is listed. Such reports, proxy and information statements and other
information concerning Production Operators can also be inspected and copied at
the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.,
on which the Production Operators Common Stock is listed.
Camco has filed with the Commission a registration statement on Form S-4
under the Securities Act with respect to the securities offered hereby (the
"Registration Statement"). This Joint Proxy Statement/Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information contained in the Registration Statement, certain portions of which
are omitted as permitted by the rules and regulations of the Commission. For
further information with respect to Camco and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
which may be inspected at the Commission's offices, without charge, or copies of
which may be obtained from the Commission upon payment of prescribed fees.
Statements contained in this Joint Proxy Statement/Prospectus as to the contents
of any document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance, reference is hereby made to the copy
of such document filed as an exhibit to the Registration Statement for a more
complete description of the matter involved, and each such statement being
qualified in its entirety by such reference. All information herein with respect
to Camco and its affiliates, including Sub, has been furnished by Camco, and all
information herein with respect to Production Operators and its affiliates has
been furnished by Production Operators.
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<PAGE> 11
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Camco with the Commission (File
No. 1-10718) are incorporated by reference herein:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(b) Current Report on Form 8-K dated February 27, 1997;
(c) The description of Camco Common Stock contained in a registration
statement on Form 10, as filed with the Commission on October 21, 1993, and
as amended on November 5, 1993, November 19, 1993, and December 9, 1993,
including any amendment or report filed for the purpose of updating such
description; and
(d) The description of the Rights contained in Camco's Registration
Statement on Form 8-A, as filed with the Commission on December 19, 1994,
including any amendment or report filed for the purpose of updating such
description.
The following documents previously filed by Production Operators with the
Commission (File No. 0-3919) are incorporated by reference herein:
(a) Annual Report on Form 10-K for the fiscal year ended September 30,
1996, as amended by the Form 10-K/A dated May 13, 1997;
(b) Quarterly Report on Form 10-Q for the quarter ended December 31,
1996; and
(c) The description of the Production Operators Common Stock contained
in its Registration Statement on Form S-3 (Reg. No. 33-41254), as filed
with the Commission on June 26, 1991.
All documents filed by Camco and Production Operators pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part hereof from the date of filing of such documents. Any statement
contained in this Joint Proxy Statement/Prospectus or in a document incorporated
or deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Joint Proxy Statement/Prospectus to the extent that a statement
contained in this Joint Proxy Statement/Prospectus or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
Camco undertakes to provide without charge to each person to whom a copy of
this Joint Proxy Statement/Prospectus has been delivered, upon request, a copy
of any or all of the documents incorporated by reference herein, other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Joint Proxy Statement/Prospectus
incorporates. Requests for copies should be directed to Camco International
Inc., 7030 Ardmore, Houston, Texas 77054, Attention: Corporate Secretary
(Telephone number (713) 747-4000).
Production Operators undertakes to provide without charge to each person to
whom a copy of this Joint Proxy Statement/Prospectus has been delivered, upon
request, a copy of any or all of the documents incorporated by reference herein,
other than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Joint Proxy
Statement/Prospectus incorporates. Requests for copies should be directed to
Production Operators Corp, 11302 Tanner Road, Houston, Texas 77041, Attention:
Corporate Secretary (Telephone number (713) 466-0980).
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<PAGE> 12
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes and incorporates by
reference forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1994 relating to, among other matters,
analyses, including opinions from independent financial advisors to Camco's
Board of Directors and Production Operators' Board of Directors as to the
fairness from a financial point of view of the Exchange Ratio to the
stockholders of Camco and Production Operators, respectively, based on forecasts
of future results and estimates of amounts not yet determinable. Such
forward-looking statements also relate to Camco's and Production Operators'
future prospects, developments and business strategies for their operations and
synergies that are possible from the Merger. These forward-looking statements
are identified by their use of terms and phrases such as "expect", "estimate",
"project", "believe", and similar terms and phrases. Such forward-looking
statements are contained in sections entitled "Summary", "The Merger", "Terms of
the Merger -- Certain US Federal Income Tax Consequences", "Camco", "Production
Operators" and other sections of this Joint Proxy Statement/Prospectus and in
the documents incorporated herein by reference. These statements involve risks
and uncertainties that may cause actual future activities and results of
operations to be materially different from that suggested or described in this
Joint Proxy Statement/Prospectus. These risks include changes in market
conditions in the oil and gas industry, political instability in foreign
counties in which Camco and Production Operators operate, currency fluctuations
and controls, in particular those in South America, Mexico and Nigeria, the
timing and scope of Production Operators' El Furrial project in Venezuela, in
particular the timing of when commercial operations will begin, increased
competition in Camco's and Production Operators' markets, governmental
restrictions affecting oil and gas exploration, the ability of Camco to
integrate and realize anticipated synergies relating to the combination of Camco
and Production Operators, dependence on current managements, the ability of
Camco to achieve and execute internal business plans, the impact of any economic
downturns and inflation and other market factors affecting the demand and supply
of oil and gas and the products and services relating thereto. These risks are
more specifically described in Camco's and Production Operators' Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q, which are incorporated herein
by reference. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those expected, estimated or projected.
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<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and the appendices hereto. This summary
does not contain a complete statement of all material information relating to
the Merger and the Merger Agreement and is subject to and qualified in its
entirety by reference to the more detailed information and financial statements
contained elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus, the Merger Agreement, which is attached hereto and
incorporated herein by reference, and the other appendices attached hereto. As
used in this Joint Proxy Statement/Prospectus, unless the context otherwise
requires, the term "Camco" means Camco International Inc. and its consolidated
subsidiaries and the term "Production Operators" means Production Operators Corp
and its consolidated subsidiaries. Certain capitalized terms used in this
summary are defined elsewhere in this Joint Proxy Statement/Prospectus.
THE COMPANIES
Camco and Sub. Camco is one of the world's leading providers of oilfield
equipment and services for numerous specialty applications in key phases of oil
and gas drilling, well completion and production. See "Camco". Sub is a
wholly-owned subsidiary of Camco incorporated in Delaware in February 1997 for
the purpose of effecting the Merger pursuant to the Merger Agreement. The
principal executive offices of Camco and Sub are located at 7030 Ardmore,
Houston, Texas 77054, and their telephone number at that address is (713)
747-4000.
Production Operators. Production Operators is engaged in compression and
other gas handling services in the oilfield services industry and specializes in
the handling of gases for maximizing the recovery of hydrocarbon resources. See
"Production Operators". The principal executive offices of Production Operators
are located at 11302 Tanner Road, Houston, Texas 77041, and its telephone number
at that address is (713) 466-0980.
THE SPECIAL MEETINGS
Time, Date, Place and Purpose. The Camco Special Meeting will be held at
9:00 a.m., on Friday, June 13, 1997, at Chevron Tower Auditorium, 1301 McKinney,
Houston, Texas, for the purpose of approving and adopting the Merger and the
Merger Agreement. The Production Operators Special Meeting will be held at 10:00
a.m. on Friday, June 13, 1997, at the office of Production Operators, 11302
Tanner Road, Houston, Texas, for the purpose of approving and adopting the
Merger Agreement. See "General Information about the Special Meetings".
Record Date and Vote Required. The Boards of Directors of Camco and
Production Operators have fixed the close of business on May 12, 1997, as the
record date ("Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Special Meetings and any adjournments thereof.
Only holders of record of Camco Common Stock and holders of record of Production
Operators Common Stock at the close of business on the Record Date are entitled
to notice of, and to vote at, the Camco Special Meeting and the Production
Operators Special Meeting, respectively. See "General Information about the
Special Meetings".
Under Camco's listing agreement with the NYSE, approval and adoption of the
Merger and the Merger Agreement require the affirmative vote of the holders of a
majority of the shares of Camco Common Stock represented, in person or by proxy,
and entitled to vote at the Camco Special Meeting. Under Delaware law, approval
and adoption of the Merger Agreement require the affirmative vote of the holders
of a majority of the shares of Production Operators Common Stock outstanding and
entitled to vote thereon. See "General Information about the Special
Meetings -- Vote Required".
At the close of business on the Record Date, there were 24,067,314 shares
of Camco Common Stock outstanding and entitled to vote at the Camco Special
Meeting, of which the directors and officers of Camco and their affiliates held
239,777 shares, representing approximately 1.0% of the outstanding shares. Such
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<PAGE> 14
persons have indicated to Camco that they intend to vote their shares in favor
of the approval and adoption of the Merger and the Merger Agreement. See
"General Information about the Special Meetings".
At the close of business on the Record Date, there were 10,222,574 shares
of Production Operators Common Stock outstanding and entitled to vote at the
Production Operators Special Meeting. At the close of business on the Record
Date, the directors and officers of Production Operators and their affiliates
held 2,660,193 shares, representing approximately 26% of the outstanding shares.
Such persons have indicated to Production Operators that they intend to vote
their shares in favor of the approval and adoption of the Merger and the Merger
Agreement. See "General Information about the Meetings". In addition, as
described in "Terms of the Merger -- Irrevocable Proxy", the holders of
1,918,460 shares of Production Operators Common Stock, representing
approximately 18.8% of the outstanding shares, have granted to Camco an
irrevocable proxy to vote their shares in favor of the Merger.
THE MERGER
General Terms; Exchange Ratio. Under the terms of the Merger Agreement, at
the Effective Time (as hereinafter defined), Sub will be merged with and into
Production Operators, with each outstanding share of Production Operators Common
Stock being converted into the right to receive 1.30 shares of Camco Common
Stock, together with the associated Rights. After the Merger, Production
Operators will be a wholly owned subsidiary of Camco. See "The Merger -- General
Description of the Merger".
Based upon the number of shares of Camco Common Stock and Production
Operators Common Stock outstanding as of the Record Date, approximately
37,356,661 shares of Camco Common Stock will be outstanding immediately
following the Effective Time, of which approximately 13,289,347 shares,
representing 35.6% of the total, will be held by former holders of Production
Operators Common Stock.
Recommendations of the Boards of Directors
THE CAMCO BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, CAMCO AND THE HOLDERS OF CAMCO COMMON STOCK
AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CAMCO COMMON STOCK APPROVE AND
ADOPT THE MERGER AND THE MERGER AGREEMENT. See "The Merger -- Background",
"-- Camco's Reasons for the Merger" and "-- Recommendation of Camco's Board of
Directors".
THE PRODUCTION OPERATORS BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, PRODUCTION OPERATORS AND THE
HOLDERS OF PRODUCTION OPERATORS COMMON STOCK AND UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF PRODUCTION OPERATORS COMMON STOCK APPROVE AND ADOPT THE MERGER AND
THE MERGER AGREEMENT. See "The Merger -- Background", "-- Production Operators'
Reasons for the Merger" and "-- Recommendation of Production Operators' Board of
Directors".
THE COMBINED COMPANIES
The acquisition by Camco of Production Operators is being effected to
increase Camco's exposure to the natural gas sector of the oil and gas industry
and to increase its position in the production markets of the oil and gas
service industry. The business of Production Operators is expected to be
operated as a separate division of Camco. Camco further intends to expand and
increase Production Operators business through (i) the use of Camco's broad
international infrastructure, key customer relationships and strategic
alliances, (ii) the opportunity for a fully integrated gas lift production
package by marketing Camco's gas lift products and services with the compression
services of Production Operators and (iii) greater combined financial resources.
On a pro forma combined basis, the operations of Production Operators would have
represented 23%, 12%, 27% and 27% of the combined company's total assets,
revenues, operating income and earnings before depreciation, amortization and
taxes (defined to be income from continuing operations plus depreciation and
amortization) of Camco for the year ended December 31, 1996 and Production
Operators for the year ended September 30, 1996. See "The Merger -- Background",
"The Merger -- Camco's Reasons for the
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<PAGE> 15
Merger", "Camco International Inc. Summary Historical Financial Information",
"Production Operators Corp Summary Historical Financial Information" and
"Unaudited Pro Forma Financial Information".
OPINIONS OF FINANCIAL ADVISORS
Camco
Credit Suisse First Boston Corporation ("CSFB"), financial advisor to
Camco, has rendered to Camco's Board of Directors a written opinion, dated
February 27, 1997, to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the Exchange Ratio was fair
to Camco from a financial point of view. A copy of the opinion of CSFB dated
February 27, 1997 is attached hereto as Appendix B and should be read carefully
in its entirety with respect to the procedures followed, assumptions made,
matters considered and limitations on the review undertaken in connection with
such opinion. The opinion of CSFB is directed to Camco's Board of Directors and
relates only to the fairness of the Exchange Ratio from a financial point of
view to Camco, does not address any other aspect of the proposed Merger or any
related transaction and does not constitute a recommendation to any stockholder
as to how such stockholder should vote at the Camco Special Meeting. See "The
Merger -- Opinions of Financial Advisors -- CSFB Opinion".
The aggregate enterprise and per share equity reference range for
Production Operators derived from certain financial analyses described more
fully under the caption "Opinions of Financial Advisors -- CSFB Opinion" was
approximately $575 million to $675 million, or approximately $53.58 to $63.36
per fully diluted common share, as compared to the equity value implied by the
Exchange Ratio of approximately $54.55 per share, based upon the closing stock
price for Camco of $41.875 on February 27, 1997. These ranges reflect the
composite of all such financial analyses, rather than the lowest and highest
values resulting from such analyses.
Production Operators
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), financial advisor to
Production Operators, has rendered to Production Operators' Board of Directors a
written opinion, dated February 27, 1997, to the effect that, as of such date
and based upon and subject to certain matters stated in such opinion, the
Exchange Ratio was fair from a financial point of view to the stockholders of
Production Operators. A copy of the opinion of Morgan Stanley dated February 27,
1997 is attached hereto as Appendix C and should be read carefully in its
entirety with respect to the procedures followed, assumptions made, matters
considered and limitations on the review undertaken in connection with such
opinion. The opinion of Morgan Stanley is directed to Production Operators'
Board of Directors and relates only to the fairness of the Exchange Ratio from a
financial point of view to the holders of Production Operators Common Stock,
does not address any other aspect of the proposed Merger or any related
transaction and does not constitute a recommendation to any stockholder as to
how such stockholder should vote at the Production Operators Special Meeting.
See "The Merger -- Opinions of Financial Advisors -- Morgan Stanley Opinion".
The aggregate enterprise and per share equity reference range for
Production Operators derived from certain financial analyses described more
fully under the caption "Opinions of Financial Advisors -- Morgan Stanley
Opinion" was approximately $352 million to $542 million, or approximately $32.00
to $50.00 per fully diluted common share, as compared to the equity value
implied by the Exchange Ratio of approximately $54.55 per share, based upon the
closing stock price for Camco of $41.875 on February 27, 1997.
The full text of the CSFB and Morgan Stanley opinions are attached to this
Joint Proxy Statement/Prospectus as Appendices B and C, respectively, and should
be read carefully in their entirety. See "Opinions of Financial Advisors".
TERMS OF THE MERGER
Effective Time of the Merger. The Merger will become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such other time as Camco and
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<PAGE> 16
Production Operators shall agree should be specified in the Certificate of
Merger (the "Effective Time"). Assuming all conditions to the Merger contained
in the Merger Agreement are satisfied or waived prior thereto, it is anticipated
that the Effective Time will occur as soon as practicable following the Camco
Special Meeting and the Production Operators Special Meeting. See "Terms of the
Merger -- Effective Time of the Merger".
Exchange of Production Operators Stock Certificates. As soon as
practicable after the Effective Time, The Bank of New York (the "Exchange
Agent") will mail a letter of transmittal and other information to each holder
of record of Production Operators Common Stock immediately before the Effective
Time for use in exchanging certificates formerly representing shares of
Production Operators Common Stock for certificates representing shares of Camco
Common Stock and cash in lieu of any fractional shares. SHARE CERTIFICATES
SHOULD NOT BE SURRENDERED FOR EXCHANGE BY STOCKHOLDERS OF PRODUCTION OPERATORS
PRIOR TO THE APPROVAL OF THE MERGER AND THE RECEIPT OF A LETTER OF TRANSMITTAL
FROM THE EXCHANGE AGENT. See "Terms of the Merger -- Manner and Basis of
Converting Shares".
Assumption of Production Operators Options. Immediately after the
Effective Time, each Production Operators Option (as hereinafter defined) that
remains unexercised in whole or in part will be replaced by a substitute option
to purchase a number of shares of Camco Common Stock equal to the number of
shares of Production Operators Common Stock subject to such Production Operators
Option multiplied by 1.30 with a per share option price equal to the per share
option price of the Production Operators Option divided by 1.30. There are
currently outstanding options to purchase an aggregate of 391,413 shares of
Production Operators Common Stock (equivalent to 508,837 shares of Camco Common
Stock). The Merger will constitute a "change of control" under the Production
Operators' stock option plans and, except for options relating to an aggregate
of 41,440 shares of Production Operators Common Stock (equivalent to 53,872
shares of Camco Common Stock) that were granted on February 26, 1997, as part of
Production Operators annual stock option grant awards, all Production Operators
stock options will become fully vested and immediately exercisable as of the
Effective Time. See "Terms of the Merger -- Production Operators Options and
Stock Plans".
Employee Matters. Camco currently intends to cause Production Operators as
the Surviving Corporation to take such actions as are necessary so that after
the Effective Time, employees of Production Operators and its subsidiaries
remaining with Production Operators after the Merger ("Continuing Employees")
will be provided with employee benefit plans, programs, policies and
arrangements that are, in the aggregate, no less favorable to such employees as
those provided to such employees by Production Operators as of the date of the
Merger Agreement. The Merger Agreement, however, provides that Camco will have
no obligation to issue shares of capital stock pursuant to any such plan or to
make additional contributions to the ESOP if such issuances or contributions are
not considered to be desirable by Camco. Camco further intends (i) to preserve
and maintain with respect to such plans, programs and arrangements, benefits and
service credit accrued to the Continuing Employees during employment with
Production Operators and its subsidiaries prior to the Effective Time except to
the extent that benefits may be duplicated and (ii) to provide that Continuing
Employees shall not be subject to preexisting condition exclusions or waiting
periods (except to the extent so subject prior to the Effective Time) and shall
receive full credit for any copayments and deductibles already incurred during
the year in which the Merger occurs under the comparable plan of Production
Operators and its subsidiaries. See "Terms of the Merger -- Employee Matters".
Other Conditions to the Merger. In addition to the approval and adoption
of the Merger and the Merger Agreement by the requisite votes of Camco and
Production Operators stockholders and the receipt of regulatory approvals, the
respective obligations of Camco and Production Operators to effect the Merger
are subject to the satisfaction or waiver, where permissible, of certain other
conditions, including (i) confirmation of the tax opinions and accountants'
advice that the transaction will be accounted for as a pooling of interests,
(ii) the receipt by each party of various legal opinions, certificates and
consents, (iii) the opinions of the financial advisors shall not have been
revoked or modified in a materially adverse manner, (iv) the accuracy as of the
date of the Merger Agreement and as of the Closing Date in all material respects
of the representations and warranties of Camco and Production Operators and
compliance in all material respects with all agreements and covenants by each
party to be performed on or before the Closing Date, and (v) no material adverse
change having occurred with respect to Camco or Production Operators since the
date of the Merger
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Agreement. There can be no assurance that all of the conditions set forth in the
Merger Agreement will be satisfied. See "Terms of the Merger -- Conditions to
the Merger".
Management After the Merger. Upon consummation of the Merger, the Board of
Directors of Camco will be expanded by one member to be mutually agreed upon by
the Chairman of the Board of Camco and the Chairman of the Board of Production
Operators. This director will serve as a Class III director of Camco and will
serve until the annual meeting of Camco's stockholders to be held in 1999. It is
currently contemplated that Lester Varn, Jr., a director of Production
Operators, will be named as this additional director. Additionally, Carl
Knobloch, Chairman of the Board of Directors of Production Operators will serve
as a non-voting advisory director of Camco. See "Terms of the Merger -- Conduct
of Business of the Combined Company Following Merger; Management".
No Solicitation. The Merger Agreement provides that Production Operators
will not, and will not permit any of its subsidiaries to, nor shall it authorize
or permit any of its or their officers, directors, employees, investment
bankers, attorneys or other advisors, agents or representatives to, directly or
indirectly, (i) solicit, initiate, encourage the submission of, or enter into
any agreement with respect to, any proposal or offer from any person (other than
Camco or any of its affiliates) for a merger or other business combination,
acquisition of a material amount of its assets or acquisition of more than 15%
of its outstanding voting stock, or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, the making of any proposal that constitutes, or may reasonably be expected
to lead to, any such transaction. Notwithstanding the foregoing, prior to the
vote of its stockholders for approval and adoption of the Merger Agreement and
the Merger, to the extent Production Operators' Board of Directors determines,
in good faith based on the advice of outside counsel, that such actions are
required by its fiduciary obligations, Production Operators may furnish
information to a third party in response to an unsolicited request therefor and
may engage in discussions with such third party for the limited purpose of
determining whether such proposal is a superior proposal. Either party may
subsequently terminate the Merger Agreement if Production Operators' Board of
Directors withdraws or modifies its approval or recommendation of the Merger
Agreement or the Merger due to a superior proposal to the Merger. See "Terms of
the Merger -- No Solicitation by Production Operators".
Payment in the Event of Certain Takeover Proposals. Pursuant to the Merger
Agreement, Production Operators has agreed to pay Camco a fee of $15,000,000
promptly (i) upon the termination of the Merger Agreement by either Camco or
Production Operators as a result of the withdrawal or modification by Production
Operators' Board of Directors of its approval or recommendation of the Merger
Agreement or the Merger due to its receipt of a superior proposal to the Merger,
or (ii) if (a) after the date of the Merger Agreement and before the termination
of the Merger Agreement a takeover proposal is made and publicly announced by
any person or group of persons (an "Acquiring Person"), (b) the holders of
shares of Production Operators Common Stock do not approve the Merger and (c)
after the date of the Merger Agreement and at or prior to six months after the
date of termination of the Merger Agreement, the Acquiring Person or any
Affiliate of the Acquiring Person effects an Alternative Transaction (as defined
below). An Alternative Transaction is defined to mean (i) any merger or other
business combination involving Production Operators, (ii) any acquisition from
Production Operators or any subsidiary of Production Operators of 15% of the
voting securities of Production Operators or any subsidiary or material amount
of assets of Production Operators and its subsidiaries, taken as a whole or
(iii) any acquisition from the stockholders of Production Operators by tender
offer, exchange offer or otherwise of more than 15% of the outstanding shares of
Production Operators Common Stock. See "Terms of the Merger -- No Solicitation
by Production Operators; Payments in the Event of Certain Takeover Proposals".
In the event the Board of Directors of Camco receives a takeover proposal
involving Camco because of which, in the exercise of its fiduciary obligations,
it determines, in good faith based on advice of its outside counsel, it is
necessary to withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, the Merger Agreement provides that Camco may terminate
the Merger Agreement, provided the stockholders of Camco shall not yet have
voted upon the Merger and Camco shall have paid $15,000,000 to Production
Operators. Camco has further agreed to pay $15,000,000 to Production Operators
if the
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<PAGE> 18
stockholders of Camco do not approve the Merger as a result of a hostile
takeover of Camco after the date of the Merger Agreement.
Termination or Amendment of Merger Agreement. In addition to circumstances
involving a takeover proposal of Production Operators or Camco as set forth
above, the Merger Agreement may be terminated: (a) by mutual consent of Camco
and Production Operators; (b) by either party if the stockholders of either
Production Operators or Camco fail to approve the Merger and Merger Agreement;
(c) by either party if the Merger is not effected on or before August 31, 1997;
or (d) by either party if there has been a breach by the other party of any
representation or warranty or a failure by the other party to perform in any
material respect any of its covenants, agreements or obligations set forth in
the Merger Agreement. The Merger Agreement may be amended or supplemented by an
instrument in writing signed on behalf of each party, provided that after the
Merger Agreement has been approved and adopted by the stockholders of Camco and
Production Operators, it may be amended only as may be permitted under
applicable law. See "Terms of the Merger -- Termination or Amendment of Merger
Agreement".
Indemnification. Pursuant to the Merger Agreement, Camco and Sub have
agreed to indemnify and hold harmless each person who is now, or has been any
time prior to the date of the Merger Agreement or who becomes prior to the
effective time of the Merger, an officer or director of Production Operators or
any of its subsidiaries against (i) all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party (which approval shall not be unreasonably
withheld) of, or in connection with, any claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, the fact that such person is or was a director, officer or employee of
Production Operators or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby, in each case to the fullest extent
provided under the law of their respective states of incorporation, as
applicable, to indemnify directors and officers. See "Terms of the
Merger -- Termination or Amendment of Merger Agreement".
Camco has further agreed to use reasonable efforts to purchase and maintain
for the benefit of the Indemnified Parties for a period of five years after the
Effective Time directors and officers liability insurance with respect to acts,
omissions and other matters occurring prior to the Effective Time; provided,
however, that Camco may substitute therefor a "runoff" policy of insurance
having a term of three years following the Effective Time of the Merger with
comparable coverage. Notwithstanding the foregoing, Camco is not required to
expend more than $400,000 in premiums for the aggregate five-year period to
obtain such coverage. See "Terms of the Merger -- Indemnification".
Conduct of Business Prior to the Merger. Prior to the Effective Time,
Camco and Production Operators have agreed to operate their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as previously conducted and to use all reasonable efforts to preserve
intact their current business organizations. Production Operators also has
agreed to certain restrictions on its activities prior to the Effective Time,
including certain restrictions with respect to (i) declaring or paying dividends
or other distributions with respect to its capital stock other than regular
quarterly dividends, (ii) issuing, delivering, selling, pledging or otherwise
encumbering shares of its capital stock, (iii) acquiring its own capital stock,
(iv) amending its certificate of incorporation or bylaws, (v) incurring
obligations for borrowed money, (vi) paying or discharging any liabilities or
obligations other than in the ordinary course of business, (vii) changing any
material accounting principle, and (viii) selling, leasing, mortgaging,
pledging, granting a lien or otherwise encumbering or disposing of properties or
assets, with certain exceptions. In addition, Camco has agreed to certain
restrictions on its activities prior to the Effective Time, including certain
restrictions with respect to (i) paying dividends or other distributions with
respect to its capital stock, other than regular quarterly dividends, consistent
with past practice, (ii) issuing, delivering, selling, pledging or otherwise
encumbering shares of its capital stock other than in connection with employee
benefit plans and issuances of no more than 5% of its outstanding shares in
connection with acquisitions, (iii) acquisitions for a consideration in excess
of $200,000,000, (iv) amending its certificate of incorporation or by-laws and
(v) changing any material
11
<PAGE> 19
accounting principle. See "Terms of the Merger -- Conduct of Business of
Production Operators and Camco Prior to Merger".
Certain U.S. Federal Income Tax Consequences. Camco and Production
Operators have each received an opinion of its counsel to the effect that the
Merger will be treated for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). In addition, counsel for Camco has opined that no gain or
loss will be recognized by Camco, Production Operators or Sub as a result of the
Merger. Counsel for Production Operators has opined that each of Production
Operators, Camco and Sub are parties to the reorganization and that no gain or
loss will be recognized by the stockholders of Production Operators upon the
receipt by them of shares of Camco Common Stock in exchange for their shares of
Production Operators Common Stock pursuant to the Merger, except with respect to
cash received in lieu of fractional shares of Camco Common Stock. See "Terms of
the Merger -- Certain U.S. Federal Income Tax Consequences".
Accounting Treatment. Camco and Production Operators believe that, based
on consultations with Arthur Andersen LLP, Camco's and Production Operators'
independent accountants, that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles and the applicable
rules and regulations of the Commission. See "Terms of the Merger -- Accounting
Treatment".
Governmental and Regulatory Approvals. Consummation of the Merger is
conditioned upon the expiration or termination of the waiting period applicable
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). On April 18, 1997, Camco and Production Operators filed notification
reports under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Department of Justice").
On May 2, 1997, the FTC notified Camco of the early termination of the waiting
period applicable under the HSR Act. See "Terms of the Merger -- Governmental
and Regulatory Approvals". Camco and Production Operators are aware of no other
governmental or regulatory approvals required for the consummation of the
Merger, other than compliance with applicable securities laws of the various
states.
Interests of Certain Persons. In considering the recommendation of the
Board of Directors of Production Operators with respect to the Merger,
Production Operators' stockholders should be aware that certain members of the
Board of Directors and certain officers of Production Operators have interests
respecting the Merger separate from their interests as holders of Production
Operators Common Stock. Such interests include, (i) potential change in control
payments of $220,000, $259,584, $280,000 and $181,898 for D. John Ogren, Thomas
R. Reinhart, John B. Simmons and Carla Knobloch if the employment of such
persons were to be terminated by Camco immediately following the Merger, (ii) a
three year consulting agreement between Carl W. Knobloch, Jr. and Camco
providing for a total compensation and office expenses over such period of
$750,000 and (iii) the maintenance by Camco of directors and officers insurance
for the benefit of the Production Operators directors and officers for period of
three years at a cost not to exceed $400,000. In addition, unvested options to
purchase 14,175, 8,779, 5,410, and 2,292 shares of Production Operators Common
Stock held by Messrs. Ogren, Reinhart and Simmons and Ms. Knobloch,
respectively, will become vested as a result of the Merger. The value of these
unvested options, based on the difference between the exercise price and the
closing sale price of the Production Operators Common Stock on May 12, 1997, is
$484,791, $305,805, $164,534 and $79,645 for Messrs. Ogren, Reinhart and Simmons
and Ms. Knobloch, respectively. See "Terms of the Merger -- Interests of Certain
Persons in the Merger".
No Dissenters' Rights. Delaware law does not provide holders of Production
Operators Common Stock or Camco Common Stock who object to the Merger and who
vote against or abstain from voting in favor of the Merger and the Merger
Agreement with any appraisal rights or the right to receive cash for their
shares of their stock, and neither Production Operators nor Camco intend to make
available any such rights to its stockholders. See "Terms of the Merger -- No
Dissenters' Rights".
12
<PAGE> 20
COMPARATIVE RIGHTS OF STOCKHOLDERS OF CAMCO AND PRODUCTION OPERATORS
The rights of holders of Production Operators Common Stock are currently
governed by Delaware law, Production Operators' Certificate of Incorporation and
Production Operators' By-laws. Upon consummation of the Merger, holders of
Production Operators Common Stock will become holders of Camco Common Stock, and
their rights as holders of Camco Common Stock will still be governed by Delaware
law, but will then be governed by Camco's Restated Certificate of Incorporation
and Camco's By-laws. There are various differences between the rights of
Production Operators stockholders and the rights of Camco stockholders,
including, among others, the required vote for certain business combinations and
other significant matters. See "Comparative Rights of Stockholders of Camco and
Production Operators".
MARKET PRICES AND DIVIDEND INFORMATION
Camco Common Stock is traded on the NYSE under the symbol "CAM", and
Production Operators Common Stock is traded on the Nasdaq National Market under
the symbol "PROP". The following table sets forth the range of high and low sale
prices for Camco Common Stock and Production Operators Common Stock for the
periods indicated, as reported on the NYSE and Nasdaq National Market,
respectively.
<TABLE>
<CAPTION>
CAMCO PRODUCTION OPERATORS
--------------------------------- ---------------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED DECEMBER 31, 1995
Quarter ended March 31, 1995................... $20 5/8 $16 5/8 $.05 $26 3/4 $22 $.06
Quarter ended June 30, 1995.................... 24 3/4 20 1/4 .05 32 25 3/4 .07
Quarter ended September 30, 1995............... 25 1/8 21 3/4 .05 33 28 .07
Quarter ended December 31, 1995................ 28 3/8 20 3/4 .05 33 1/2 29 1/4 .07
TWELVE MONTHS ENDED DECEMBER 31, 1996
Quarter ended March 31, 1996................... 32 3/8 25 1/4 .05 35 28 3/4 .07
Quarter ended June 30, 1996.................... 37 30 1/2 .05 38 29 1/2 .07
Quarter ended September 30, 1996............... 37 1/2 32 1/4 .05 37 3/4 30 3/4 .07
Quarter ended December 31, 1996................ 47 1/4 36 3/4 .05 48 3/4 35 3/4 .07
TWELVE MONTHS ENDED DECEMBER 31, 1997
Quarter ended March 31, 1997................... 51 1/4 38 .05 57 1/2 45 1/2 .07
Quarter ended June 30, 1997 (through May 12,
1997)....................................... 48 7/8 41 3/8 63 53 1/4
</TABLE>
On February 26, 1997, the last trading day prior to the announcement by
Camco and Production Operators that they had reached an agreement concerning the
Merger, the closing sale prices of Camco Common Stock as reported by the NYSE
and of Production Operators Common Stock as reported by the Nasdaq National
Market were $43 1/4 and $45 3/4 per share, respectively. Applying the 1.30
exchange ratio to Camco's closing price of $43 1/4, each share of Production
Operators Common Stock would be valued at $56.23. See "Market Price of Common
Stock and Dividend Information".
On May 12, 1997, the closing sale prices of Camco Common Stock as reported
by the NYSE and of Production Operators Common Stock as reported by the Nasdaq
National Market were $48 1/4 and $62 1/4 per share, respectively.
Following the Merger, Camco Common Stock will continue to be traded on the
NYSE under the symbol "CAM" and the Production Operators Common Stock will cease
to be traded and there will be no further market for such stock.
13
<PAGE> 21
CAMCO INTERNATIONAL INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
The summary financial information of Camco set forth below has been derived
from and should be read in conjunction with the audited financial statements and
other financial information of Camco incorporated by reference in this Joint
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues.................................. $672,732 $595,131 $590,103 $586,281 $499,574
Net income (loss)(1)...................... 50,508 36,318 28,473 9,211 (28,423)
Net income per common share(2)............ 2.03 1.48 1.13 0.37 --
Cash dividends per share.................. 0.20 0.20 0.20 -- --
Weighted average shares outstanding....... 24,852 24,516 25,110 25,108 --
OTHER INFORMATION:
Capital expenditures, excluding
acquisitions........................... $ 33,533 $ 25,883 $ 24,486 $ 16,787 $ 23,430
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital........................... $198,015 $188,308 $165,719 $168,882 $225,102
Total assets.............................. 749,014 661,267 634,522 661,285 723,344
Long-term debt............................ 70,420 71,998 86,122 106,440 209,244
Stockholders' equity...................... 439,219 397,818 363,793 356,138 341,545
</TABLE>
- ---------------
(1) Includes a charge of $10.7 million in 1993 relating to the cumulative effect
of change in accounting principle. Also includes income of $14.5 million in
1992 related to a technology transfer agreement with a major defense
contractor in Slovakia and $33.2 million in nonrecurring charges related to
severance and termination expenses and legal fees and other charges related
to antitrust litigation involving its drill bit business.
(2) Net income per common share for 1993 has been calculated based on the
average common equivalent shares outstanding subsequent to Camco's initial
public offering on December 10, 1993. Net income per common share for 1992
is not meaningful prior to Camco's initial public offering and therefore is
not presented.
14
<PAGE> 22
PRODUCTION OPERATORS CORP
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
The summary financial information of Production Operators set forth below
has been derived from and should be read in conjunction with the audited
financial statements and other financial information of Production Operators
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
------------------- -----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues...................... $26,747 $22,124 $91,803 $72,801 $61,411 $53,818 $56,268
Income from continuing
operations................. 5,264 4,057 17,496 13,977 10,992 8,677 10,671
Income from continuing
operations per common
share...................... 0.51 0.40 1.70 1.37 1.08 0.85 1.15
Cash dividends per share...... 0.07 0.07 0.28 0.26 0.24 0.22 0.20
Weighted average shares
outstanding................ 10,371 10,258 10,291 10,203 10,180 10,163 9,260
OTHER INFORMATION:
Capital expenditures,
excluding acquisitions..... $ 9,145 $ 6,905 $28,315 $63,272 $41,217 $19,176 $15,589
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------------------------------------------
1996 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital................ $ 27,527 $ 18,704 $ 30,744 $ 34,263 $ 30,946 $ 28,669
Total assets................... 229,501 222,691 220,232 168,117 149,829 138,650
Long-term debt................. 29,636 23,131 46,005 6,000 435 1,305
Stockholders' equity........... 160,827 155,654 138,650 133,706 122,965 115,545
</TABLE>
15
<PAGE> 23
CAMCO INTERNATIONAL INC. AND PRODUCTION OPERATORS COMBINED
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following unaudited pro forma financial information of Camco and
Production Operators has been derived from the Camco and Production Operators
Financial Statements, Selected Financial Data and related notes included
elsewhere or incorporated by reference in this Joint Proxy Statement/Prospectus
and gives effect to the Merger under the pooling-of-interests accounting method
and assumes that the Merger had occurred at the beginning of the periods
presented. As a result of the differing year ends of Camco and Production
Operators, results of operations and balance sheet information for different
year ends have been combined. Camco's financial information for each of the five
years ended December 31, 1996, have been combined with Production Operators
financial information for each of the five years ended September 30, 1996. The
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at such time, nor is it
necessarily indicative of future operating results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues.................................. $764,535 $667,932 $651,514 $640,099 $555,842
Income (loss) from continuing
operations............................. 68,004 50,295 39,465 17,888 (17,752)
Income (loss) from continuing operations
per common share(1).................... 1.78 1.33 1.03 0.47 --
Weighted average shares outstanding....... 38,230 37,780 38,344 38,320 --
OTHER INFORMATION:
Capital expenditures, excluding
acquisitions........................... $ 61,848 $ 89,155 $ 65,703 $ 35,963 $ 39,019
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital........................... $216,719 $219,052 $199,982 $199,828 $253,771
Total assets.............................. 971,705 881,499 802,639 811,114 861,994
Long-term debt............................ 93,551 118,003 92,122 106,875 210,549
Stockholders' equity...................... 594,873 536,468 497,499 479,103 457,090
</TABLE>
- ---------------
(1) Net income per common share for 1993 has been calculated based on the
average common equivalent shares outstanding subsequent to Camco's initial
public offering on December 10, 1993, plus the number of shares of Camco
Common Stock issuable to the holders of the Production Operators Common
Stock in the Merger. Income per common share for 1992 is not meaningful
prior to Camco's initial public offering and therefore is not presented.
16
<PAGE> 24
COMPARATIVE PER SHARE INFORMATION
The following table sets forth (a) the historical income per common share,
the historical book value per share data and the historical cash dividends per
share for Camco Common Stock; (b) the historical income per common and common
equivalent share and the historical book value and the historical cash dividends
per share data of Production Operators Common Stock; (c) the unaudited pro forma
income per share and the unaudited pro forma book value and dividends per share
data for Camco after giving effect to the proposed Merger on a pooling of
interests basis; and (d) the unaudited pro forma income per common and common
equivalent share and the unaudited pro forma book value and dividends per share
attributable to 1.30 shares of Camco Common Stock that will be received by
Production Operators stockholders for each share of Production Operators Common
Stock. The information presented in the table should be read in conjunction with
the unaudited pro forma financial statements and the separate historical
consolidated financial statements of Camco and Production Operators and the
related notes contained elsewhere or incorporated by reference in this Joint
Proxy Statement/Prospectus. See "Camco and Production Operators Unaudited Pro
Forma Financial Information", "Incorporation of Certain Documents by Reference"
and the Production Operators Consolidated Financial Statements.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ---------------------
PRODUCTION PRODUCTION
CAMCO OPERATORS COMBINED OPERATORS
------ ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME PER COMMON AND COMMON EQUIVALENT SHARE FROM
CONTINUING OPERATIONS:
Year ended December 31 for Camco and
September 30 for Production Operators
1996............................................... $ 2.03 $ 1.70 $ 1.78 $ 2.31
1995............................................... 1.48 1.37 1.33 1.73
1994............................................... 1.13 1.08 1.03 1.34
BOOK VALUE PER SHARE AS OF:
December 31, 1996 for Camco and
September 30, 1996 for Production Operators........... $18.33 $15.28 $15.99 $20.79
DIVIDENDS PER SHARE(1):
Year ended December 31 for Camco and
September 30 for Production Operators
1996............................................... $ 0.20 $ 0.28 $ 0.20 $ 0.26
1995............................................... 0.20 0.26 0.20 0.26
1994............................................... 0.20 0.24 0.20 0.26
</TABLE>
- ---------------
(1) Dividends per share on a combined basis are presented without giving effect
to the additional Camco Common Stock to be issued in the Merger and the
historical dividends paid by Production Operators as Camco will establish
continuing dividend policies.
17
<PAGE> 25
GENERAL INFORMATION ABOUT THE SPECIAL MEETINGS
DATE, TIME AND PLACE OF SPECIAL MEETINGS
The Camco Special Meeting will be held at 9:00 a.m. on Friday, June 13,
1997, at Chevron Tower Auditorium, 1301 McKinney, Houston, Texas. The Production
Operators Special Meeting will be held at 10:00 a.m., on Friday, June 13, 1997,
at the office of Production Operators, 11302 Tanner Road, Houston, Texas.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Camco Common Stock and holders of record of
Production Operators Common Stock at the close of business on May 12, 1997, are
entitled to notice of, and to vote at, the Camco Special Meeting and the
Production Operators Special Meeting, respectively.
At the close of business on the Record Date, there were 69 holders of
record of Camco Common Stock with 24,067,314 shares issued and outstanding and
775 holders of record of Production Operators Common Stock with 10,222,574
shares issued and outstanding. Each share of Camco Common Stock and Production
Operators Common Stock entitles the holder thereof to one vote on each matter
submitted for stockholder approval.
PURPOSES OF THE SPECIAL MEETINGS
The purposes of the Camco Special Meeting and the Production Operators
Special Meeting are to consider and vote upon (i) a proposal to approve the
Merger and the Merger Agreement and (ii) such other matters as may properly be
brought before the Special Meeting.
VOTE REQUIRED
Camco. Camco's By-laws provide that the presence at the Camco Special
Meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of Camco Common Stock entitled to vote at the meeting will constitute a
quorum for the transaction of business. Under Camco's listing agreement with the
NYSE, which requires stockholder approval for the issuance of more than 20% of
the outstanding Camco Common Stock in connection with any acquisition by Camco,
approval and adoption of the Merger Agreement requires the affirmative vote of
the holders of a majority of the 12,033,658 shares of Camco Common Stock
present, in person or by proxy, and entitled to vote at the Camco Special
Meeting. At the close of business on the Record Date, the directors and officers
of Camco and their affiliates held shares of Camco Common Stock, representing
approximately 1.0% of the outstanding shares. Such persons have indicated to
Camco that they intend to vote their shares in favor of the approval and
adoption of the Merger and the Merger Agreement.
Production Operators. Production Operators' By-laws provide that the
presence at the Production Operators Special Meeting, in person or by proxy, of
the holders of a majority of the Production Operators Common Stock issued and
outstanding and entitled to vote at the meeting will constitute a quorum for the
transaction of business. Under Delaware law, approval and adoption of the Merger
and the Merger Agreement require the affirmative vote of the holders of a
majority of the shares of Production Operators Common Stock outstanding on the
Record Date, or 5,111,288 shares. At the close of business on the Record Date,
the directors and officers of Production Operators and their affiliates, held
2,660,193 shares of Production Operators Common Stock, representing
approximately 26% of the outstanding shares. Such persons have indicated to
Production Operators that they intend to vote their shares in favor of the
approval and adoption of the Merger and the Merger Agreement. In addition, as
described in "The Merger -- Irrevocable Proxy", the holders of 1,918,460 shares
of Production Operators Common Stock, representing approximately 18.8% of the
outstanding shares, have granted to Camco an irrevocable proxy to vote their
shares in favor of the Merger.
18
<PAGE> 26
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Camco Special Meeting and the Production Operators Special Meeting, as
applicable, in accordance with the instructions contained therein. If a holder
of Camco Common Stock or a holder of Production Operators Common Stock executes
and returns a proxy and does not specify otherwise, the shares represented by
such proxy will be voted "FOR" approval and adoption of the Merger and the
Merger Agreement in accordance with the recommendation of the Camco Board of
Directors and the Production Operators Board of Directors, respectively.
Checking the abstention box on the proxy card or failing to return the proxy
card has the same effect as voting against the Merger. A stockholder of Camco or
a stockholder of Production Operators who has executed and returned a proxy may
revoke it at any time before it is voted at the respective Special Meeting by
executing and returning a proxy bearing a later date, by filing written notice
of such revocation with the Secretary of Camco or Production Operators, as
appropriate, stating that the proxy is revoked or by attending the Special
Meeting and voting in person.
Under applicable stock exchange rules, brokers will not be permitted to
submit proxies authorizing a vote on the Merger and the Merger Agreement in the
absence of specific instructions from beneficial owners. Broker non-votes and
abstentions will have the effect of votes against the Merger and the Merger
Agreement. Under Delaware law, both abstentions and broker non-votes contained
on a returned proxy card will be considered present for purposes of determining
the existence of a quorum at the Camco Special Meeting or the Production
Operators Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and employees
of each of Camco and Production Operators may solicit proxies from their
respective stockholders by personal interview, telephone, facsimile or
otherwise. Camco and Production Operators will each bear the costs of the
solicitation of proxies from their respective stockholders. Arrangements also
will be made with brokerage firms and other custodians, nominees and fiduciaries
who hold the voting securities of record for the forwarding of solicitation
materials to the beneficial owners thereof. Camco and Production Operators will
reimburse such brokers, custodians, nominees and fiduciaries for the reasonable
out-of-pocket expenses incurred by them in connection therewith. Camco and
Production Operators have engaged the services of Georgeson & Company, Inc., a
proxy solicitation firm, to distribute proxy solicitation materials to brokers,
banks and other nominees and to assist in the solicitation of proxies from their
respective stockholders for an anticipated fee of $10,000 plus mailing expenses.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Camco Board of
Directors and the Production Operators Board of Directors do not know of any
business to be presented at their respective Special Meetings other than as set
forth in the notices accompanying this Joint Proxy Statement/Prospectus. If any
other matters should properly come before the respective Special Meetings, it is
intended that the shares represented by proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting such proxies.
Proxies voted "against" the approval and adoption of the Merger and Merger
Agreement will not be used to vote for any adjournment pursuant to this
authority.
19
<PAGE> 27
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Sub will merge
with and into Production Operators, with Production Operators becoming the
surviving corporation. Pursuant to the Merger, each outstanding share of
Production Operators Common Stock will be converted into the right to receive
1.30 shares of Camco Common Stock together with the associated Rights. After the
Merger, Production Operators will be a wholly owned subsidiary of Camco. See
"Terms of the Merger -- Manner and Basis of Converting Shares".
As of the Record Date, there were 24,067,314 shares of Camco Common Stock
issued and outstanding and 10,222,574 shares of Production Operators Common
Stock issued and outstanding. Based upon the number of shares of Camco Common
Stock and Production Operators Common Stock outstanding as of the Record Date,
approximately 37,356,661 shares of Camco Common Stock will be outstanding
immediately following the Effective Time, of which approximately 13,289,347
shares, representing 35.6% of the total, will be held by former holders of
Production Operators Common Stock.
BACKGROUND
Camco is one of the world's leading providers of oilfield equipment and
services for the drilling, completion, production, well service and workover
market segments of the oil service industry. Within these markets, Camco's Reed
Tool and Hycalog divisions manufacture a wide variety of roller cone and
synthetic diamond drill bits used for the drilling of oil and gas wells, Camco's
Reda Pump division manufactures electrical submersible pumps and related
products and Camco's Products and Services division manufactures gas lift
systems, surface controlled subsurface safety valves and packers and accessories
and provides a wide range of oilfield services used in the initial completion of
wells and in well maintenance and treatment during the productive life of a
well.
In recent years there has been a trend of increasing demand for natural gas
in the United States, which has resulted in an increase in natural gas
exploration and production activities. Natural gas exploration and production
activities historically constituted only a small portion of the overall
international exploration and production activities. Recently, there has been an
increase in international natural gas exploration and production activities as
more countries around the world have begun to build natural gas distribution
networks to meet the growing energy demands of their economies. In addition,
demand in the production phase of the domestic and international markets
continues to grow as many fields around the world mature and require artificial
lift to maintain production. In an effort to increase its exposure to natural
gas and to continue to grow its position in the production phase of the
industry, Camco has sought acquisitions in these markets. In this regard, in the
last two years, Camco acquired Site Oil Tools, a manufacturer of a full line of
packers, accessory equipment and services for the completion and maintenance of
oil and gas wells, LaSalle Engineering, a company that provides oilwell
production services, project management and ancillary equipment for electrical
submersible pump systems, and the artificial lift business line of Halliburton
Company.
Among the companies that Camco has considered as a possible acquisition
that would expand its exposure to natural gas was Production Operators. In March
1996, Gary Nicholson, President and Chief Executive Officer of Camco, approached
Carl Knobloch, Chairman of the Board of Directors of Production Operators, to
ascertain whether Production Operators would have an interest in some form of
combination with Camco. These early conversations resulted in an exchange of
public information regarding Camco and Production Operators in April 1996.
Following the initial sharing of information between Camco and Production
Operators, Mr. Nicholson and Mr. Knobloch engaged in various preliminary
conversations regarding their respective companies.
On June 12, 1996, Production Operators retained Morgan Stanley to conduct a
study of Production Operators and its strategic alternatives. As part of this
study, Production Operators and Morgan Stanley developed a list of companies
that would present attractive combinations with Production Operators. In
identifying the list of companies, Production Operators and Morgan Stanley
sought to identify companies that
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had broad international infrastructures, a record of successful acquisitions and
operating and income growth and operations that would be synergistic with those
of Production Operators. In early August 1996, Morgan Stanley contacted a number
of the companies on the list, including Camco, that met some of the criteria
specified by Production Operators to ascertain their interest in a possible
transaction with Production Operators. Based on these contacts and a further
review of the companies, Production Operators determined that the most desirable
candidate for combination would be Camco. Although Production Operators had in
the past considered other strategic alternatives to a combination with another
company, no alternative to a merger transaction with another company was
considered by it in connection with this process.
On August 13, 1996, Camco and Production Operators executed mutual
confidentiality agreements. Following the execution of these agreements, various
additional information regarding Camco and Production Operators was exchanged
between the parties.
On October 1, 1996, Camco retained CSFB to provide it with financial
advisory services with respect to a possible acquisition of Production
Operators.
On October 30, 1996, Camco provided Production Operators with a preliminary
non-binding expression of interest in a combination between Camco and Production
Operators. In this expression of interest, Camco suggested a exchange ratio of
1.10 to 1.20 shares of Camco Common Stock for each share of Production Operators
Common Stock. Various discussions between representatives of CSFB and Morgan
Stanley followed in which matters concerning the potential financial and
strategic benefits that might be realized in a combination were discussed. In
connection with these discussions, Production Operators advised Camco that it
believed an exchange ratio of 1.40 shares of Camco Common Stock for each share
of Production Operators Common Stock would be more appropriate. The exchange
ratios suggested by Camco and Production Operators at this time during the
negotiations were proposed by the respective managements of Camco and Production
Operators as part of the negotiation process. The exchange ratio suggested by
Camco reflected a ratio which its management believed would be non-dilutive to
Camco's earnings in 1997 assuming no synergistic benefits from the combination
or income from contracts which Production Operators was then currently
negotiating. The exchange ratio suggested by Production Operators gave effect to
factors and other assumptions regarding future growth.
On November 19, 1997, Morgan Stanley presented to an Oversight Committee of
the Board of Directors of Production Operators, consisting of Carl W. Knobloch,
Jr., D. John Ogren, C. Rahl George, Henry E. Longley and Lester Varn, Jr., a
discussion regarding the initial results of its review of potential companies
with which Production Operators might combine.
On December 10, 1996, Mr. Nicholson, Herbert Yates, Camco's Chief Financial
Officer, and representatives of CSFB met with Mr. Knobloch, Lester Varn, a
director of Production Operators, John Ogren, President of Production Operators,
Carla Knobloch, Corporate Secretary of Production Operators, and representatives
of Morgan Stanley, to discuss Camco's and Production Operators' business and
prospects. Subsequent to this meeting, members of management of Camco and
Production Operators and their respective financial advisors met on various
occasions to discuss the possibility of a combination between the two companies
and the benefits that could be achieved through a combination.
On January 29, 1997, the Board of Directors of Camco met to discuss the
possible acquisition of Production Operators. At this meeting, CSFB reviewed
with the Camco Board of Directors the operations, markets and financial
performance of Production Operators and the potential financial impact of an
acquisition of Production Operators on Camco. A representative of Fulbright &
Jaworski L.L.P. also discussed with the Board of Directors of Camco various
legal issues relating to the proposed transaction, including its fiduciary
duties and other matters relating to the consideration of an acquisition of
Production Operators. At this meeting, Camco's Board of Directors authorized Mr.
Nicholson to continue negotiations with Production Operators regarding a
possible merger between the two companies and to discuss valuation issues.
On January 31, 1997, Mr. Nicholson and Mr. Knobloch met to discuss the
possible combination and the appropriate exchange ratio if a transaction were to
occur. Mr. Nicholson and Mr. Yates then met with Mr. Ogren and Ms. Knobloch
regarding operations of Production Operators.
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On February 3 and 5, 1997, meetings between representatives of Camco and
Production Operators were held in Houston to discuss the business and prospects
of Production Operators.
On February 10, 1997, Mr. Nicholson and Mr. Knobloch had a telephone
conversation in which they determined that a possible merger between Camco and
Production Operators was possible at an exchange ratio of 1.30 shares of Camco
Common Stock for each share of Production Operators Common Stock assuming the
terms of a definitive agreement could be reached and the satisfactory completion
of due diligence. Camco and Production Operators then directed their legal
advisors to begin to negotiate the terms of a definitive agreement and to
proceed with additional due diligence.
On February 13, 1997, a meeting between representatives of Camco and
Production Operators and their respective financial and legal advisors took
place in Houston. At this meeting, the parties discussed due diligence issues
and the potential timing and terms of the transaction.
On February 18, 1997, the Board of Directors of Camco met to review the
status of the proposed acquisition of Production Operators. At this meeting,
CSFB reviewed with the Camco Board of Directors certain updated financial
information regarding the transaction at the proposed Exchange Ratio. The Board
of Directors of Camco also reviewed with Camco's legal counsel a draft of the
Merger Agreement and the outstanding issues with respect to the transaction. The
Board of Directors of Camco then directed its management and legal and financial
advisors to work towards the finalization of a definitive Merger Agreement on
those terms.
On February 19, 1997, Camco provided a presentation regarding its
businesses to management of Production Operators and its financial advisors. On
February 20, 1997, Mr. Nicholson and Mr. Knobloch, together with their legal
advisors, met to discuss outstanding business and legal issues under the Merger
Agreement. From February 20, 1997, to February 26, 1997, the terms of the Merger
Agreement were negotiated by Camco and Production Operators.
On February 26, 1997, the Board of Directors of Production Operators met to
review the proposed transaction and the Merger Agreement. At the meeting, Morgan
Stanley presented to the Production Operators Board of Directors a review of
Camco and the potential financial impact on the stockholders of Production
Operators of an acquisition of Production Operators by Camco. A representative
of Vinson & Elkins L.L.P. also discussed with the Board of Directors of
Production Operators various legal issues relating to the proposed transaction,
including its fiduciary duties and other matters relating to the Merger.
The Board of Directors of Production Operators met by telephone meeting on
February 27, 1997, to review the final terms of the Merger Agreement. At this
meeting, the Board of Directors of Production Operators received the oral
opinion of Morgan Stanley (subsequently confirmed in writing) that as of such
date, the Exchange Ratio to be in the Merger Agreement was fair to the holders
of Production Operators Common Stock from a financial point of view. Production
Operators' Board of Directors then unanimously approved the execution of the
Merger Agreement.
On February 27, 1997, the Board of Directors of Camco also met by
telephonic meeting to discuss the final terms of the Merger Agreement. At this
meeting, a representative of Fulbright & Jaworski L.L.P. discussed with the
Board of Directors of Camco the final terms of the Merger Agreement and the
changes made to the Merger Agreement since the last draft presented to the Board
of Directors. CSFB also delivered its oral opinion (subsequently confirmed by
delivery of a written opinion dated February 27, 1997) to the effect that, as of
such date and based upon and subject to certain matters stated in such opinion,
the Exchange Ratio was fair to Camco from a financial point of view. See
"-- Opinions of Financial Advisors -- CSFB Opinion". Camco's Board of Directors
then unanimously approved the execution of the Merger Agreement.
Following the approval of the respective Boards of Directors of Camco and
Production Operators of the Merger Agreement, the Merger Agreement was executed
and delivered.
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CAMCO'S REASONS FOR THE MERGER
The acquisition of Production Operators is intended to expand Camco's
exposure to the natural gas sector of the oil and gas industry and increase its
position in the production markets of the oil and gas service industry. Camco's
Board of Directors believes that the acquisition of Production Operators should
achieve this objective and provide Camco with significant growth opportunities
in these areas of the industry. In identifying Production Operators as a
potential acquisition, Camco's Board took into account the fact that Production
Operators is a market leader in total responsibility gas compression services
and has provided its shareholders with an average 20% compound annual growth of
earnings for over 30 years.
Camco's Board of Directors also considered the strategic benefits that
Camco expects to realize from the proposed acquisition of Production Operators.
Among the key strategic benefits expected by Camco are the following:
- Substantial international growth opportunities in the expanding worldwide
natural gas market.
- The addition of the number one provider of total responsibility
compression services in the United States.
- A complementary product and services business that fits within Camco's
strategy of providing value added products and services that can generate
high margins and returns.
- Expanded business opportunities for Production Operators' services
through the use of Camco's broad international infrastructure, key
customer relationships and strategic alliances.
- Opportunities to utilize Camco's worldwide leading gas lift market
position with Production Operators' leading market position in gas
compression services to provide a fully integrated gas production package.
- High levels of cash flow which, when combined with Camco's strong cash
flows, can be used to finance future opportunities in the market place.
- Significant domestic and international growth possibilities due to the
continuing trend by oil and gas companies to outsource their oilfield
service needs and redeploy capital to core exploration and production
activities.
- Consistent cash flows attributable to Production Operators' longer term
contracts.
- Production Operators' growing presence in Latin America where Camco
currently maintains large market positions.
- The addition of a production oriented business that is tied primarily to
natural gas activities and the aging of existing oil and gas fields.
In reaching its decision to approve the Merger Agreement, Camco's Board of
Directors also considered the following factors:
(i) The recent historical performance of the Camco Common Stock and
the Production Operators Common Stock;
(ii) Certain historical and prospective financial information
regarding Production Operators, in particular the impact on the combined
company's results of operations and future cash flow;
(iii) An analysis of recent acquisitions in comparable industries;
(iv) A discounted cash flow analysis of Production Operators, in
particular the impact on the combined company's results of operations and
future cash flow, and income and cash flow multiples paid for similar
acquisitions;
(v) The anticipated slightly dilutive effect on Camco's earnings and
cash flow of the acquisition for 1997 compared to the anticipated accretive
benefits of the acquisition in 1998 and beyond and the impact thereof on
the holders of the Camco Common Stock;
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(vi) The negative dilutive impact on the book value and voting to the
current holders of the Camco Common Stock;
(vii) The relationship of the pro forma contribution to revenues
(approximately 12% for 1996), earnings before depreciation, amortization
and taxes (approximately 27% for 1996) and operating income (approximately
27% for 1996) of Production Operators to the combined company to the
percentage of ownership of the combined company that the holders of the
Production Operators Common Stock will have (approximately 30%), with the
Board giving particular weight to the contribution to income and earnings
before depreciation, amortization and taxes over revenues given the fact
the Production Operators' contribution to income and earnings before
depreciation, amortization and taxes will directly affect the net return to
Camco's stockholders while Production Operators' contribution to revenues
will represent only one component of the combined company's results that
may not necessarily translate to an increase in stockholder value through
either net cash flow contribution or net income;
(viii) The historical higher average gross margins realized by
Production Operators on its services over that realized by Camco and the
impact thereof on the anticipated contribution to the equity and net cash
flow of the combined company;
(ix) The impact of Production Operators' new and proposed foreign
contracts on Production Operators' EBITDA (earnings before interest, taxes,
depreciation and amortization) and income for 1997, 1998 and beyond, in
particular the anticipated increases in Production Operators' earnings,
cash flow and EBITDA as these contracts become effective and revenues, net
cash flow and income is realized thereon;
(x) The long-term growth possibilities of an acquisition of Production
Operators resulting from its increased exposure to the natural gas markets
and the production markets of the oil and gas service industry and the
potential realization of the synergistic benefits described above through
the marketing and expansion of Production Operators services through
Camco's broad international customer relationships and strategic alliances
and combination of such services with Camco's gas lift product line;
(xi) The availability of Camco's strong liquidity and capital
structure to support the long-term and short-term growth of Production
Operators' business, in particular in the international markets;
(xii) The impact of Production Operators' historical results and
anticipated long-term and short-term contribution to Camco's future
operating results and liquidity, in particular its attractive historical
and anticipated margins and cash flow generation ability;
(xiii) Production Operators' low level of debt and minimal impact on
Camco's ability to continue to grow and make future acquisitions and
capital investments utilizing its existing capital resources and without
any material impact on Camco's overall liquidity and financial resources;
(xiv) The terms of the Merger Agreement; and
(xv) The financial analyses of CSFB, with particular weight given to
the indicated valuation of Production Operators under the discounted cash
flow analysis, which implied an equity reference range for Production
Operators of approximately $56.42 to $66.68 per fully diluted share, and
the opinion dated February 27, 1997 of CSFB to the Board of Directors of
Camco to the effect that, as of such date and based upon and subject to
certain matters stated in such opinion, the Exchange Ratio was fair to
Camco from a financial point of view (See "-- Opinions of Financial
Advisors -- CSFB Opinion").
Prior to taking action on the Merger Agreement, the Board of Directors of
Camco received presentations from, and reviewed the terms and conditions of the
Merger Agreement with Camco's management, legal counsel and outside financial
advisor. The reasons for the Merger and the factors considered described under
"Background of the Merger" and above in this section reflect all material
reasons of Camco for pursuing the
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Merger and factors considered by the Board of Directors of Camco in approving
the Merger. The Board of Directors of Camco did not quantify or otherwise
attempt to assign any relative weight to the factors considered by it in
approving the Merger. The Board of Directors, however, did give substantial
consideration to those factors which related to the potential growth prospects
of Production Operators and the benefits to Camco of the acquisition over the
long-term and the projected earnings impact of the acquisition on the Camco
stockholders.
RECOMMENDATION OF CAMCO'S BOARD OF DIRECTORS
For the reasons set forth under "Background of the Merger" and "Camco's
Reasons for the Merger", Camco's Board of Directors believes that the terms of
the Merger are fair to, and in the best interests of, Camco and the holders of
Camco Common Stock. CAMCO'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AND THE MERGER AGREEMENT AND RECOMMENDED THAT THE HOLDERS OF CAMCO COMMON
STOCK VOTE "FOR" ADOPTION AND APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
PRODUCTION OPERATORS' REASONS FOR THE MERGER
The Production Operators Board of Directors believes that Camco is a strong
and growing energy service company and that the proposed transaction provides
many strategic benefits as well as becoming a part of a leading global oilfield
services firm. The Merger is an opportunity for Production Operators'
stockholders to participate in a combined enterprise that has significantly
greater business and financial resources than Production Operators would have if
the Merger did not take place, and to receive, on a tax-deferred basis, a
premium for their Production Operators Common Stock based on recent market
prices. The Production Operators Board also believes that Production Operators
can benefit from more international business opportunities as a part of Camco
because of Camco's existing customers and infrastructure of offices and business
relationships in foreign markets.
In evaluating the fairness of the proposed Merger and the consideration to
be received by the Production Operators stockholders, the Production Operators
Board of Directors consulted with its own management, Morgan Stanley, its legal
counsel and tax advisors regarding the terms and provisions of the Merger
Agreement. The Production Operators Board considered a number of factors
including:
(i) An analysis of the financial performance, operations, assets,
business condition and business prospects of Camco and Production
Operators;
(ii) Camco's history over the past several years of increases in
financial and operating performance, in particular Camco's strong financial
results since 1993 and the positive future outlook reflected in various
research analysts and industry reports covering Camco;
(iii) Camco's operations on a worldwide basis in approximately 50
foreign countries contributing approximately 70% of Camco's historical
revenues in recent periods;
(iv) The potential strategic effects of a combination of Camco and
Production Operators and their shared focus on being "best in class" and
providing high margin products and services for high value-added
applications to reduce customer operating cost;
(v) The historical performance of the Camco Common Stock and the
Production Operators Common Stock and the historical valuation multiples of
the two companies;
(vi) Camco's position as one of the world's leading providers of
oilfield equipment and services for numerous specialty applications in key
phases of oil and gas drilling, completion and production maintenance and
improvement;
(vii) The potential ranges of values for Production Operators as
calculated by Morgan Stanley described under "-- Opinions of Financial
Advisors -- Morgan Stanley Opinion" utilizing the methodologies described
therein;
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(viii) The focus shared by Production Operators and Camco on
production services rather than drilling, thereby reducing the volatility
of their operations and providing for a more predictable growth record than
most oilfield service companies;
(ix) The greater liquidity provided by Camco Common Stock with over 38
million shares outstanding following the Merger compared to approximately
10.2 million shares outstanding for Production Operators before the Merger,
together with expanded analyst coverage and potentially greater investor
interest;
(x) The benefits of a tax-free reorganization structure;
(xi) The potential negative impact of Camco's results being more
subject to changes in the general market for oilfield services than that of
Production Operators;
(xii) The possible dilutive effect on earnings for Camco in 1997 and
the impact of such dilution and the addition of a new business area for
Camco on the market price for the Camco Common Stock; and
(xiii) The advice of Morgan Stanley, as financial advisor to
Production Operators, that the Exchange Ratio was fair from a financial
point of view to the holders of shares of Production Operators Common
Stock.
The reasons for the Merger and the factors considered by the Board of
Directors of Production Operators as described above reflect all of the material
reasons and factors considered and discussed by the Board of Directors for
pursuing the Merger.
RECOMMENDATION OF PRODUCTION OPERATORS' BOARD OF DIRECTORS
For the reasons set forth under "-- Background of the Merger" and
"-- Production Operators' Reasons for the Merger", Production Operators' Board
of Directors believes that the terms of the Merger are fair to, and in the best
interests of, Production Operators and the holders of Production Operators
Common Stock. PRODUCTION OPERATORS' BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDED THAT THE HOLDERS OF
PRODUCTION OPERATORS COMMON STOCK VOTE "FOR" ADOPTION AND APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
In analyzing the Merger and the Merger Agreement, Production Operators'
Board of Directors was assisted and advised by Morgan Stanley, and, at the
February 27, 1997 special meeting, the Production Operators Board received an
oral opinion, subsequently confirmed in writing, from Morgan Stanley that, as of
the date of such opinion, the Exchange Ratio in the Merger was fair, from a
financial point of view, to the holders of the Production Operators Common
Stock. See "-- Opinions of Financial Advisors".
OPINIONS OF FINANCIAL ADVISORS
CSFB Opinion
CSFB has acted as financial advisor to Camco in connection with the Merger.
CSFB was selected by Camco based on CSFB's experience, expertise and familiarity
with Camco and its business. CSFB is an internationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with CSFB's engagement, Camco requested that CSFB evaluate
the fairness of the Exchange Ratio from a financial point of view. On February
27, 1997, the date on which the Merger Agreement was executed, CSFB rendered to
Camco's Board of Directors an oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated February 27, 1997) to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the Exchange Ratio was fair to Camco from a financial
point of view.
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THE FULL TEXT OF CSFB'S WRITTEN OPINION TO CAMCO'S BOARD OF DIRECTORS DATED
FEBRUARY 27, 1997, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. STOCKHOLDERS OF CAMCO ARE URGED TO READ THIS OPINION CAREFULLY IN
ITS ENTIRETY. CSFB'S OPINION IS DIRECTED TO CAMCO'S BOARD OF DIRECTORS AND
RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW TO CAMCO, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CAMCO SPECIAL MEETING. THE SUMMARY
OF THE OPINION OF CSFB SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. CSFB
HAS CONSENTED, IN THE FORM OF EXHIBIT 99.3 TO THE REGISTRATION STATEMENT ON FORM
S-4 WHICH FORMS A PART OF THIS JOINT PROXY STATEMENT/PROSPECTUS, TO THE
INCLUSION OF ITS OPINION AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AND TO THE REFERENCES TO CSFB AND THE OPINION UNDER "SUMMARY -- OPINIONS OF
FINANCIAL ADVISORS -- CAMCO", "THE MERGER -- BACKGROUND", "-- CAMCO'S REASONS
FOR THE MERGER" AND "-- OPINIONS OF FINANCIAL ADVISORS -- CSFB OPINION".
In arriving at its opinion, CSFB reviewed the Merger Agreement and certain
publicly available business and financial information relating to Camco and
Production Operators. CSFB also reviewed certain other information, including
financial forecasts provided to CSFB by Camco and Production Operators, and met
with the managements of Camco and Production Operators to discuss the businesses
and prospects of Camco and Production Operators. CSFB also considered certain
financial and stock market data of Camco and Production Operators and compared
that data with similar data for other publicly held companies in businesses
similar to those of Camco and Production Operators and considered, to the extent
publicly available, the financial terms of certain other business combinations
and other transactions recently effected. CSFB also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Camco and
Production Operators as to the future financial performance of Camco and
Production Operators. In addition, CSFB was not requested to make and did not
make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Camco or Production Operators, nor was CSFB
furnished with any such evaluations or appraisals. CSFB's opinion was
necessarily based upon information available to CSFB, and financial, economic,
market and other conditions as they existed and could be evaluated, on the date
of its opinion. CSFB did not express any opinion as to the actual value of the
Camco Common Stock when issued pursuant to the Merger or the prices at which the
Camco Common Stock will trade subsequent to the Merger. Although CSFB evaluated
the Exchange Ratio from a financial point of view, CSFB was not requested to,
and did not, recommend the specific consideration payable in the Merger, which
consideration was determined through negotiation between Camco and Production
Operators. No other limitations were imposed by Camco and CSFB with respect to
the investigations made or procedures followed by CSFB in rendering its opinion.
In preparing its opinion to Camco's Board of Directors, CSFB performed a
variety of financial and comparative analyses, including those described below.
The summary of CSFB's analyses set forth below does not purport to be a complete
description of the analyses underlying CSFB's opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. In arriving
at its opinion, CSFB made qualitative judgments as to the significance and
relevance of each analysis and factor considered by it. Accordingly, CSFB
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, CSFB made numerous
assumptions with respect to Camco, Production Operators, industry performance,
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the
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control of Camco and Production Operators. No company, transaction or business
used in such analysis as a comparison is identical to Camco or Production
Operators or the proposed Merger, nor is an evaluation of the results of such
analyses entirely mathematical; rather such analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions being analyzed. The
estimates contained in such analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. CSFB's opinion and financial analyses were only one of many factors
considered by Camco's Board of Directors in its evaluation of the proposed
Merger and should not be viewed as determinative of the views of Camco's Board
of Directors or management with respect to the Exchange Ratio or the proposed
Merger.
The following is a summary of the material analyses performed by CSFB in
connection with its opinion dated February 27, 1997:
Discounted Cash Flow Analysis. CSFB estimated the present value of
the future streams of after-tax free cash flows that Production Operators
could produce on a stand-alone basis through fiscal year 2007, based on
certain operating and financial assumptions, estimates and other
information regarding the business of Production Operators and discussed
with the managements of Production Operators and Camco as to horsepower
volume and pricing growth, both domestically and internationally, related
capital expenditures and gross margins (the "Production Operators Base
Case") and based upon revised estimates of such assumptions, estimates and
other information assuming, among other things, both lower (the "Production
Operators Downside Case") and higher (the "Production Operators Upside
Case") horsepower and pricing growth and margins than the Production
Operators Base Case. The range of terminal values was calculated by
applying multiples ranging from 7.0x to 8.0x to the projected 2007 EBITDA
of Production Operators. The free cash flow streams and estimated terminal
values were then discounted to present values using discount rates ranging
from 10% to 11%. This analysis indicated implied enterprise and per share
equity reference ranges for Production Operators of approximately $605
million to $710 million, or approximately $56.42 to $66.68 per fully
diluted common share, for the Production Operators Base Case, approximately
$480 million to $560 million, or approximately $44.59 to $52.46 per fully
diluted common share, for the Production Operators Downside Case, and
approximately $670 million to $800 million, or approximately $62.57 to
$75.20 per fully diluted common share, for the Production Operators Upside
Case. CSFB utilized the Production Operators Base Case, Production
Operators Downside Case and Production Operators Upside Case scenarios
merely as points of reference and in no way intended to suggest parameters
or forecasts as to minimum or maximum enterprise or equity valuation ranges
for Production Operators.
CSFB also performed a discounted cash flow analysis of Camco utilizing
discount rates of 10.5% to 11.5% and applying terminal multiples ranging
from 7.0x to 8.0x to Camco's 2007 EBITDA based on certain operating and
financial assumptions, estimates and other information regarding the
business of Camco and discussed and developed with the management of Camco
as to the revenue growth and operating margins of Camco's principal
business segments and capital expenditures (the "Camco Base Case") and
based upon revised estimates of such assumptions, estimates and other
information assuming, among other things, both lower (the "Camco Downside
Case") and higher (the "Camco Upside Case") segment revenue growth than the
Camco Base Case. This analysis indicated implied enterprise and per share
equity reference ranges for Camco of approximately $1.1 billion to $1.3
billion, or approximately $44.82 to $52.06 per fully diluted common share,
for the Camco Base Case, approximately $1.1 billion to $1.2 billion, or
approximately $42.13 to $48.86 per fully diluted common share, for the
Camco Downside Case, and approximately $1.5 billion to $1.8 billion, or
approximately $59.83 to $69.65 per fully diluted common share, for the
Camco Upside Case. CSFB utilized the Camco Base Case, Camco Downside Case
and Camco Upside Case scenarios merely as points of reference and in no way
intended to suggest parameters or forecasts as to minimum or maximum
enterprise or equity valuation ranges for Camco.
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Selected Companies Analysis. CSFB compared certain financial,
operating and stock market data of Production Operators and Camco to
corresponding data of selected publicly traded companies in the oilfield
service industry. Such companies included: BJ Services Company, Cooper
Cameron Corporation, Smith International, Inc., Varco International, Inc.,
Weatherford Enterra, Inc. and, in the case of evaluating Production
Operators, Camco (the "Selected Companies"). All multiples were based on
closing stock prices on February 21, 1997. This analysis indicated a range
of multiples for the Selected Companies of (i) enterprise value (equity
value plus debt minus cash) relative to calendar 1997 and 1998 EBITDA of
8.0x to 10.0x and 7.5x to 8.5x, respectively, (ii) equity value relative to
calendar 1997 and 1998 net income of 17.0x to 19.0x and 14.0x to 16.0x,
respectively, and (iii) equity value relative to after-tax cash flow (net
income plus depreciation) of 10.0x to 12.0x and 8.0x to 10.0x,
respectively. CSFB then calculated imputed enterprise and per share equity
reference ranges for Production Operators and Camco by applying these
multiples to corresponding financial data of Production Operators and
Camco. This analysis implied enterprise and per share equity reference
ranges for Production Operators of approximately $470 million to $570
million, or approximately $43.64 to $53.43 per fully diluted common share,
and implied enterprise and per share equity reference ranges for Camco of
approximately $1.0 billion to $1.2 billion, or approximately $39.56 to
$47.50 per fully diluted common share.
Selected Acquisitions Analysis. Using publicly available information,
CSFB analyzed, for purposes of evaluating Production Operators, the
purchase prices and implied transaction multiples paid in the following
selected transactions in the oilfield services industry (acquiror/target):
Daniel Industries, Inc./ Bettis Corporation; BJ Services Company/Nowsco
Well Service Ltd.; Weatherford Enterra, Inc./Energy Industries; Weatherford
International/Enterra Corporation; FMC Corporation/Moorco International;
Tidewater Inc./Halliburton Compression Services; Dresser
Industries/Wheatley TXT Corp.; Enterra Corporation/Total Energy Services
Company; Dresser Industries/Baroid Corporation; and Baker Hughes
Incorporated/Teleco Oilfield Services (collectively, the "Production
Operators Selected Transactions"). All multiples were based on historical
financial information available at the time of announcement of the
transaction. This analysis indicated a range of multiples for the
Production Operators Selected Transactions of enterprise value relative to
latest 12 months sales, EBITDA and EBIT (earnings before interest and
taxes) of 2.0x to 4.0x, 9.0x to 11.0x and 15.0x to 17.0x, respectively.
CSFB then calculated imputed enterprise and per share equity reference
ranges for Production Operators by applying these multiples to
corresponding financial data of Production Operators. This analysis
resulted in implied enterprise and per share equity reference ranges for
Production Operators of approximately $400 million to $500 million, or
approximately $37.02 to $46.81 per fully diluted common share.
Using publicly available information, CSFB also analyzed, for purposes
of evaluating Camco, the purchase prices and implied transaction multiples
paid in the following selected transactions (acquiror/ target): Halliburton
Company/Landmark Graphics Corporation; BJ Services Company/Nowsco Well
Services Ltd.; Weatherford International/Enterra Corporation; Dresser
Industries/Baroid Corporation; and Cooper Industries/Cameron Iron Works
(the "Camco Selected Transactions"). All multiples were based on historical
financial information available at the time of announcement of the
transaction. This analysis indicated a range of multiples for the Camco
Selected Transactions of enterprise value relative to latest 12 months
sales, EBITDA and EBIT of 2.0x to 2.5x, 10.0x to 12.0x and 17.0x to 20.0x,
respectively. CSFB then calculated imputed enterprise and per share equity
reference ranges for Camco by applying these multiples to corresponding
financial data of Camco. This analysis resulted in implied enterprise and
per share equity reference ranges for Camco of approximately $1.1 billion
to $1.4 billion, or approximately $43.57 to $53.49 per fully diluted common
share.
Aggregate Reference Ranges. On the basis of the valuation
methodologies employed in the analyses described above, CSFB derived an
aggregate enterprise and per share equity reference range for Production
Operators of approximately $575 million to $675 million, or approximately
$53.58 to $63.36 per fully diluted common share, and an aggregate
enterprise and per share equity reference range for Camco of approximately
$1.1 billion to $1.4 billion, or approximately $43.57 to $53.49 per fully
diluted common share. CSFB noted that, based on the closing stock price of
Camco of $41.875 on February 27,
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1997 (the date on which the Merger was announced), the Exchange Ratio
implied a per share value for Production Operators of approximately $54.55.
Exchange Ratio Analyses. CSFB also conducted the following relative
valuation analyses and compared the Exchange Ratio of 1.30 with the
exchange ratios implied by such analyses:
Historical Stock Trading Exchange Ratio Analysis. CSFB performed
an exchange ratio analysis comparing the average closing stock prices
for Production Operators Common Stock and Camco Common Stock during the
one day, one week, one month and one year periods preceding February 24,
1997. This comparison yielded an implied exchange ratio ranging from
1.0192 to 1.1396.
Discounted Cash Flow Exchange Ratio Analysis. CSFB performed an
exchange ratio analysis comparing the discounted cash flow analyses for
both companies using the Production Operators Base Case, which resulted
in a per share equity reference range of approximately $56.42 to $66.68
for Production Operators, and the Camco Base Case, which resulted in a
per share equity reference range of approximately $44.82 to $52.06 for
Camco. This comparison resulted in an implied exchange ratio ranging
from 1.0837 to 1.4877.
Aggregate Reference Range Exchange Ratio Analysis. CSFB performed
an exchange ratio analysis comparing the aggregate per share equity
reference ranges derived from the Discounted Cash Flow Analysis,
Selected Companies Analysis and Selected Acquisitions Analysis described
above of approximately $53.58 to $63.36 for Production Operators and
approximately $43.57 to $53.49 for Camco. This comparison resulted in an
implied exchange ratio ranging from 1.0017 to 1.4542.
Contribution Exchange Ratio Analysis. Using estimated calendar
1997 financial data for Production Operators and Camco, CSFB performed
an exchange ratio analysis comparing the relative contributions of
Production Operators and Camco to the revenues, EBITDA, EBIT, net income
and after-tax cash flow of the combined company. This analysis yielded
an implied exchange ratio ranging from 0.3862 to 1.1436.
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma
effect of the Merger on Camco's earnings per share ("EPS") during the
calendar years 1997 and 1998, without giving effect to any synergies that
the managements of Camco and Production Operators anticipated could result
from the Merger. This analysis indicated that, without the anticipated
synergies, the proposed Merger could be dilutive to Camco's EPS in 1997
and, to a lesser degree, in 1998. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Other Factors and Analyses. In the course of preparing its opinion,
CSFB performed certain other analyses and considered certain other
information and data, including, among other things, (i) the trading
characteristics of Camco Common Stock and Production Operators Common
Stock, (ii) the profile of the stockholders of Production Operators and
Camco and (iii) equity research coverage of Production Operators and Camco
provided by securities analysts.
Miscellaneous. Pursuant to the terms of CSFB's engagement, Camco has
agreed to pay CSFB for its services in connection with the proposed Merger
an aggregate financial advisory fee of up to $2.5 million. Camco also has
agreed to reimburse CSFB for reasonable out-of-pocket expenses incurred by
CSFB in performing its services, including the reasonable fees and expenses
of legal counsel and any other advisor retained by CSFB, and to indemnify
CSFB and certain related persons and entities against certain liabilities,
including liabilities under the federal securities laws, arising out of
CSFB's engagement. CSFB currently is providing financial advisory services
to Camco unrelated to the Merger, for which services CSFB will receive
compensation.
In the ordinary course of its business, CSFB and its affiliates may
actively trade the debt and equity securities of both Camco and Production
Operators for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such
securities.
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Morgan Stanley Opinion
Production Operators retained Morgan Stanley to act as its financial
advisor in connection with the Merger. Morgan Stanley is an internationally
recognized investment banking firm and was selected by Production Operators
based on Morgan Stanley's experience and expertise. On February 26, 1997, Morgan
Stanley rendered to Production Operators' Board of Directors an oral opinion to
the effect that, as of such date and based on and subject to certain matters
stated therein, the Exchange Ratio was fair from a financial point of view to
the holders of shares of Production Operators Common Stock. Morgan Stanley
subsequently confirmed its oral opinion by delivery of a written opinion dated
February 27, 1997.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED FEBRUARY 27, 1997
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED WITH LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
PRODUCTION OPERATORS COMMON STOCK ARE URGED TO, AND SHOULD, READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. MORGAN STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS
OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF
PRODUCTION OPERATORS COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF PRODUCTION
OPERATORS COMMON STOCK AS TO HOW TO VOTE AT THE PRODUCTION OPERATORS SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at this opinion, Morgan Stanley: (i) reviewed certain publicly
available financial statements and other information of Camco (ii) reviewed
certain internal financial statements and operating data concerning Camco
prepared by the management of Camco; (iii) analyzed certain financial
projections prepared by the management of Camco; (iv) discussed the past and
current operations and financial condition and the prospects of Camco with
senior executives of Camco; (v) reviewed certain publicly available financial
statements and other information of Production Operators; (vi) reviewed certain
internal financial statements and other financial and operating data concerning
Production Operators prepared by the management of Production Operators; (vii)
analyzed certain financial projections prepared by the management of Production
Operators; (viii) discussed the past and current operations and financial
condition and the prospects of Production Operators with senior executives of
Production Operators, and analyzed the pro forma impact of the Merger on Camco's
earnings per share, consolidated capitalization and financial ratios; (ix)
reviewed the reported prices and trading activity for the Camco Common Stock and
the Production Operators Common Stock; (x) compared the financial performance of
Camco and the prices and trading activity of the Camco Common Stock and the
Production Operators Common Stock with that of certain other comparable publicly
traded companies and their securities; (xi) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions; (xii)
reviewed and discussed with the senior management of Production Operators and
Camco the strategic rationale for the Merger and the synergies and other
benefits of the Merger to Camco; (xiii) participated in discussions and
negotiations among representatives of Camco and Production Operators and their
financial and legal advisors; (xiv) reviewed the Merger Agreement and certain
related documents; and (xv) performed such other analyses and considered such
other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of Production Operators and Camco. Morgan Stanley
also relied upon, without independent verification, estimates by the management
of Production Operators of the cost savings and other synergies arising from the
Merger. In addition, Morgan Stanley assumed that the Merger will be consummated
in accordance with the terms set forth in the Merger Agreement, including among
other things, that the Merger will be accounted for as a "pooling-of-interests"
business combination in accordance with U.S. generally accepted accounting
principles. Morgan Stanley's opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to
Morgan Stanley as of, the date thereof.
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The following is a brief summary of all the material analyses performed by
Morgan Stanley and reviewed with the Production Operators Board of Directors on
February 26, 1997 in connection with Morgan Stanley's presentation and opinion
to the Production Operators Board of Directors on such date:
Production Operators Common Stock Performance. Morgan Stanley's
analysis of the Production Operators Common Stock performance consisted of:
a historical analysis of closing prices and trading volumes from December
10, 1993 (the date of the initial public offering of Camco Common Stock) to
February 21, 1997; Production Operators' indexed price performance from
December 10, 1993 to February 21, 1997 relative to the S&P 400, relative to
Camco and relative to a Comparable Index, which included BJ Services
Company and Smith International, Inc. In the twelve months ended February
21, 1997, the shares reached a high of $56.00 per share and a low of $29.50
per share.
Camco Common Stock Performance. Morgan Stanley's analysis of the
Camco Common Stock performance consisted of: a historical analysis of
closing prices and trading volumes from December 10, 1993 to February 21,
1997; Camco's indexed price performance from December 10, 1993 to February
21, 1997 relative to the S&P 400, relative to Production Operators and
relative to a Comparable Index, which included BJ Services Company, Baker
Hughes Inc., Dresser Industries Inc., Schlumberger Limited and Smith
International, Inc. In the twelve months ended February 21, 1997, the
shares of Camco Common Stock reached a high of $51.25 per share and low of
$27.88 per share.
Comparable Publicly Traded Company Analysis. As part of its analysis,
Morgan Stanley compared certain financial information of Production
Operators and Camco with that of their respective group of comparable
publicly traded oilfield service companies. The group of comparable
companies used for Camco included: BJ Services Company and Smith
International, Inc. (collectively, the "Camco Oilfield Service
Comparables"). The group of comparable companies used for Production
Operators included Dreco Energy Services, Drilex Corporation, ICO, Inc.,
National-Oilwell Inc. and Oceaneering International (the "POI Oilfield
Service Comparables"). The financial information reviewed included stock
price to earnings per share ("EPS") for the latest twelve month period
ended September 30, 1996 ("LTM"), forecasted 1997 EPS multiples and
forecasted 1998 EPS multiples based on estimates provided by International
Brokers Estimate System ("IBES"), and aggregate value to LTM EBITDA
multiples. Morgan Stanley noted that, based on IBES earnings estimates as
of February 14, 1997, the Camco Oilfield Service Comparables traded in a
range of 28.9 to 41.2 times LTM earnings, 18.1 to 19.4 times 1997
forecasted earnings and 14.9 to 15.3 times 1998 forecasted earnings. The
Camco Oilfield Service Comparables traded in a range of 14.4 to 17.1 times
LTM EBITDA. The equivalent earnings multiples for Camco were 22.0x LTM
earnings, 19.2x 1997 forecasted earnings and 16.7x forecasted 1998
earnings. The equivalent EBITDA multiple for Camco was 9.7x LTM EBITDA.
With respect to Production Operators, Morgan Stanley noted that based on
IBES earnings estimates as of February 14, 1997, the POI Oilfield Service
Comparables traded in a range of 13.4 to 28.4 times LTM earnings, 14.7 to
22.9 times 1997 forecasted earnings and 12.5 to 17.8 times 1998 forecasted
earnings. The POI Oilfield Service Comparables traded in a range of 4.5 to
27.4 times LTM EBITDA. The equivalent earnings multiple for Production
Operators were 28.1x LTM earnings, 22.0x 1997 forecasted earnings and 17.2x
forecasted 1998 earnings. Production Operators traded at 11.5x LTM EBITDA.
Based on the February 21, 1997 closing share price of Camco Common Stock of
$43.25 and a 1.3 exchange ratio, the equivalent multiples for Production
Operators were 33.4 times LTM earnings, 26.2 times 1997 forecasted earnings
and 20.5 times forecasted 1998 earnings. In addition, the Merger implies a
13.6 times LTM EBITDA multiple for Production Operators.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted
cash flow analysis of Production Operators and Camco based on certain
financial projections provided by the managements of Production Operators
and Camco for the period 1997 through 2001 using assumptions as to
horsepower volume and pricing growth, both domestically and
internationally, related capital expenditures and gross margins. Unlevered
free cash flows were calculated as net income available to common
stockholders plus the aggregate of depreciation and amortization, deferred
taxes, and other non-cash expenses and after-tax net interest expense less
the sum of capital expenditures and investment in non-cash working capital.
Morgan Stanley calculated terminal values by applying a perpetual growth
rate to an unlevered cash flow
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in fiscal 2001 and the cash-flow streams and terminal values were then
discounted to the present using a range of discount rates representing an
estimated range of the weighted average cost of capital for Production
Operators and Camco. Based on this analysis, Morgan Stanley calculated per
share values for Production Operators ranging from $38.00 to $50.00 and per
share values for Camco ranging from $47.00 to $59.00 per share.
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the following proposed or completed
transactions constituting acquisitions in the oilfield service sector: BJ
Services Company acquisition of Western Company of North America, Tidewater
acquisition of Halliburton Co.'s natural gas compression division,
Tidewater acquisition of Hornbeck Offshore Services Inc., Weatherford
International Inc.'s acquisition of Enterra Corp., BJ Services Company's
acquisition of Nowsco Well Service and Halliburton Co.'s acquisition of
Landmark Graphics Corp. The LTM EBITDA multiples for these transactions
ranged from 8.0 to 10.0 and the LTM Earnings multiple ranged from 17.5 to
19.0. Based on this analysis, Morgan Stanley calculated per share values
for Production Operators ranging from $32.00 to $44.00.
No transaction utilized in the comparable transaction analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of
Production Operators and Camco and other factors that could affect the
acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or median) is not
itself a meaningful method of using comparable transaction data.
Historical Exchange Ratio Analysis. Morgan Stanley analyzed the
historical exchange ratio between the Production Operators Common Stock and
the Camco Common Stock over several time periods. For each time period
selected, the high, average and low exchange ratios were calculated. The
time periods selected for analysis were as follows: December 10, 1993 to
February 21, 1997, last one year, last six months and closing price on
February 21, 1997 (for which only one exchange ratio was calculated). The
average exchange ratio for each aforementioned time period was 1.231,
1.019, 1.034 and 1.143, respectively. Morgan Stanley observed that the 1.30
exchange ratio reflected a premium to the ratio of Production Operators to
Camco Common Stock prices over various periods during the previous twelve
months.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro
forma impact of the Merger on Camco's earnings per share for the projected
fiscal years 1997 through 2000. The analysis was performed utilizing
stand-alone earnings estimates for the fiscal years ended 1997 through 2000
for Production Operators and Camco based on certain financial projections
prepared by the respective managements of each company described above as
well as IBES earnings estimates. Based on the management projections, the
Merger would be mildly dilutive to Camco's earnings for fiscal year 1997
and neutral to accretive in fiscal year 1998.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any analysis
or factor considered by it. Furthermore, selecting any portion of the analysis,
without considering all of the analyses, would create an incomplete view of the
process underlying its opinion. In addition, Morgan Stanley may have given
various analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of Production Operators and Camco.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual value, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness of the Exchange Ratio from a financial point of view to
holders of Production Operators Common Stock and were provided to the Production
Operators Board of
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Directors in connection with the delivery of Morgan Stanley's written opinion
dated February 27, 1997 confirming its oral opinion of February 26, 1997. The
analyses do not purport to be appraisals or to reflect the prices at which
Production Operators might actually be sold. Because such estimates are
inherently subject to uncertainty, none of Production Operators, Morgan Stanley
or any other person assumes responsibility for their accuracy. In addition, as
described above, Morgan Stanley's opinion and presentation to the Production
Operators Board of Directors was one of many factors taken into consideration by
the Production Operators Board of Directors in making its determination to
approve the Merger. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the Production Operators
Board of Directors or the view of the management of Camco with respect to the
value of Camco or of whether the Production Operators Board of Directors or the
management of Camco would have been willing to agree to a different exchange
ratio.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for estate, corporate and other purposes. In the ordinary course of
its business, Morgan Stanley and its affiliates may actively trade the debt and
equity securities of Production Operators and Camco for their own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities. In the past, Morgan Stanley and its
affiliates have provided financing services for Camco and have received fees for
the rendering of these services.
Morgan Stanley has been retained by Production Operators to act a financial
advisory to Production Operators with respect to the Merger. Pursuant to a
letter agreement dated June 12, 1996 between Production Operators and Morgan
Stanley, Morgan Stanley is entitled to (i) an advisory fee of between $150,000
and $250,000 (based on their time and efforts expended), plus expenses (this fee
to be credited against the transaction fee described below), which is payable in
the event the transaction is not consummated, and, (ii) a transaction fee (the
"Transaction Fee") equal to a variable percentage of the aggregate value paid by
Camco for Production Operators ranging from 0.533% if the total value of the
Camco Common Stock to be issued in the Merger (based on the average per share
market value of the Camco Common Stock for the ten days immediately prior to the
Merger) is $750 million or more to 0.850% if the total market value of the Camco
Common Stock to be issued in the Merger as so calculated is $350 million or
less, with the specific fee to be based on an interpolation of such amounts.
Based upon the $48 1/4 per share closing price of Camco Common Stock on May 12,
1997, such aggregate value would have been approximately $685 million and Morgan
Stanley's transaction fee would have been $3.87 million. Any amounts paid or
payable to Morgan Stanley other than the Transaction Fee will be credited
against the Transaction Fee. Production Operators has also agreed to reimburse
Morgan Stanley for its expenses, and to indemnify Morgan Stanley and its
affiliates against certain liabilities and expenses, including liabilities under
federal securities laws.
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TERMS OF THE MERGER
The detailed terms and conditions to the consummation of the Merger are
contained in the Merger Agreement, which is attached as Appendix A to this Joint
Proxy Statement/Prospectus and incorporated herein by reference. The following
discussion sets forth a description of the material terms and conditions of the
Merger Agreement. The description in this Joint Proxy Statement/Prospectus of
the terms and conditions to the consummation of the Merger is qualified by, and
made subject to, the more complete information set forth in the Merger
Agreement.
EFFECTIVE TIME OF THE MERGER
Under the terms of the Merger Agreement, the Merger will become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such other time as Camco and Production
Operators shall agree should be specified in the Certificate of Merger. It is
anticipated that, if the Merger Agreement is approved at the Camco Special
Meeting and the Production Operators Special Meeting and all other conditions to
the Merger have been satisfied or waived, the Effective Time will occur on the
date of the Special Meetings or as soon as practicable thereafter.
MANNER AND BASIS OF CONVERTING SHARES
The Merger Agreement provides that, at the Effective Time, each issued and
outstanding share of Production Operators Common Stock, other than shares held
by any wholly owned subsidiary of Production Operators or by Camco or any wholly
owned subsidiary of Camco (which shares will be canceled at the Effective Time
and no payment shall be made with respect thereto), will be converted into the
right to receive 1.30 shares of Camco Common Stock, together with the associated
Rights.
As soon as practicable following the Effective Time, Camco will cause The
Bank of New York, which will act as Exchange Agent for the Production Operators
Common Stock, to mail to each holder of record of Production Operators Common
Stock immediately prior to the Effective Time, a letter of transmittal and other
information advising such holder of the consummation of the Merger and for use
in exchanging Production Operators Common Stock certificates for Camco Common
Stock certificates and cash in lieu of fractional shares. Letters of transmittal
also will be available following the Effective Time at the offices of the
Exchange Agent. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY
STOCKHOLDERS OF PRODUCTION OPERATORS PRIOR TO APPROVAL OF THE MERGER AND THE
RECEIPT OF A LETTER OF TRANSMITTAL.
No fraction of a share of Camco Common Stock will be issued in the Merger.
Each stockholder of Production Operators otherwise entitled to a fraction of a
share will, upon surrender of Production Operators Common Stock certificates
held by such holder, be paid an amount in cash equal to the value of such
fractional share based upon the closing sale price per share of Camco Common
Stock on the NYSE on the first trading day immediately preceding the Effective
Time. Alternatively, Camco and Sub have the option of instructing the Exchange
Agent to aggregate all fractional shares of Camco Common Stock, sell such Camco
Common Stock in the open market and distribute to holders of fractional shares
of Camco Common Stock a pro rata percentage of the proceeds from such sale. No
interest will be paid on such amount. All shares of Production Operators Common
Stock held by a record holder shall be aggregated for purposes of computing the
number of shares of Camco Common Stock to be issued in the Merger.
Until such time as a holder of Production Operators Common Stock surrenders
his or her outstanding stock certificate to the Exchange Agent, together with
the executed letter of transmittal, the shares of Production Operators Common
Stock represented thereby will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of earlier dividends and
distributions, to represent only the right to receive the number of full shares
of Camco Common Stock and cash in lieu of fractional shares, if any, into which
such shares of Production Operator Common Stock shall have been converted.
Unless and until such outstanding certificates are surrendered, no dividends or
other distributions payable to the holders of Camco Common Stock, as of any time
on or after the Effective Time, will be paid to the holders of such outstanding
certificates. Upon surrender of the certificates previously representing
Production Operators Common Stock, the holder thereof will receive certificates
representing the number of shares of Camco
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Common Stock to which he is entitled, cash in lieu of fractional shares, and the
amount of any dividends or other distributions, if any, payable to holders of
Camco Common Stock on or after the Effective Time with respect to such shares,
without interest thereon.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the respective obligations of Camco and
Production Operators to effect the Merger are subject to the satisfaction or
waiver of the following conditions: (i) that the Merger Agreement and the Merger
shall have been approved and adopted by the requisite vote of the stockholders
of Camco and the stockholders of Production Operators; (ii) that the Camco
Common Stock issuable to the Production Operators stockholders in the Merger
shall have been approved for listing on the NYSE, subject to official notice of
issuance; (iii) that the waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or been
terminated; (iv) that no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; (v) that the Registration Statement shall be effective on the
Closing Date, and all post-effective amendments filed shall have been declared
effective or shall have been withdrawn, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the parties, threatened by the
Commission; and (vi) that there shall have been obtained any and all material
permits, approvals and consents of securities or blue sky authorities of any
jurisdiction as are necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance with applicable laws,
the failure to comply with which would have a material adverse effect on the
business, financial condition or results of operations of Camco and its
subsidiaries, taken as a whole.
The Merger Agreement provides that the obligation of Camco to effect the
Merger is, at the option of Camco, further subject to the satisfaction or waiver
of the following conditions: (i) the agreements and covenants of Production
Operators to be complied with or performed on or before the Closing Date
pursuant to the Merger Agreement shall have been duly complied with or performed
in all material respects; (ii) Production Operators shall have furnished Camco
with certified resolutions of its Board of Directors and stockholders approving
the Merger and an opinion of Vinson & Elkins L.L.P., counsel for Production
Operators, as to certain corporate matters of Production Operators; (iii) the
representations and warranties of Production Operators contained in the Merger
Agreement (other than those made as of a specific date) shall be true in all
material respects (except to the extent the representation or warranty is
already qualified by materiality, in which case it shall be true in all
respects) on and as of the Closing Date; (iv) Camco shall have received from the
"affiliates" of Production Operators, within the meaning of Rules 144 and 145(c)
under the Securities Act, written undertakings to the effect that no disposition
will be made by such persons of any shares of Camco Common Stock received
pursuant to the Merger except in compliance with the applicable provisions of
the Securities Act and the rules and regulations thereunder and that no shares
will be sold until such time that final results of Camco covering at least 30
days of combined operations of Camco and Production Operators have been
published; (v) Camco shall have received an opinion of Fulbright & Jaworski
L.L.P., counsel to Camco, to the effect that for federal income tax purposes and
conditioned upon certain representations of managements of Production Operators
and Camco as to certain customary facts and circumstances regarding the Merger:
(a) the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code and (b) no gain or loss will be recognized by Production
Operators, Sub or Camco as a result of the Merger; (vi) Camco and Production
Operators shall have received a letter from Arthur Andersen LLP to the effect
that the Merger should be accounted for as a pooling of interests under
generally accepted accounting principles and applicable regulations of the
Commission; (vii) Camco shall have received evidence that all approvals of
governmental authorities and other third parties necessary for the consummation
of the Merger have been obtained, except those that are not, individually or in
the aggregate, material to Camco or Production Operators or the failure of which
to have been received would not materially detract from the aggregate benefits
to Camco of the transactions reasonably contemplated by the Merger Agreement;
(viii) there shall not be pending or threatened by any governmental entity any
suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of
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success), (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by the Merger Agreement
or seeking to obtain from Camco or any of its subsidiaries any damages that are
material in relation to Camco and its subsidiaries taken as a whole, (b) seeking
to prohibit or limit the ownership or operation by Camco, Production Operators
or any of their respective subsidiaries of any material portion of their
business or assets, or to dispose of or hold separate any material portion of
their business or assets, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement, (c) seeking to impose
limitations on the ability of Camco or Sub to acquire or hold, or exercise full
rights of ownership as to, any shares of Common Stock of the Surviving
Corporation, including the right to vote such shares on all matters properly
presented to the stockholders of the Surviving Corporation or (d) seeking to
prohibit Camco or any of its subsidiaries from effectively controlling in any
material respect the business or operations of Production Operators or its
subsidiaries; (ix) the fairness opinion from CSFB shall not have been revoked or
modified in a materially adverse manner; and (x) there shall not have occurred
any material adverse change with respect to Production Operators since the date
of the Merger Agreement.
The Merger Agreement provides that the obligation of Production Operators
to effect the Merger is, at the option of Production Operators, further subject
to the satisfaction or waiver of the following conditions: (i) the agreements
and covenants of Camco to be complied with or performed on or before the Closing
Date pursuant to the Merger Agreement shall have been duly complied with or
performed in all material respects; (ii) Camco shall have furnished Production
Operators with certified resolutions of its Board of Directors and stockholders
approving the Merger and an opinion of Fulbright & Jaworski L.L.P., counsel for
Camco, as to certain corporate matters of Camco; (iii) the representations and
warranties of Camco contained in the Merger Agreement (other than those made as
of a specific date) shall be true in all material respects (except to the extent
the representation or warranty is already qualified by materiality, in which
case it shall be true in all respects) on and as of the Closing Date; (iv)
Production Operators shall have received an opinion of Vinson & Elkins L.L.P.,
counsel to Production Operators, to the effect that for federal income tax
purposes and conditioned upon certain representations of managements of Camco
and Production Operators as to certain customary facts and circumstances
regarding the Merger: (a) the Merger will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code; (b) each of Camco, Sub and Production
Operators are parties to the reorganization with the meaning of Section 368(a)
of the Code; and (c) no gain or loss will be recognized by the holders of the
Production Operators Common Stock as a result of the Merger; (v) the fairness
opinion from Morgan Stanley shall not have been revoked or modified in a
materially adverse manner; (vi) there shall not have occurred any material
adverse change with respect to Camco since the date of the Merger Agreement;
(vii) Camco and Production Operators shall have received a letter from Arthur
Andersen LLP to the effect that the Merger should be accounted for as a pooling
of interests under generally accepted accounting principles and applicable
regulations of the Commission; (viii) Production Operators shall have received
evidence that all approvals of governmental authorities and other third parties
necessary for the consummation of the Merger have been obtained, except those
that are not, individually or in the aggregate, material to Camco and its
subsidiaries taken as a whole; and (ix) there shall not be pending or threatened
by any governmental entity any suit, action or proceeding challenging or seeking
to restrain or prohibit the consummation of the Merger or any of the
transactions contemplated by the Merger Agreement.
The various conditions to the obligations of Camco and Production Operators
to consummate the Merger may be waived by the party to which such conditions are
applicable subject to such restrictions as may exist under law that would
prohibit the consummation of the Merger notwithstanding such waiver. Such
conditions that could not be waived by law or without a material violation of
law are (i) the requirements of stockholder approval by Camco and Production
Operators, (ii) the expiration or termination of the waiting period under the
HSR Act and (iii) the effectiveness of the Registration Statement on the Closing
Date. In addition, neither Camco nor Production Operators contemplate waiving
any of the conditions relating to (i) the receipt of legal or tax opinions, (ii)
the receipt of the letters from Arthur Andersen LLP that the Merger should be
accounted for as a pooling of interests or (iii) the absence of any revocation
of modification in a material adverse manner of the fairness opinions of CSFB or
Morgan Stanley.
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REPRESENTATIONS AND WARRANTIES OF CAMCO AND PRODUCTION OPERATORS
Under the Merger Agreement, Camco and Production Operators have made
various representations and warranties relating to, among other things, their
respective businesses and financial conditions, the accuracy of their various
filings with the Commission and their financial statements contained therein,
the status of various employee benefit plans, tax and environmental matters, the
satisfaction of certain legal requirements for the Merger and the existence of
certain litigation. The representations and warranties of each of the parties to
the Merger Agreement will expire upon consummation of the Merger.
CONDUCT OF BUSINESS OF PRODUCTION OPERATORS AND CAMCO PRIOR TO MERGER
Pursuant to the Merger Agreement, Production Operators agreed that, prior
to the Effective Time, other than as expressly contemplated by the Merger
Agreement, Production Operators shall and shall cause its subsidiaries to carry
on their respective businesses in the usual, regular and ordinary course in
substantially the same manner as previously conducted and use all reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
them, in each case consistent with past practice, to the end that their goodwill
and ongoing businesses shall be unimpaired to the fullest extent possible at the
Effective Time. Production Operators also agreed that it would not, and would
not permit any of its subsidiaries to, (i) (a) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock, other than (A) dividends and distributions by any direct or indirect
wholly owned subsidiary of Production Operators to Production Operators or a
wholly owned subsidiary of Production Operators or (B) regular quarterly cash
dividends in an amount not greater than $.07 per share declared or paid by
Production Operators consistent with past practices (provided that any such
quarterly cash dividend is declared and paid in coordination with Camco's
payment of its regular dividend on Camco Common Stock so that, in respect of any
calendar quarter, the holders of Production Operators Common Stock (x) will
receive a dividend either in respect of their shares of Production Operator
Common Stock or Camco Common Stock issuable to them in the Merger and (y) will
not receive a dividend on both Production Operators Common Stock held by them
and the Camco Common Stock issuable to them in the Merger), (b) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of its capital stock or (c) purchase, redeem or
otherwise acquire any shares of capital stock of Production Operators or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities other than in connection
with the exercise of outstanding stock options and satisfaction of withholding
obligations under outstanding stock options and restricted stock; (ii) issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities (other than the issuance of Production Operators Common
Stock upon the exercise of stock options outstanding on the date of the Merger
Agreement); (iii) amend its Certificate of Incorporation, By-laws or other
comparable charter or organizational document; (iv) acquire or agree to acquire
(a) by merging or consolidating with, or by purchasing a substantial portion of
the stock or assets of, or by any other manner, any business or any corporation,
partnership, association, joint venture, limited liability company or other
entity or division thereof or (b) any assets that, in each case, would be
material, individually or in the aggregate, to Production Operators, except
purchases in the ordinary course of business consistent with past practice; (v)
sell, lease, mortgage, pledge, grant a Lien on or otherwise encumber or dispose
of any of its properties or assets, except (a) sales or leases in the ordinary
course of business consistent with past practice and (b) other immaterial
transactions not in excess of $2,000,000 in the aggregate; (vi) (a) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of Production Operators, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for working capital
borrowings under currently existing revolving credit facilities incurred in the
ordinary course of business, or (b) make any loans, advances or capital
contributions to, or investments in, any other person that would be material,
individually or in the aggregate, to Production Operators and its subsidiaries
taken as a whole, other than to Production Operators or a wholly owned
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subsidiary of Production Operators; (vii) make or incur any new capital
expenditure (other than purchases in the ordinary course of business), which,
singly or in the aggregate with all other such expenditures, would exceed
$2,000,000; (viii) make any material election relating to taxes or settle or
compromise any material tax liability; (ix) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of Production Operators included in its Commission filings or incurred
in the ordinary course of business consistent with past practice; (x) waive the
benefits of, or agree to modify in any manner, any confidentiality, standstill
or similar agreement to which it is a party; (xi) adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such a
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or reorganization; (xii) enter into any new collective
bargaining agreement; (xiii) change any material accounting principle used by
it, except as required by regulations promulgated by the Commission; (xiv)
settle or compromise any litigation other than settlements or compromises: (A)
of litigation where the amount paid in settlement or compromise does not exceed
$100,000, or (B) in consultation and cooperation with Camco, and, with respect
to any such settlement, with the prior written consent of Camco, which shall not
be unreasonably withheld; (xv) except for those contracts and agreements entered
into in the ordinary course of business with the consent of Camco, which consent
shall not be unreasonably withheld, enter into any contract or agreement that if
in existence on the date of the Merger Agreement would be required to be
scheduled in the Merger Agreement; (xvi) adopt or amend (except as may be
required by law) any employee benefit plan, agreement, trust, fund or other
arrangement, for the benefit or welfare of any employee, director or former
director or employee, increase the compensation or fringe benefits of any
officer of Production Operators or any of its subsidiaries, or, except as
provided in an existing Production Operators Plan or in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any employee or former employee or pay any benefit not required by
any existing plan, arrangement or agreement; (xvii) grant any new or modified
severance or termination arrangement or increase or accelerate any benefits
payable under its severance or termination pay policies in effect on the date of
the Merger Agreement; (xviii) authorize any of, or commit to take, any of the
foregoing actions, or (xix) take any action that would, or could reasonably be
expected to, result in any of the representations and warranties of Production
Operators set forth in the Merger Agreement becoming untrue.
Pursuant to the Merger Agreement, Camco agreed that, prior to the Effective
Time, other than as expressly contemplated by the Merger Agreement, (i) Camco
shall and shall cause each of its "significant subsidiaries" (as that term is
defined in the regulations promulgated under the Exchange Act) to carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as previously conducted; and (ii) Camco shall not, and shall not
permit any of its significant subsidiaries to, (a) (1) declare, set aside or pay
any dividends on, or make any other distributions in respect of, any of its
capital stock, other than dividends and distributions by any direct or indirect
wholly owned subsidiary of Camco to Camco or a wholly owned subsidiary of Camco
or regular quarterly cash dividends declared or paid by Camco consistent with
past practice, (2) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of its
capital stock or (3) purchase, redeem or otherwise acquire any shares of capital
stock of Camco or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities other
than in connection with exercise of outstanding stock options and satisfaction
of withholding obligations under outstanding stock options and restricted stock;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities other than (1) the issuance of Camco Common Stock upon
the exercise of stock options outstanding on the date of the Merger Agreement in
accordance with their current terms, or (2) the issuance of a number of shares
of Camco Common Stock, not to exceed 5% of the shares outstanding on the date of
the Merger Agreement, in connection with the acquisition of assets or equity
securities of other entities or businesses; (c) acquire or agree to acquire any
business, corporation, partnership, association, joint venture, limited
liability company or other entity or division thereof involving the payment of
consideration in excess of $200,000,000 without the consent of
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Production Operators, which consent shall not be unreasonably withheld; (d)
amend its Certificate of Incorporation, By-laws, or other comparable charter or
organizational document; (e) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or reorganization; (f)
change any material accounting principle used by it, except as required by
regulations promulgated by the Commission; (g) authorize any of, or commit or
agree to take any of, the foregoing actions; or (h) take any action that would,
or could reasonably be expected to, result in any of the representations and
warranties of Camco or Sub set forth in the Merger Agreement becoming untrue.
CONDUCT OF BUSINESS OF THE COMBINED COMPANY FOLLOWING MERGER; MANAGEMENT
Sub will cease to exist after the Merger and Production Operators will
continue as a wholly owned subsidiary of Camco. Pursuant to the Merger
Agreement, the Certificate of Incorporation of Production Operators, as amended
by the Merger Agreement, will be the Certificate of Incorporation of the
Surviving Corporation, and the By-laws of Sub will be the By-laws of the
Surviving Corporation. Camco has agreed under the Merger Agreement that, at the
effective time of the Merger, the Board of Directors of Camco will elect one
person to be mutually agreed upon the by the Chairman of the Board of Camco and
the Chairman of the Board of Production Operators to serve on the Board of
Directors of Camco. This director will serve as a Class III director of Camco
and will serve until the annual meeting of Camco's stockholders to be held in
1999. In addition, under the terms of the Merger Agreement, Camco has agreed to
appoint Mr. Knobloch to serve as an advisory non-voting director of Camco for a
term expiring at the Annual Meeting of Camco's shareholders to be held in the
year 2000. Mr. Knobloch will have full rights to notice of and to attend all
meetings of the Board of Directors of Camco and to reimbursement of expenses
attendant thereto as if he were a director of Camco. At the end of his term, Mr.
Knobloch will be entitled to be considered by the directors of Camco for
election as a regular director of Camco.
NO SOLICITATION BY PRODUCTION OPERATORS; PAYMENTS IN THE EVENT OF CERTAIN
TAKEOVER PROPOSALS
The Merger Agreement provides that Production Operators will not, and will
not permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any investment banker, attorney or other
advisor, agent or representative of Production Operators or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any takeover proposal, (ii) enter into any agreement (other than
confidentiality and standstill agreements in accordance with the immediately
following proviso) with respect to any takeover proposal, or (iii) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any takeover proposal; provided that, in the case of clause
(iii), prior to the vote of stockholders of Production Operators for approval of
the Merger and to the extent required by the fiduciary obligations of the Board
of Directors of Production Operators, determined in good faith by a majority of
the disinterested members thereof based on the advice of outside counsel,
Production Operators may, in response to an unsolicited request therefor,
furnish information to any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) pursuant to a confidentiality agreement on
substantially the same terms as a confidentiality agreement with Camco,
including the standstill provisions thereof. "Takeover proposal" is defined in
the Merger Agreement as (i) any proposal, other than a proposal by Camco or its
affiliates, for a merger or other business combination involving Production
Operators, (ii) any proposal or offer, other than a proposal or offer by Camco
or its affiliates, to acquire from Production Operators or any of its affiliates
in any manner, directly or indirectly, an equity interest in Production
Operators or any subsidiary, any voting securities of Production Operators or
any subsidiary or a material amount of the assets of Production Operators and
its subsidiaries, taken as a whole, or (iii) any proposal or offer, other than
by Camco or its affiliates, to acquire from the stockholders of Production
Operators, by tender offer, exchange offer or otherwise, more than 15% of the
outstanding shares of Production Operators Common Stock. Notwithstanding the
foregoing, Production Operators may engage in discussions with any person or
group that has made an unsolicited takeover proposal for the limited purpose of
determining whether such proposal is a superior proposal (as hereinafter
defined). In addition, Production
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Operators may take and disclose to its stockholders a position contemplated by
Rule 14e-2(a) of the Exchange Act following Production Operators receipt of a
Notice of Superior Proposal (hereinafter defined).
The Merger Agreement also provides that neither the Board of Directors of
Production Operators nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Camco the approval or
recommendation by the Board of Directors of Production Operators or any such
committee of the Merger Agreement or the Merger or take any action having such
effect or (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal, except in connection with the termination of the Merger
Agreement by reason of mutual consent by Camco and Production Operators or by
reason of the failure of the stockholders of Production Operators or Camco to
approve the Merger or if the Merger Agreement is terminated because a court of
competent jurisdiction or governmental authority shall have issued an order,
decree or ruling firmly enjoining, restraining or otherwise prohibiting the
Merger by reason of the Merger not being consummated on or before August 31,
1997 (other than by reason of a material breach of the Merger Agreement by the
parties seeking to terminate the Merger Agreement).
Notwithstanding the foregoing, in the event the Board of Directors of
Production Operators receives a takeover proposal that, in the exercise of its
fiduciary obligations (as determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel), it
determines to be a superior proposal, the Board of Directors may withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger and
may (subject to the following sentence) terminate the Merger Agreement, in each
case at any time after midnight on the third business day following Camco's
receipt of written notice (a "Notice of Superior Proposal") advising Camco that
the Board of Directors of Production Operators has received a takeover proposal
which it has determined to be a superior proposal, specifying the material terms
and conditions of such superior proposal (including the proposed financing for
such proposal and a copy of any documents conveying such proposal) and
identifying the person making such superior proposal. Production Operators may
also terminate the Merger Agreement pursuant to the preceding sentence only if
the stockholders of Production Operators have not voted upon the Merger and
Production Operators shall have paid to Camco $15,000,000. Any of the foregoing
to the contrary notwithstanding, Production Operators may engage in discussions
with any person or group that has made an unsolicited takeover proposal for the
limited purpose of determining whether such proposal (as opposed to any further
negotiated proposal) is a superior proposal.
In addition, if the Merger Agreement is terminated for any reason other
than a material breach by Camco or Sub, Production Operators has agreed to pay
to Camco $15,000,000 if (i) after the date of the Merger Agreement and before
the termination of the Merger Agreement a takeover proposal is made and publicly
announced by any person or group of persons (an "Acquiring Person"), (ii) the
holders of shares of Production Operators Common Stock do not approve the Merger
and (iii) after the date of the Merger Agreement and at or prior to six months
after the date of termination of the Merger Agreement, the Acquiring Person or
any Affiliate of the Acquiring Person effects an Alternative Transaction (as
defined below). An Alternative Transaction is defined to mean (i) any merger or
other business combination involving Production Operators, (ii) any acquisition
from Production Operators or any subsidiary of Production Operators of 15% of
the voting securities of Production Operators or any subsidiary or material
amount of assets of Production Operators and its subsidiaries, taken as a whole,
(iii) any acquisition from the stockholders of Production Operators by tender
offer, exchange offer or otherwise of more than 15% of the outstanding shares of
Production Operators Common Stock.
The Merger Agreement defines a "superior proposal" as any bona fide
takeover proposal to acquire, directly or indirectly, for consideration
consisting of cash, securities or a combination thereof, all of the shares of
Production Operators Common Stock then outstanding or all or substantially all
the assets of Production Operators, and otherwise on terms which a majority of
the disinterested members of the Board of Directors of Production Operators
determines in its good faith reasonable judgment (based on the written advice of
a financial advisor of nationally recognized reputation, a copy of which shall
be provided to Camco) to be more favorable to Production Operators' stockholders
than the Merger. Production Operators has agreed to advise Camco of any takeover
proposal or any inquiry with respect to or which could lead to any takeover
proposal, of the material terms and conditions of any such inquiry or takeover
proposal (including the financing for such
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proposal and a copy of such documents conveying such proposal), and of the
identity of the person making any such inquiry or takeover proposal.
In the event the Board of Directors of Camco receives a takeover proposal
involving Camco because of which, in the exercise of its fiduciary obligations
(as determined in good faith by a majority of the disinterested members thereof
based on advice of outside counsel), it determines it is necessary to withdraw
or modify its approval or recommendation of the Merger Agreement or the Merger,
Camco may terminate the Merger Agreement by advising Production Operators that
the Board of Directors of Camco has received a takeover proposal which it has
determined requires such action, specifying the material terms and conditions of
such proposal (including the proposed financing for such proposal and a copy of
any documents conveying such proposal) and identifying the person making such
proposal, but only if the stockholders of Camco have not yet voted upon the
Merger and Camco shall have paid $15,000,000 to Production Operators. Camco
further agreed to pay $15,000,000 to Production Operators if the stockholders of
Camco do not approve the Merger as a result of a hostile takeover of Camco after
the date of the Merger Agreement. The Merger Agreement defines "takeover
proposal involving Camco" as (i) any proposal for a merger or other business
combination involving Camco, (ii) any proposal or offer to acquire from Camco or
its affiliates, directly or indirectly, an equity interest in Camco or any
subsidiary, any voting securities of Camco or any subsidiary or a material
amount of the assets of Camco, or (iii) any proposal or offer to acquire from
the stockholders of Camco, by tender offer, exchange offer or otherwise, more
than 15% of the outstanding Camco Common Stock.
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether prior to or after approval by the stockholders of
Camco or the stockholders of Production Operators: (i) by mutual consent of
Camco and Production Operators; (ii) by either Camco or Production Operators if
(a) the stockholders of Production Operators or Camco fail to give any required
approval of the Merger upon a vote at a duly held meeting; (b) any court of
competent jurisdiction or any governmental authority shall have issued an order
permanently enjoining, restraining or otherwise prohibiting the Merger; or (c)
the Merger has not been effected on or before August 31, 1997; and (iii) by
either Camco or Production Operators if the other party breaches any of its
representations or warranties in the Merger Agreement or fails to perform in any
material respect any of its covenants, agreements or obligations thereunder. The
Merger Agreement also may be terminated as described above under "-- No
Solicitation by Production Operators; Payments in the Event of Certain Takeover
Proposals".
The Merger Agreement provides that it may be amended or supplemented by an
instrument in writing signed on behalf of each party thereto, provided that
after the Merger Agreement has been approved and adopted by the stockholders of
Camco and the stockholders of Production Operators, it may be amended only as
may be permitted by applicable provisions of Delaware law.
INDEMNIFICATION.
Pursuant to the Merger Agreement, Camco and Sub have agreed to indemnify
and hold harmless each person who is now, or has been any time prior to the date
of the Merger Agreement or who becomes prior to the effective time of the
Merger, an officer or director of Production Operators or any of its
subsidiaries against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of, or in connection with, any claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, the fact that such person is or was a director, officer or employee of
Production Operators or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby, in each case to the fullest extent
provided under the law of their respective states of incorporation, as
applicable, to indemnify directors and officers. See "-- Interests of Certain
Persons in the Merger".
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Camco has further agreed to use reasonable efforts to purchase and maintain
for the benefit of the Indemnified Parties for a period of five years after the
Effective Time directors and officers liability insurance with respect to acts,
omissions and other matters occurring prior to the Effective Time; provided,
however, that Camco may substitute therefor a "runoff" policy of insurance
having a term of three years following the Effective Time of the Merger with
comparable coverage. Notwithstanding the foregoing, Camco shall not be required
to expend more than $400,000 in premiums for the aggregate five-year period to
obtain such coverage.
PRODUCTION OPERATORS OPTIONS AND STOCK PLANS
Pursuant to the Merger Agreement, on or prior to the Closing Date,
Production Operators shall take such action under the Production Operators stock
option plans to assure that options outstanding under Production Operators stock
option plans at the Effective Time ("Production Operators Options") shall no
longer permit the holder thereof to purchase Production Operators Common Stock
and, in lieu thereof, provide the holder thereof the right to purchase, a number
of shares of Camco Common Stock equal to the number of shares of Production
Operators Common Stock subject to such Production Operators Options multiplied
by 1.30 with a per share option price equal to the per share option price of the
Production Operators option divided by 1.30 and further provided that such
substitute option comply with the applicable IRS regulations to preserve the tax
favored status of any incentive stock options. Camco agrees to assume the
obligations of Production Operators to issue such shares of Camco Common Stock
upon exercise of such options and to use its best efforts to cause the shares of
Camco Common Stock so issuable to be registered under the Securities Act. Camco
has agreed to issue Camco Common Stock in replacement of any restricted stock
outstanding under Production Operators stock option plans at the Exchange Ratio.
Based on the number of Production Operators Options outstanding at the
Record Date, Camco will be required at the Effective Time to reserve an
aggregate of 508,837 shares of Camco Common Stock for issuance upon exercise of
Production Operators stock options assumed by Camco pursuant to the Merger.
On or prior to the Closing Date, Production Operators is required to cause
its Employee Stock Ownership Plan (the "ESOP"), which holds 399,156 shares of
Production Operators Common Stock, to be amended to substitute, effective as of
the Effective Time, the Camco Common Stock as the "Employer Securities" under
the ESOP and to make such other changes and modifications to the ESOP as Camco
and Production Operators deem necessary and advisable to permit the ESOP to
continue in effect with respect to the participating employees of Production
Operators after the Merger without any acceleration of vesting or distributions
under the ESOP.
EMPLOYEE MATTERS
Camco currently intends to cause Production Operators as the Surviving
Corporation to take such actions as are necessary so that after the Effective
Time, employees of Production Operators and its subsidiaries remaining with
Production Operators after the Merger ("Continuing Employees") will be provided
with employee benefit plans, programs, policies and arrangements that are, in
the aggregate, no less favorable to such employees as those provided to such
employees as of the date of the Merger Agreement. The Merger Agreement, however,
provides that Camco will have no obligation to issue shares of capital stock
pursuant to any such plan or to make additional contributions to the ESOP if
such issuances or contributions are not considered to be desirable by Camco.
Camco further intends (i) to preserve and maintain with respect to such plans,
programs and arrangements, benefits and service credit accrued to the Continuing
Employees during employment with Production Operators and its subsidiaries prior
to the Effective Time except to the extent that benefits may be duplicated and
(ii) to provide that Continuing Employees shall not be subject to preexisting
condition exclusions or waiting periods (except to the extent so subject prior
to the Effective Time) and shall receive full credit for any copayments and
deductibles already incurred during the year in which the Merger occurs under
the comparable plan of Production Operators and its subsidiaries.
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IRREVOCABLE PROXY
As a condition to Camco's agreement to enter into the Merger Agreement,
Camco required 14 family trusts in which Carl Knobloch or members of his family
serve as trustees, and five individual members of Mr. Knobloch's family to
execute an irrevocable proxy (the "Irrevocable Proxy") with respect to the
approval of the Merger and the Merger Agreement. No consideration was received
by such individuals or trusts for their execution of the Irrevocable Proxy other
than as an inducement to Camco to enter into the Merger Agreement. Subsequent to
the execution of the Merger Agreement, Camco agreed to release from the
Irrevocable Proxy 100,000 shares of Production Operators Common Stock that was
transferred by a Carl Knobloch trust to a charitable remainder trust of which
Mr. Knobloch is a beneficiary. As a result, Camco has the full power and
authority to vote an aggregate of 1,918,460 shares (approximately 18.8%) of
Production Operators Common Stock (i) in favor of the approval of the Merger
Agreement and the consummation of all other transactions contemplated by the
Merger Agreement, (ii) against any takeover proposal (as defined in the Merger
Agreement) involving Production Operators, or any action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of Production Operators under the Merger Agreement or
which could result in any of the conditions of Production Operators' obligations
under Merger Agreement not being fulfilled and (iii) in favor of any other
matter relating to consummation of the transactions contemplated by the Merger
Agreement. Under the terms of the Irrevocable Proxy, the rights of Camco to vote
the shares remain valid until the earlier of (i) consummation of the Merger,
(ii) termination of the Merger Agreement for any reason (other than a
termination by Production Operators due to the receipt of an alternative
takeover proposal) or (iii) February 27, 1998. The holders of the shares also
agreed that during the term of the Irrevocable Proxy, they would not (i) sell,
transfer, pledge, grant a security interest in or lien on or otherwise dispose
of or encumber any of their shares, (ii) deposit any of the shares into a voting
trust, enter into any voting agreement or arrangement or grant any proxy with
respect to the shares, or (iii) enter into any contract, option or other
arrangement or undertaking with respect to the direct or indirect acquisition or
sale, assignment, transfer, pledge, grant of security interest in or lien on or
other disposition or encumbrance of any of their shares. As a result of the
granting of the Irrevocable Proxy, approval of the Merger will only require the
approval of the holders of approximately an additional 31% of the outstanding
shares of Production Operators Common Stock as of the Record Date.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of Production Operators Common Stock
and is based upon current provisions of the Code existing regulations
thereunder, current administrative rulings of the Internal Revenue Service (the
"Service") and court decisions, all of which are subject to change. No attempt
has been made to comment on all federal income tax consequences of the Merger
that may be relevant to particular holders, including holders that are subject
to special tax rules which may modify or alter the following discussion, such as
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders who do not hold their shares as capital assets.
HOLDERS OF PRODUCTION OPERATORS COMMON STOCK ARE ADVISED AND EXPECTED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF THE
MERGER UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
Neither Camco nor Production Operators has requested a ruling from the
Service in connection with the Merger. Camco has received from its counsel,
Fulbright & Jaworski L.L.P., an opinion to the effect that, for federal income
tax purposes (i) the Merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code and (ii) no gain or loss will be
recognized by Camco, Sub or Production Operators as a result of the Merger. It
is a condition to the obligation of Camco to consummate the Merger that such
opinion shall not have been withdrawn or modified in any material respect.
Production Operators has received from its counsel, Vinson & Elkins L.L.P., an
opinion to the effect that, for federal income tax purposes (i) the Merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the Code;
(ii) each of Camco, Sub and Production Operators are parties to the
reorganization within the meaning of Section 368(b) of the Code; and (iii) no
gain or loss will be recognized by the stockholders of Production
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Operators upon the receipt by them of shares of Camco Common Stock in exchange
for their shares of Production Operators Common Stock pursuant to the Merger,
except with respect to cash received in lieu of fractional shares of Camco
Common Stock. It is a condition to the obligation of Production Operators to
consummate the Merger that such opinion shall not have been withdrawn or
modified in any material respect. Such opinions are subject to certain
assumptions and based on certain representations of Camco and Production
Operators and affiliates of Production Operators. Production Operators
stockholders should be aware that such opinions are not binding upon the Service
and no assurance can be given that the Service will not adopt a contrary
position or that a contrary Service position would not be sustained by a court.
In the event the Merger qualifies as a reorganization under 368(a) of the
Code, the following U.S. federal income tax consequences should occur:
(a) No gain or loss will be recognized by Camco, Sub or Production
Operators by reason of the Merger;
(b) No gain or loss will be recognized by a holder of Production
Operators Common Stock who exchanges all of his or her shares of Production
Operators Common Stock solely for shares of Camco Common Stock in the
Merger;
(c) The aggregate basis of the shares of Camco Common Stock to be
received by a Production Operators stockholder in the Merger (including any
fractional share not actually received) will be the same as the aggregate
basis of the shares of Production Operators Common Stock surrendered in
exchange therefor;
(d) The holding period of the shares of Camco Common Stock to be
received by a Production Operators stockholder in the Merger (including any
fractional share not actually received) will include the holding period of
the shares of Production Operators Common Stock surrendered in exchange
therefor, provided that such shares of Production Operators Common Stock
are held as capital assets at the Effective Time; and
(e) Cash payments in lieu of a fractional share will be treated as if
a fractional share of Camco Common Stock had been received in the Merger
and then redeemed by Camco. Such a redemption should qualify as a
distribution in full payment in exchange for the fractional share rather
than as a distribution of a dividend. Accordingly, a Production Operators
stockholder receiving cash in lieu of a fractional share will recognize
gain or loss treatment upon such payment equal to the difference, if any,
between such stockholder's basis in the fractional share (as described in
paragraph (c) above) and the amount of cash received. Such gain or loss
will be eligible for long-term capital gain or loss treatment if the
Production Operators Common Stock is held as a capital asset at the
Effective Time and the holding period for the fractional share (as
described in paragraph (d) above) is more than one year.
ACCOUNTING TREATMENT
The Merger will be accounted for using the "pooling of interests" method of
accounting pursuant to Opinion No. 16 of the Accounting Principles Board. The
"pooling of interests" method of accounting assumes that the combining companies
have been merged from inception, and the historical financial statements for
periods prior to consummation of the Merger are restated as though the companies
had been combined from inception. The restated financial statements are adjusted
to conform the accounting policies of the companies.
The Merger is conditioned on Camco and Production Operators receiving a
letter from Arthur Andersen LLP that the Merger should be accounted for as a
"pooling of interests" under generally accepted accounting principles and
applicable regulations of the Commission.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the provisions of the HSR Act, the Merger may not be consummated
until such time as the specified waiting period requirements of the HSR Act have
been satisfied. Camco and Production Operators
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filed notification reports, together with requests for early termination of the
waiting period, with the Department of Justice and the FTC on April 18, 1997. On
May 2, 1997, the FTC notified Camco of the early termination of the waiting
period applicable under the HSR Act.
At any time before or after the Effective Time, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Camco to divest itself, in whole
or in part, of Production Operators or of other businesses conducted by Camco.
There can be no assurance that a challenge to the Merger will not be made or
that, if such a challenge is made, Camco and Production Operators will prevail.
Camco and Production Operators are aware of no other governmental or
regulatory approvals required for consummation of the Merger, other than
compliance with applicable securities laws of the various states.
NYSE LISTING
As a condition to the closing of the Merger, the shares of Camco Common
Stock to be issued upon consummation of the Merger will be approved for listing
on the NYSE, subject to official notice of issuance.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Production
Operators with respect to the Merger, Production Operators' stockholders should
be aware that certain members of the Board of Directors and officers of
Production Operators have certain interests respecting the Merger separate from
their interests as holders of Production Operators Common Stock, including those
referred to below. In addition, Morgan Stanley, Production Operators' financial
advisor, will receive additional compensation if the Merger is effected. See
"-- Opinions of Financial Advisors."
Election of Additional Director and Advisory Director of Camco. It is
currently anticipated that at the Effective Time of the Merger, the Camco Board
of Directors will appoint one person mutually acceptable to the Chairman of the
Board of Camco and the Chairman of the Board of Production Operators to the
Board of Directors of Camco to serve until the Camco annual meeting of
stockholders in 1999. It is currently contemplated that Lester Varn, Jr., a
director of Production Operators, will be named as this additional director.
Upon his appointment, Mr. Varn will be eligible to participate in Camco's
Non-Employee Directors Stock Option Plan and will receive an option to acquire
15,000 shares of Camco Common Stock at an option price equal to the closing sale
price on such date, which option will be subject to vesting over a three-year
period. Additionally, pursuant to the terms of the Merger Agreement, Carl W.
Knobloch, Jr. will be appointed as an advisory director until the Camco 2000
annual meeting of stockholders.
Stock Options and Awards. There are currently outstanding options to
purchase an aggregate of 391,413 shares of Production Operators Common Stock
(equivalent to 508,837 shares of Camco Common Stock). The Merger will constitute
a "change of control" under the Production Operators' stock option plans and,
except for options relating to an aggregate of 41,440 shares of Production
Operators Common Stock (equivalent to 53,872 shares of Camco Common Stock) that
were granted in February 26, 1997, as part of Production Operators annual stock
option grant awards, all Production Operators stock options will become fully
vested and immediately exercisable as of the Effective Time. As of May 12, 1997,
Messrs. Ogren, Reinhart, Simmons and Ms. Knobloch held unvested options to
purchase 14,175, 8,779, 5,410 and 2,292 shares of Production Operators Common
Stock, respectively, that will become fully vested and exercisable as a result
of the Merger. The value of these unvested options, based on the difference
between the exercise price and the Production Operators Common Stock on May 12,
1997, is $484,791, $305,805, $164,534, and $79,645 for Messrs. Ogren, Reinhart
and Simmons and Ms. Knobloch, respectively. In addition, under the terms of
Camco's 1993 Long-Term Incentive Plan (the "1993 Incentive Plan") and a proposed
new Long-Term Incentive Plan (the "1997 Incentive Plan") to be considered for
approval at Camco's 1997 Annual Meeting of Stockholders, the consummation of the
Merger will result in an adjustment in the number of shares of Camco Common
Stock reserved for issuance under those plans. If the 1997 Incentive Plan is
approved, the number of shares of Camco Common Stock available for issuance
under both plans will be approximately 10% of the issued and outstanding shares
of Camco Common Stock. Approximately 1.3 million additional shares will be
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reserved for issuance under the 1997 Incentive Plan if approved by the
stockholders of Camco. If the 1997 Incentive Plan is approved by the Camco
Stockholders, no additional grants of options or awards will be made under the
1993 Incentive Plan. However, if the 1997 Incentive Plan is not approved by the
stockholders of Camco, approximately 910,000 additional shares of Camco Common
Stock will be reserved for issuance under the 1993 Incentive Plan.
Indemnification. Pursuant to the Merger Agreement, Camco and Sub agreed
that all rights to indemnification for acts or omissions occurring prior to the
Effective Time in favor of the current or former directors or officers of
Production Operators and its subsidiaries as provided in their respective
certificates of incorporation or bylaws and indemnity agreements will survive
the Merger, and Camco shall cause the Surviving Corporation to continue such
indemnification rights in full force and effect in accordance with their terms
as an obligation of the Surviving Corporation. Under the terms of the Merger
Agreement, Camco also agreed to maintain directors and officers insurance for
the benefit of Production Operators directors and officers for period of three
years at a cost not to exceed $400,000 in aggregate. See "Terms of the Merger --
Indemnification".
Severance Agreements. Production Operators has entered into severance
agreements with eight officers and key employees, including Thomas R. Reinhart,
John B. Simmons and Carla Knobloch and excluding Carl Knobloch, Jr. and John
Ogren, President of Production Operators. Under the terms of these agreements,
within 24 months after a "change of control" (as defined therein) and the
occurrence of an involuntary termination of employment or a significant
reduction of duties or salary and bonus opportunity, Production Operators will
pay to the employee a lump sum cash payment equal to two times the employees
compensation if termination occurs the first year and one times compensation if
termination occurs in the second year. The Merger will constitute a "change of
control" under the severance agreements. Upon involuntary termination as
provided in the severance agreements, each of such employees will continue to be
covered under Production Operators' health and medical benefit plans and will
receive all amounts payable under the Production Operators management incentive
compensation plan. Under the terms of the severance agreements entered into with
Messrs. Reinhart and Simmons and Ms. Knobloch, such persons would be entitled to
receive change in control payments of $259,584, $280,000 and $181,898,
respectively, plus health and medical benefits having an estimated value of
$7,800 each if the employment of such persons were to be terminated by Camco for
any reason other than cause or by the employee for good reason (including any
material change in their responsibilities) immediately following the Merger.
John Ogren, President of Production Operators, is also entitled under the
terms of his employment agreement with Production Operators to a lump sum
severance payment equal to one year's base salary in the event prior to June 7,
1997, more than 50% of the outstanding shares of Production Operators are
acquired by a party not affiliated with Production Operators as of June 7, 1994,
and his employment with Production Operators is terminated within two years
after that date. The consummation of the Merger will constitute an acquisition
of more than 50% of the outstanding shares of Production Operators Common Stock
under the terms of Mr. Ogren's employment agreement. Under the terms of Mr.
Ogren's employment agreement, Mr. Ogren would be entitled to receive $220,000 if
his employment were to be terminated by Camco for any reason other than cause or
by Mr. Ogren for good reason (including any material change in his
responsibilities) immediately following the Merger.
Consulting Agreement. It is currently contemplated that Camco will enter
into a consulting contract with Mr. Knobloch effective as of the closing of the
Merger. It is expected that compensation payable to Mr. Knobloch under this
consulting agreement will be $150,000 per year plus $100,000 for expenses
relating to the maintenance of an office in Atlanta, Georgia for Mr. Knobloch.
The term of Mr. Knobloch's consulting agreement will be three years.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Camco Common Stock to be received by Production Operators
stockholders in connection with the Merger have been registered under the
Securities Act and, except as set forth below, may be traded
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without restriction. The shares of Camco Common Stock to be issued in the Merger
and received by persons who are deemed to be "affiliates" (as that term is
defined in Rule 144 under the Securities Act) of Production Operators prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act (or, in the case of such persons
who become affiliates of Camco, Rule 144 under the Securities Act) or as
otherwise permitted under the Securities Act. It is a condition to consummation
of the Merger that Production Operators provide Camco with a list of its
affiliates and that such affiliates deliver a written undertaking to the effect
that they will not dispose of any shares of Camco Common Stock received pursuant
to the Merger except in compliance with the Securities Act and the rules and
regulations promulgated thereunder.
Under generally accepted accounting principles, the sale of Camco Common
Stock or Production Operators Common Stock by an affiliate of either Camco or
Production Operators within 30 days prior to the Effective Time or thereafter
prior to the publication of financial results that include at least 30 days of
combined operations of Camco and Production Operators after the Effective Time
could preclude "pooling of interests" accounting treatment of the Merger. Under
the terms of the Merger Agreement, Production Operators is required to deliver
or cause to be delivered to Camco an undertaking by its affiliates that such
affiliates will not dispose of any of the Camco Common Stock received or to be
received by them pursuant to the Merger until final results of operations of
Camco covering at least 30 days of combined operations of Camco and Production
Operators have been so published.
NO DISSENTERS' RIGHTS
Delaware law does not require that holders of Production Operators Common
Stock or Camco Common Stock who object to the Merger and who vote against or
abstain from voting in favor of the Merger and the Merger Agreement be afforded
any appraisal rights or the right to receive cash for their shares of Production
Operators Common Stock or Camco Common Stock, and neither Production Operators
nor Camco intend to make available such rights to its stockholders.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF
CAMCO AND PRODUCTION OPERATORS
The rights of holders of Production Operators Common Stock are currently
governed by Delaware law, Production Operators' Certificate of Incorporation and
Production Operators' By-laws. Upon consummation of the Merger, holders of
Production Operators Common Stock will become holders of Camco Common Stock, and
their rights as holders of Camco Common Stock will be governed by Delaware law
and Camco's Restated Certificate of Incorporation and By-laws. Set forth below
is an explanation of material differences between the rights of holders of
Production Operators Common Stock and the rights of the holders of Camco Common
Stock.
SPECIAL VOTE REQUIRED FOR CERTAIN COMBINATIONS
Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits
a corporation from engaging in a "business combination" (as hereinafter defined)
with an "interested stockholder" (defined generally to mean a person who,
together with his affiliates owns, or if the person is an affiliate of the
corporation did own within the last three years, 15% or more of the outstanding
voting stock of the corporation) for a period of three years after the time of
the transaction in which the person became an interested stockholder, unless (i)
prior to the time of the business combination, the board of directors of the
corporation approved the business combination or the transaction in which the
stockholder became an interested stockholder, (ii) as a result of the business
combination, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced or (iii) on
or subsequent to the date of the business combination, the board of directors
and the holders of at least 66 2/3% of the outstanding voting stock not owned by
the interested stockholder approve the business combination. The DGCL defines a
"business combination" generally as: (i) a merger or consolidation with the
interested stockholder or with any other corporation if the merger or
consolidation is caused by the interested
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stockholder, (ii) a sale or other disposition to or with an interested
stockholder of assets with an aggregate market value greater than or equal to
10% or more of either the aggregate market value of all assets of the
corporation or the aggregate market value of all of the outstanding stock of the
corporation; (iii) with certain exceptions, any transaction resulting in the
issuance or transfer by the corporation or any majority-owned subsidiary of any
stock of the corporation or such subsidiary to the interested stockholder; (iv)
any transaction involving the corporation or a majority-owned subsidiary that
has the effect of increasing the proportionate share of the stock of the
corporation or any such subsidiary owned by the interested stockholder; or (v)
any receipt of the interested stockholder of the benefit of any loans or other
financial benefits provided by the corporation or any majority-owned subsidiary.
Section 203 applies to both Camco and Production Operators.
Provisions similar to Section 203 are contained in Production Operators'
Certificate of Incorporation. Production Operators' provisions differ from the
DGCL by requiring a higher percentage of all stockholders' voting as a class to
approve a Business Combination (as hereinafter defined) with an Interested
Stockholder (as hereinafter defined). Pursuant to these provisions, an
"Interested Stockholder" is defined generally to mean a corporation, person or
entity who, together with its affiliates and associates, beneficially owns or
has the right to acquire 20% or more of the outstanding voting stock of
Production Operators. A Business Combination involving Production Operators may
only be consummated if (i) the Business Combination has been approved by the
affirmative vote of a majority of the then outstanding shares of Production
Operators Common Stock, excluding from the number of shares deemed to be
outstanding at the time of such vote and from such vote on the Business
Combination all shares of Production Operators Common Stock beneficially owned
by the Interested Stockholder, (ii) the Business Combination has been approved
by a majority of the Continuing Directors (as defined below) or (iii) the
consideration paid in the Business Combination satisfies certain fair price
provisions. The term "Business Combination" is defined in Production Operators
Certificate of Incorporation to include any of the following transactions: (i)
any merger or consolidation of Production Operators or any subsidiary of
Production Operators with an Interested Stockholder, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with any
Interested Stockholder or any affiliate of an Interested Stockholder of any
assets of Production Operators or any Subsidiary having a fair market value of
$2,500,000 or more, (iii) any issuance or transfer by Production Operators or
any Subsidiary of Production Operators of any securities of Production Operators
or any Subsidiary of Production Operators to any Interested Stockholder or any
affiliate of an Interested Stockholder in exchange for cash, securities or other
property having an aggregate fair market value of $2,500,000 or more, (iv) the
adoption of any plan or proposal for the liquidation or dissolution of
Production Operators proposed by or on behalf of an Interested Stockholder or
any affiliate of an Interested Stockholder or (v) any reclassification of
securities or recapitalization of Production Operators or any merger or
consolidation of Production Operators with any of its Subsidiaries or any other
transaction which has the effect, directly or indirectly, of increasing the
proportionate share owned directly or indirectly by any Interested Stockholder
or any affiliate of any Interested Stockholder. A Continuing Director is defined
in Production Operators Certificate of Incorporation to be a member of the Board
of Directors of Production Operators who is not an affiliate of an Interested
Stockholder and was a member of the Board of Directors of Production Operators
at the time the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director who is not an affiliate of an Interested
Stockholder and is recommended or elected to succeed a Continuing Director by a
majority of the Continuing Directors or any person who is not an affiliate of
the Interested Stockholder and is recommended or elected to fill a vacancy in
the Board of Directors of Production Operators resulting from an increase in the
number of directors serving on the Board of Directors of Production Operators by
a majority of the Continuing Directors. The foregoing provisions relating to
transactions with Interested Stockholders may not be amended except with the
affirmative vote of the holders of at least 80% of the voting stock of
Production Operators unless such amendment has been recommended to the
stockholders of Production Operators by a majority of the Continuing Directors
at a meeting at which at least three-quarters of the Continuing Directors are
present.
Camco's Restated Certificate of Incorporation does not contain a similar
provision.
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VOTE REQUIRED FOR CORPORATE TRANSACTIONS AND OTHER MATTERS
Under the DGCL, an amendment to the corporation's certificate requires the
affirmative vote of the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon and a majority of the outstanding stock of
each class entitled to vote thereon as a class unless the corporation's
certificate of incorporation provides for a higher percentage. The DGCL also
provides that the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon may approve an agreement of merger or
consolidation or the dissolution of a corporation.
Production Operators' Certificate of Incorporation includes provisions that
set a higher voting requirement for certain Business Combinations as well as
amendments to Production Operators' Certificate of Incorporation dealing with
Business Combinations. Camco's Certificate of Incorporation also requires the
affirmative vote of the holders of 80% or more of the combined voting power of
the then outstanding shares of voting stock of Camco to amend, alter or repeal,
or adopt any provision inconsistent with the provisions in its Certificate of
Incorporation relating to the election, removal, rights or duties of its Board
of Directors, the prohibition of action by stockholders by written consent, the
calling of special meetings of stockholders and the limitation of liability of
directors of Camco to the fullest extent permitted by Delaware law.
DISPOSITION OF ASSETS
Under the DGCL, all sales, leases or exchanges of all, or substantially
all, of the assets of a corporation must be authorized by a resolution adopted
by the holders of a majority of the outstanding stock of the corporation
entitled to vote thereon. Production Operators' Certificate of Incorporation
includes provisions that set higher voting requirements for asset sales and
leases involving Business Combinations. See "-- Special Vote Required for
Certain Business Combinations" for a description of the higher voting
requirements.
ACTION BY WRITTEN CONSENT
Under the DGCL, except as restricted by a corporation's certificate of
incorporation, any action required or permitted to be taken by stockholders may
be taken by written consent of the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize to take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Camco's Certificate of Incorporation provides that any action
required or permitted to be taken by stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing by stockholders. This provision of Camco's Certificate of
Incorporation may only be amended by an affirmative vote of the holders of 80%
or more of the combined voting power of the voting stock of Camco. The
Certificate of Incorporation of Production Operators does not prohibit action by
written consent and therefore action may be taken by stockholders through
written consent.
CALLING OF SPECIAL MEETINGS
The DGCL provides that special meetings of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the bylaws of the corporation. Camco's
Certificate of Incorporation provides that special meetings of stockholders may
be called only by the Chairman of the Board of Directors of Camco or by
resolution by the Board of Directors, acting by not less than a majority of the
entire Board of Directors, and that the power of stockholders to call a special
meeting is specifically denied. This provision of Camco's Certificate of
Incorporation may only be amended by an affirmative vote of the holders of 80%
or more of the combined voting power of the voting stock of Camco. Production
Operators' Bylaws provide that special meetings of stockholders may be called by
the President or by the Board of Directors of Production Operators and must be
called by the President of Production Operators at the request of the holders of
not less than 25% of any class of the outstanding shares of Production Operators
entitled to vote at the meeting.
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<PAGE> 58
QUORUM REQUIREMENTS FOR DIRECTORS' MEETINGS
The DGCL provides that a majority of the total number of directors shall
constitute a quorum for the transaction of business, unless the certificate of
incorporation or by-laws require a greater number. Production Operators' By-laws
provide that a majority of the number of directors then in office shall
constitute a quorum for the transaction of business at directors' meetings.
Camco's By-laws provide that one-third of the entire Board of Directors shall
constitute a quorum for the transaction of business.
REMOVAL OF DIRECTORS
The DGCL provides that a director shall hold office until a successor is
elected and qualified or until his earlier resignation and removal and that
unless the certificate of incorporation otherwise provides or the board of
directors of the corporation has been classified, any director or the entire
board of directors may be removed, with or without cause, by the holders of the
majority of the shares then entitled to vote at an election of directors.
Camco's Certificate of Incorporation provides that its Board of Directors shall
be classified into three classes of directors having terms of three years each
and that a director may be removed from office only for cause and only by the
affirmative of the holders of a majority of the shares of stock entitled to vote
in the election of directors. This provision of Camco's Certificate of
Incorporation may only be amended by an affirmative vote of the holders of 80%
or more of the combined voting power of the voting stock of Camco. The Board of
Directors of Production Operators is not classified and there is no prohibition
on the removal of directors of Production Operators in Production Operators'
Certificate of Incorporation.
BYLAWS
Under the DGCL, the power to adopt, amend or repeal bylaws shall be in the
stockholders of a corporation, provided that a corporation may, in its
certificate of incorporation, confer the power to adopt, amend or repeal bylaws
upon its directors. The Certificates of Incorporation of both Camco and
Production Operators authorize their respective boards of directors to adopt,
alter, amend or repeal the bylaws of their respective corporations. In addition,
pursuant to authority permitted by the DGCL, Camco's Certificate of
Incorporation requires the affirmative vote of the holders of 80% or more of the
combined voting power of the then outstanding shares of stock of all classes and
series of stock of Camco that are entitled to vote generally in the election of
directors to adopt, amend, alter or repeal any provision of Camco's bylaws.
Production Operators Certificate of Incorporation contains no such provision
and, therefore, such action may be effected by stockholders representing a
majority of the shares represented in person or by proxy at a meeting of
shareholders of Production Operators.
SHAREHOLDER NOMINATIONS AND PROPOSALS
Camco's Bylaws provide that, subject to certain limitations, nominations of
persons for election to the Board of Directors and stockholder proposals may be
made at any annual or special meeting of stockholders by a stockholder of Camco
only if the stockholder is a stockholder of record and notifies Camco of the
stockholder's intent to make a nomination (i) in the case of an annual meeting,
not less than 90 days nor more than 120 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders, and (ii) in the case
of a special meeting called for the purpose of electing directors, not later
than the close of business on the 10th day following the day on which public
disclosure of the date of the special meeting is made. The Bylaws of Production
Operators contain a similar provision with respect to stockholder nominations or
proposals.
CAMCO COMMON STOCK PURCHASE RIGHTS
In December 1994, Camco adopted a Rights Plan which provided for the
distribution by Camco of one common share purchase Right for each outstanding
share of Camco Common Stock to holders of record of Camco Common Stock at the
close of business on December 26, 1994, and for the issuance of one Right for
each share of Camco Common Stock thereafter issued prior to the earlier of the
date the Rights first become exercisable, the date of redemption of the Rights
and December 15, 2004, the expiration date of the Rights.
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<PAGE> 59
Until such time that the Rights become exercisable, the Rights will be evidenced
by the certificates representing the shares of Camco Common Stock with respect
to the Rights were issued and may only be traded with such shares.
The Rights become exercisable on the earlier of (i) ten business days after
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person"), which term does not include Camco, any subsidiary of
Camco, any employee benefit plan of Camco or Camco's subsidiaries, or any entity
holding Camco Common Stock for or pursuant to any such plan, have acquired
beneficial ownership of 15% or more of the Camco Common Stock and (ii) ten
business days after the commencement of, or the first public announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in beneficial ownership by a person or group (excluding Camco, any
subsidiary of Camco, any employee benefit plan of Camco or of its subsidiaries,
and any entity holding Camco Common Stock for or pursuant to any such plan) of
15% or more of the Camco Common Stock outstanding (the earlier of such dates
being called the "Distribution Date").
In the event, following the first date of public announcement by Camco or
an Acquiring Person that an Acquiring Person has become such (the "Shares
Acquisition Date"), Camco is, in effect, acquired in a merger or other business
combination transaction or more than 50% of its consolidated assets or earning
power is sold, proper provision will be made so that each holder of a Right,
other than Rights that were or are beneficially owned by the Acquiring Person,
will thereafter have the right to receive, upon the exercise thereof at a price
(the "Purchase Price") of $65, subject to adjustment, that number of shares of
common stock of the Acquiring Person equal to the result obtained by dividing
(i) the then current Purchase Price multiplied by the number of shares of Camco
Common Stock for which a Right is then exercisable by (ii) 50% of the market
price per share of common stock of the Acquiring Person at the time of such
transaction. In the event any person becomes an Acquiring Person, proper
provision will be made so that each holder of a Right, other than Rights that
were or are beneficially owned by the Acquiring Person, which Rights will
thereafter be null and void and the holder thereof shall have no rights with
respect to such Rights, will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price a number of shares of Camco
Common Stock equal to the result obtained by dividing the then current Purchase
Price by 50% of the market price per share of Camco Common Stock at the date
such person became an Acquiring Person. Under certain circumstances, other
securities, property, cash or combinations thereof, including a combination with
shares of Camco Common Stock, that are equal in value to the number of shares of
Camco Common Stock for which the Right is exercisable may be issued in lieu of
shares of Camco Common Stock for which the Right is exercisable.
At any time prior to the close of business on the tenth business day after
the Shares Acquisition Date, Camco may redeem the Rights in whole, but not in
part, at a price of $.02 per Right, which may be paid in cash, with shares of
Camco Common Stock or other consideration deemed appropriate by the Board of
Directors of Camco.
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<PAGE> 60
UNAUDITED PRO FORMA FINANCIAL INFORMATION
POOLING OF INTERESTS
The Unaudited Pro Forma Financial Statements (the "Pro Forma Statements")
have been prepared assuming the Merger is accounted for as a pooling of
interests. Accordingly, the Pro Forma Statements have been prepared as if Camco
and Production Operators were combined as of the beginning of the earliest
period presented.
The Unaudited Pro Forma Balance Sheet as of December 31, 1996 and Unaudited
Pro Forma Statements of Operations for the years ended December 31, 1996, 1995
and 1994, are based on the consolidated financial statements of Camco and
Production Operators and include, in the opinion of Camco and Production
Operators managements, all adjustments necessary to present fairly the results
of such periods and should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations for each of Camco
and Production Operators. The Unaudited Pro Forma Statements of Operations for
each of the three years in the period ended December 31, 1996, 1995 and 1994
have been derived from, and should be read in conjunction with, the audited
Consolidated Financial Statements of Camco and the audited Consolidated
Financial Statements of Production Operators and the related notes incorporated
by reference in this Joint Proxy Statement/Prospectus. No provision has been
reflected in the unaudited pro forma financial statements for any direct cash
costs related to the Merger, which are currently expected to be approximately
$11 million.
As a result of the differing year ends of Camco and Production Operators,
results of operations for different year ends have been combined. Camco's
results of operations for years ended December 31, 1996, 1995 and 1994 have been
combined with Production Operators' results of operations for years ended
September 30, 1996, 1995 and 1994, respectively.
ACQUISITIONS AND DIVESTITURES
In March 1995, Camco acquired Site Oil Tools, a Canadian manufacturer of
completion equipment, for $5.8 million in a cash transaction. In March 1995,
Camco sold the assets of its safety service business, S.T.O.P., in a cash
transaction. Camco recognized net income of $1.5 million, or 6 cents per share,
on the disposal.
In September 1996, Camco acquired Lasalle Engineering Limited for $29.5
million in a cash transaction. In December 1996, Camco acquired the gas lift
business of Halliburton, including their Venezuelan subsidiary, for $16.9
million in a cash transaction.
The acquisitions discussed above were accounted for as purchases. The pro
forma effect of the acquisitions were not material to the results of operations
or financial position of Camco or the Unaudited Pro Forma Financial Statements.
In the quarter ended September 30, 1995, Production Operators decided to
sell or otherwise dispose of its oil and gas producing operations. In connection
with this discontinuance, Production Operations recorded a charge to income of
$7.1 million.
The Unaudited Pro Forma Statement of Operations for the year ended December
31, 1995 and 1994 reflect the divestiture of this operation as if it had
occurred on July 1, 1994.
---------------------
The Pro Forma Statements are presented for illustrative purposes only and
are not necessarily indicative of actual results of operations or financial
position that would have been achieved had the Merger been consummated at the
beginning of the earliest period presented, or had the operations of Production
Operators been consolidated during the periods presented. Neither are they
necessarily indicative of future results.
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CAMCO INTERNATIONAL INC. AND PRODUCTION OPERATORS CORP
UNAUDITED ADJUSTED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Sales..................................................... $503,235 $459,733 $466,620
Services.................................................. 261,300 208,199 184,894
-------- -------- --------
764,535 667,932 651,514
-------- -------- --------
COST AND EXPENSES:
Cost of sales............................................. 270,712 253,268 275,716
Cost of services.......................................... 188,394 153,096 143,134
-------- -------- --------
459,106 406,364 418,850
-------- -------- --------
Gross margin...................................... 305,429 261,568 232,664
Selling, general and administrative expenses.............. 191,706 177,491 165,799
Amortization of intangible assets......................... 6,460 6,022 6,036
-------- -------- --------
Operating income.................................. 107,263 78,055 60,829
Interest expense.......................................... 7,842 8,888 5,946
Interest income........................................... (3,303) (3,754) (2,020)
-------- -------- --------
Income before provision for income taxes, income (loss)
from discontinued operations and cumulative effect of
change in accounting principle......................... 102,724 72,921 56,903
Provision for income taxes................................ 34,720 22,626 17,438
-------- -------- --------
Income before income (loss) from discontinued operations
and cumulative effect of change in accounting
principle.............................................. 68,004 50,295 39,465
Income (loss) from discontinued operations................ -- (7,151) 1,005
Cumulative effect of change in accounting principle....... -- -- 200
-------- -------- --------
Net income................................................ $ 68,004 $ 43,144 $ 40,670
======== ======== ========
EARNINGS PER SHARE:
Income before income (loss) from discontinued operations
and cumulative effect of change in accounting
principle.............................................. $ 1.78 $ 1.33 $ 1.03
Income (loss) from discontinued operations................ -- (0.19) 0.03
Cumulative effect of change in accounting principle....... -- -- --
-------- -------- --------
Net income................................................ $ 1.78 $ 1.14 $ 1.06
======== ======== ========
Average common and common equivalent shares outstanding... 38,230 37,780 38,344
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
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<PAGE> 62
CAMCO INTERNATIONAL INC. AND PRODUCTION OPERATORS CORP COMBINED
UNAUDITED ADJUSTED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 42,846
Accounts receivable, net.................................. 169,989
Inventories............................................... 169,007
Deferred income taxes..................................... 27,031
Prepaid expenses and other................................ 19,119
--------
Total current assets.............................. 427,992
--------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation.............................................. 308,762
INTANGIBLE ASSETS, net...................................... 214,826
OTHER....................................................... 20,125
--------
Total assets...................................... $971,705
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 10,345
Accounts payable.......................................... 47,595
Accrued liabilities....................................... 134,583
Income taxes payable...................................... 18,750
--------
Total current liabilities......................... 211,273
--------
LONG-TERM DEBT.............................................. 93,551
DEFERRED INCOME TAXES....................................... 24,742
OTHER LONG-TERM LIABILITIES................................. 47,266
--------
Total liabilities................................. 376,832
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 38,471,908 shares issued................... 385
Additional paid-in capital................................ 521,196
Retained earnings......................................... 115,024
Cumulative translation adjustment......................... (11,405)
Treasury stock, 1,264,528 shares at cost.................. (30,327)
--------
Total stockholders' equity........................ 594,873
--------
Total liabilities and stockholders' equity........ $971,705
========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
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<PAGE> 63
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
On February 27, 1997, Camco and Production Operators jointly announced that
a definitive agreement was entered into pursuant to which Camco would acquire
Production Operators. Under the terms of the agreement, Production Operators
shareholders will receive 1.30 newly issued Camco Common shares for each
Production Operators share. The business combination will be accounted for using
the pooling of interests method of accounting. There are no adjustments
necessary to conform the accounting policies of Camco and Production Operators.
PRO FORMA ADJUSTMENTS
The difference between the par value of the Production Operators Common
Stock to be exchanged in the Merger and the par value of the Camco Common Stock
issuable in the Merger is reflected as an increase in additional paid-in
capital. In addition, the amount recorded as deferred compensation relating to
Production Operators Employee Stock Ownership Plan ($2,340) and treasury stock
($782) of Production Operators has been offset against retained earnings and
additional paid-in capital, respectively.
PRO FORMA EARNINGS (LOSS) PER SHARE
The pro forma average common shares outstanding have been computed by
adjusting the historical average outstanding common and common equivalent shares
of Camco for the shares assumed to be issued in exchange for the outstanding
Production Operators common shares and for the dilutive effect of common stock
equivalents arising from the assumption of the Production Operators options.
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<PAGE> 64
MARKET PRICE OF COMMON STOCK AND DIVIDEND INFORMATION
Camco Common Stock is traded on the NYSE under the symbol "CAM", and
Production Operators Common Stock is traded on the Nasdaq National Market under
the symbol "PROP". The following table sets forth the range of high and low sale
prices for Camco Common Stock and Production Operators Common Stock for the
periods indicated, as reported on the NYSE and Nasdaq National Market,
respectively.
<TABLE>
<CAPTION>
CAMCO PRODUCTION OPERATORS
------------------------- -----------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED DECEMBER 31, 1995
Quarter ended March 31, 1995.................... $20 5/8 $16 5/8 $.05 $26 3/4 $22 $.06
Quarter ended June 30, 1995..................... 24 3/4 20 1/4 .05 32 25 3/4 .07
Quarter ended September 30, 1995................ 25 1/8 21 3/4 .05 33 28 .07
Quarter ended December 31, 1995................. 28 3/8 20 3/4 .05 33 1/2 29 1/4 .07
TWELVE MONTHS ENDED DECEMBER 31, 1996
Quarter ended March 31, 1996.................... 32 3/8 25 1/4 .05 35 28 3/4 .07
Quarter ended June 30, 1996..................... 37 30 1/2 .05 38 29 1/2 .07
Quarter ended September 30, 1996................ 37 1/2 32 1/4 .05 37 3/4 30 3/4 .07
Quarter ended December 31, 1996................. 47 1/4 36 3/4 .05 48 3/4 35 3/4 .07
TWELVE MONTHS ENDED DECEMBER 31, 1997
Quarter ended March 31, 1997.................... 51 1/4 38 .05 57 1/2 45 1/2 .07
Quarter ended June 30, 1997 (through May 12,
1997)......................................... 48 7/8 41 3/8 63 53 1/4
</TABLE>
On February 26, 1997, the last trading day prior to the announcement by
Camco and Production Operators that they had reached an agreement concerning the
Merger, the closing sale prices of Camco Common Stock as reported by the NYSE
and of Production Operators Common Stock as reported by the Nasdaq National
Market were $43 1/4 and $45 3/4 per share, respectively. Applying the 1.30
exchange ratio to Camco's closing price of $43 1/4, each share of Production
Operators Common Stock would be valued at $56.23.
On May 12, 1997, the closing sale prices of Camco Common Stock as reported
by the NYSE and of Production Operators Common Stock as reported by the Nasdaq
National Market were $48 1/4 and $62 1/4 per share, respectively.
Following the Merger, Camco Common Stock will continue to be traded on the
NYSE under the symbol "CAM". Production Operators Common Stock will cease to be
traded and there will be no further market for such stock.
Camco has paid quarterly dividends of $.05 per share since its initial
public offering in December 1993. Subject to market conditions and other
factors, Camco intends to continue paying regular quarterly dividends on its
Common Stock. In addition, as long as any amount is outstanding under Camco's
term loan facility, the Company is restricted by a covenant limiting the
cumulative payment of dividends if the payment of such dividends results in
Camco's net worth falling below acceptable minimum levels. This restriction has
not had any impact on Camco's ability to pay its regular quarterly dividends to
stockholders. Because Camco operates some of its business, particularly its
international operations, through subsidiaries, its ability to pay dividends is
partly dependent upon its ability to receive dividends and other payments from
its subsidiaries.
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<PAGE> 65
CAMCO
GENERAL
Camco is one of the world's leading providers of oilfield equipment and
services for numerous specialty applications in key phases of oil and gas
drilling, completion and production. Many of the Company's products and services
have recognized names in the industry and are associated with technological
innovation and quality. Camco operates on a worldwide basis with its equipment
and services being sold or used in approximately 50 countries. Approximately 71%
of the Company's revenues in 1996 were derived from equipment or services sold
or provided outside the United States.
Camco is the leading world producer of electric submersible pump systems,
gas lift systems and synthetic diamond drill bits. Camco also operates one of
the largest fleets of coiled tubing units in the United States, is one of the
world's two leading providers of subsurface safety valve systems and is the
world's third leading provider of roller cone drill bits. Information regarding
world markets excludes the former Soviet Union and China, for which reliable
market information is unavailable. Camco operates in two business segments:
oilfield equipment and oilfield services.
OILFIELD EQUIPMENT SEGMENT
Camco's oilfield equipment segment provides a wide range of manufactured
oilfield products, principally under the names Reda Pump, Lasalle Engineering,
Lawrence Technology, Hycalog, Reed Tool, Camco Products and Site Oil Tools. Reda
manufactures electric submersible pumps used to lift high volumes of fluids from
producing wells. Lasalle, acquired in September 1996, provides oil well
production services, project management and ancillary equipment for ESP systems.
Lawrence Technology manufactures electric cables and wire used with ESPs.
Hycalog manufactures synthetic diamond drill bits, and Reed manufactures roller
cone drill bits. Synthetic diamond drill bits have a faster rate of penetration,
drill more footage, generally have a higher unit sales price and are used
primarily in high cost drilling locations where their relatively higher price
can be justified by their corresponding reduction in total drilling time and,
therefore, costs. Roller cone drill bits generally have lower unit prices, are
less application sensitive and are used in a wider variety of drilling
applications. Camco Products manufactures gas lift systems used to increase the
volume of production from oil wells, subsurface safety valves used as fail-safe
devices to shut-in production in oil and gas wells in emergencies, and packers
and other items used in the completion and production phases of oil and gas
development. In December 1996, Camco Products expanded its gas lift business by
acquiring the artificial lift business line of Halliburton Company. Site Oil
Tools, which was acquired by the Company in March 1995, manufactures a full line
of packers, accessory equipment and services for the completion of oil and gas
wells. The oilfield equipment segment accounted for approximately 84% of Camco's
total revenues in 1996.
OILFIELD SERVICES SEGMENT
Camco's oilfield services segment provides a wide range of oilfield
services, principally under the names Camco Coiled Tubing Services and Camco
Wireline. Camco Coiled Tubing provides coiled tubing services and nitrogen
services and performs other downhole operations used in the initial completion
of wells and in well maintenance and treatment during the productive life of a
well. Camco Wireline provides mechanical wireline services used to install or
retrieve downhole flow control devices and to obtain reservoir data using
specialized instruments. The oilfield services segment accounted for
approximately 16% of Camco's total revenues for 1996.
Camco was incorporated in Delaware in 1988 and is the successor to Camco,
Incorporated, which was incorporated in Texas in 1946. Camco's headquarters are
located at 7030 Ardmore, Houston, Texas 77054.
RECENT DEVELOPMENT
On April 15, 1997, Camco reported its results for the quarter ended March
31, 1997. Camco's net income for first quarter of 1997 was $14 million, or $0.57
per share, compared to $10.2 million, or $0.41 per share, for the first quarter
of 1996. Camco's revenues for the quarter ended March 31, 1997, were $167.3
million compared to $145.5 million for the quarter ended March 31, 1996. Camco's
first quarter results reflected a continued strength in the oil and gas service
industry and improvements in each of Camco's major business lines.
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<PAGE> 66
PRODUCTION OPERATORS
GENERAL
Production Operators is engaged in compression and other gas handling
services in the oilfield services industry. Production Operators specializes in
the handling of gases for maximizing the recovery of hydrocarbon resources.
These production services include (1) contract compression and contract
processing or treating of gases, principally natural gas and (2) operating
compression and related facilities for the handling of carbon dioxide used in
enhanced oil recovery. Production Operators considers itself to be a leader in
the technology of handling and compressing carbon dioxide. In its contract gas
compression operations, Production Operators designs, engineers, fabricates,
transports, installs, operates and maintains compression units specifically
designed to meet unique client requirements. Production Operators also designs,
engineers and constructs the site where the gas handling equipment is installed
and operated. In its contract processing or treating of gases, usually performed
in conjunction with contract gas compression, Production Operators designs,
engineers, installs and operates specialized processing or treating equipment
which recovers liquid hydrocarbons from associated gas streams or removes
impurities such as hydrogen sulfide and carbon dioxide. Production Operators
operates its own equipment and contract operates client owned equipment used in
the compression, gathering and processing of gases. In its enhanced oil recovery
operations, Production Operators gathers, compresses, transports and injects
carbon dioxide gas used by the petroleum industry in enhanced oil recovery
projects.
CONTRACT GAS COMPRESSION
Gas compression is the use of a mechanical process for compressing a volume
of a gas until it reaches a desired pressure. Reciprocating compressors driven
by internal combustion engines or electric motors are the most common equipment
for compression, particularly when higher pressures are involved. Contract gas
compression has various applications in the production of oil and gas. The
majority of Production Operators contract gas compression units compress natural
gas either for transmission or for reservoir injection in connection with
secondary oil recovery operations. In the case of natural gas being compressed
for pipeline transmission, compression becomes necessary when the natural
pressure of the gas field is below the operating pressure of the pipeline system
receiving and transporting the gas. Gas compression is also used to inject
natural gas into an oilfield for maintaining reservoir pressure or for gas
lifting of fluids in producing well bores. It is expected that at some time
during the life of substantially all natural gas fields the gas produced will
require compression. Production Operators average gas compression job
historically has lasted approximately four years. In recent years average job
life has exceeded five years as Production Operators has increasingly contracted
to operate larger, longer term assignments, originating primarily from alliance
and international client relationships.
Field operating performance is vital to Production Operators' business and
the mechanical availability of its equipment for on-stream operation has
consistently averaged more than 98%. Production Operators believes its operating
efficiency significantly exceeds the field compression efficiency achieved by
most producing and pipeline companies operating their own equipment. Production
Operators' ability to achieve high operating efficiency distinguishes its
services and has a significant positive impact on an oil and gas producer's
revenues and profits. The market for contract compression services has been
expanding as oil and gas producers and pipeline companies continue their efforts
to lower operating costs and improve efficiency by outsourcing their gas
handling requirements.
Production Operators, a Delaware corporation organized in 1969, is the
successor to a business established in 1961. Production Operators' headquarters
are located at 11302 Tanner Road, Houston, Texas 77041.
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<PAGE> 67
RECENT DEVELOPMENTS
Second Quarter Results
On April 23, 1997, Production Operators reported its results for the three
and six month periods ended March 31, 1997. Net income and earnings per share
for the three months ended March 31, 1997, increased 40% to $5.8 million, or
$0.56 per share, compared to $4.1 million, or $0.40 per share, for the second
quarter ended March 31, 1996. Revenues for the three months ended March 31,
1997, were $28.2 million compared to $21.7 million for the three months ended
March 31, 1996. Net income for the six-month period ended March 31, 1997 was
$11.0 million compared to $8.2 million for the six-month period ended March 31,
1996. Revenues for the six-month period ended March 31, 1997, were $54.9 million
compared to $43.9 million for the six-month period ended March 31, 1996. The
improved results for Production Operators primarily reflected a substantial 22%
increase in Production Operators' average revenue producing horsepower during
the first six months of fiscal 1997.
El Furrial
In February 1997, Production Operators and Williams International Company
("Williams") were jointly awarded a service contract by Lagoven, S.A., a
subsidiary of Petroleos de Venezuela, S.A., in what is expected to be the
largest outsourced natural gas injection project in Venezuela. The project
involves the design, construction and provision of total responsibility gas
compression, transmission and injection services into Lagoven's prolific El
Furrial reservoir in northeastern Venezuela. The Lagoven facilities are expected
to handle over 600 million cubic feet of natural gas per day and require 112,000
horsepower of compression equipment.
The El Furrial project, which includes two plants, a high pressure and
medium pressure plant and all interconnecting pipelines, is expected to begin
limited operation in the fourth quarter of 1997 and become fully operational in
the third quarter of 1998. The El Furrial field is a relatively recent discovery
and has been targeted for optimized crude oil production through developmental
drilling and gas injection. Since its discovery in 1986, this field has grown to
become the second largest producing reservoir in Venezuela, with daily oil
production averaging 330,000 barrels. Gas injection in the field in expected to
increase production by 15% to 20% over the life of the project.
Under the arrangement with Lagoven, Production Operators and Williams will
construct and manage the project for a period of twenty years through a joint
venture with ownership interests of 33 1/3% and 66 2/3%, respectively. The
estimated cost of the project is $195 million, of which $65 million is required
to be funded by Production Operators.
60
<PAGE> 68
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CAMCO
Directors. Set forth below is certain information with respect to the
directors of Camco:
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE POSITIONS AND OFFICES DIRECTOR
AT THE 1997 ANNUAL MEETING (CLASS I) WITH CAMCO AGE SINCE
- ------------------------------------ --------------------- --- --------
<S> <C> <C> <C>
Robert L. Howard.................... Director 60 1995
Gary D. Nicholson................... Chairman of the Board of Directors 60 1992
Director, President and
Chief Executive Officer
Charles P. Siess, Jr................ Director 70 1973
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE
AT THE 1998 ANNUAL MEETING (CLASS II)
- -------------------------------------
<S> <C> <C> <C>
William J. Johnson................... Director 62 1990
Gilbert H. Tausch.................... Director 70 1964
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE
AT THE 1999 ANNUAL MEETING (CLASS III)
- --------------------------------------
<S> <C> <C> <C>
Hugh H. Goerner....................... Director 74 1985
William A. Krause..................... Director 66 1973
</TABLE>
Robert L. Howard was elected to the Board of Directors in June 1995. Mr.
Howard retired from Shell Oil Company in 1995 after 36 years of service where he
had served in various executive capacities. He last served Shell as Vice
President Domestic Operations for Exploration and Production, and President of
Shell Offshore, Inc. and Shell Western Inc. Mr. Howard is a Director of
Southwestern Energy Company and United Meridian Corporation.
Gary D. Nicholson is Chairman of the Board of Directors, President and
Chief Executive Officer of Camco. Mr. Nicholson joined Camco in October 1992 as
Executive Vice President and Chief Operating Officer, became President and Chief
Executive Officer on January 1, 1993 and Chairman of the Board of Directors in
October 1994. Mr. Nicholson was an independent consultant in the oil and gas
industry from 1991 to 1992 and was President and Chief Executive Officer of LTV
Energy Products Company, an operating unit of LTV Corporation Inc., from 1986 to
1991. Mr. Nicholson is a director of Pool Energy Services Co.
Charles P. Siess, Jr. has been President, Chief Executive Officer and
Chairman of the Board of Directors of Cabot Oil and Gas Corporation since May
1995 and is a member of the Board of Directors of Cabot Corp. and Rowan
Companies, Inc. From January 1994 until May 1995, Mr. Siess was temporarily
retired. From January 1993 to January 1994, Mr. Siess was acting General Manager
of Bridas Corp., S.A.P.I.C., an Argentine energy company. Mr. Siess was Chairman
of the Board of Directors and Chief Executive Officer of Cabot Oil and Gas
Corporation from 1989 to 1993.
William J. Johnson has been an independent consultant in the oil and gas
industry since 1994. From 1991 to 1994, Mr. Johnson was President and Chief
Operating Officer of Apache Corporation, an oil and gas exploration and
production Company. Mr. Johnson was President and Chief Executive Officer of
TEX/CON Oil and Gas Company, a wholly owned subsidiary of BP Exploration, from
1989 to 1991. Mr. Johnson is a director of Snyder Oil Corporation, Patina Oil &
Gas Corporation and Tesoro Petroleum Corporation.
Gilbert H. Tausch retired as Camco's President and Chief Executive Officer
on January 1, 1993. Prior to that time, Mr. Tausch served Camco in various
executive capacities since 1959.
Hugh H. Goerner retired as President of Aramco in 1984, a Saudi Arabia
based oil producing company, where he had served in that capacity since 1978.
Mr. Goerner previously had been with Exxon USA for 31 years.
William A. Krause has been President of Krause, Inc.
Engineers -- Architects, an engineering and architectural firm, since 1990.
61
<PAGE> 69
Executive Officers. Set forth below is certain information with respect to
the executive officers of Camco.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary D. Nicholson............... 60 Chairman of the Board of Directors, Director, President and
Chief Executive Officer
Herbert S. Yates................ 54 Senior Vice President -- Finance, Chief Financial Officer
and Treasurer
Ronald R. Randall............... 57 Vice President, General Counsel and Secretary
Thomas W. Everitt............... 51 Vice President -- Human Resources
Bruce F. Longaker, Jr........... 43 Vice President -- Finance and Corporate Controller
Merle C. Muckleroy.............. 62 President, Camco Products and Services Group
Robert J. Caldwell.............. 57 President, Camco Drilling Group
Stephen D. Smith................ 52 President, Reda Group
</TABLE>
Herbert S. Yates joined Camco in 1980 as Director -- Internal Audit and was
elected Controller in 1981. Mr. Yates was elected Vice President -- Finance, and
Chief Financial Officer in 1983, Treasurer in 1984 and Senior Vice
President -- Finance in 1992.
Ronald R. Randall joined Camco as General Counsel and Secretary in 1990 and
was elected Vice President in 1992. Prior to joining Camco, Mr. Randall was
employed by Smith International, Inc., an oil field service company, from 1979
until 1990 where he last served as General Counsel and Secretary.
Thomas W. Everitt joined Camco in 1991 as Vice President -- Human
Resources. Prior to coming to Camco, Mr. Everitt was Vice President -- Human
Resources with Pearson, Inc., a subsidiary of Pearson plc, a diversified holding
company based in the United Kingdom and former parent of Camco, from 1988 until
his transfer to Camco in 1991.
Bruce F. Longaker, Jr. was elected Vice President -- Finance in 1992. Mr.
Longaker joined Camco in 1981 and held various positions in the accounting
department. He has served as Controller since 1986.
Merle C. Muckleroy has served as President of the Camco Products and
Services Group, which includes Camco Products, Camco Coiled Tubing Services and
Camco Wireline, since 1989. Mr. Muckleroy joined Camco in 1963 in the field
sales organization and served as Senior Vice President -- Sales and Service from
1981 to 1989.
Robert J. Caldwell has served as President of the Camco Drilling Group,
which includes Reed Tool and Hycalog, since 1987. Mr. Caldwell joined Camco in
1969 in the Camco Products manufacturing organization. He served the Camco
Products and Services Group as Vice President -- Engineering and Research from
1982 to 1985 and as Senior Vice President -- Operations from 1985 to 1987.
Stephen D. Smith was named President of Reda Group in February 1996. Mr.
Smith joined Camco in 1977 as Vice President, Materials, for the Camco Products
and Services Group and has since served in various executive positions in that
Group where he was last Senior Vice President, Operations from 1989 to 1996.
62
<PAGE> 70
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF CAMCO
Principal Stockholders. The following table sets forth as of the Record
Date, the beneficial ownership of each person who is known by Camco to be the
beneficial owner of more than five percent of the outstanding Camco Common
Stock. Such information is based solely upon data provided to Camco by such
persons.
<TABLE>
<CAPTION>
PRIOR TO THE MERGER FOLLOWING THE MERGER
----------------------------- -----------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED(1) CLASS(%) OWNED(1) CLASS(%)
---------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
The Capital Group Companies, Inc............ 2,658,800 11.1 2,658,800 7.1
333 South Hope Street
Los Angeles, California 90071
FMR Corp.................................... 2,578,900 10.7 2,578,900 6.9
82 Devonshire
Boston, Massachusetts 02109
T. Rowe Price Associates, Inc............... 2,345,950 9.6 2,345,950 6.3
100 E. Pratt St.
Baltimore, Maryland 21202
</TABLE>
- ---------------
(1) Based upon information contained in the most recent filings with the
Commission pursuant to Rule 13(d) of the Exchange Act. The shares
beneficially owned by The Capital Group Companies, Inc. ("CGC"), over which
it exercises no dispositive or voting power, include 1,575,000 shares of
Camco Common Stock owned by Capital Research and Management Company, a
wholly owned subsidiary of CGC, which has the dispositive power over such
shares and no voting power with respect to such shares. SMALLCAP World Fund,
Inc. has sole voting power and no dispositive power with respect to
1,575,000 shares of the Camco Common Stock. Capital Research and Management
Company is the investment advisor to SMALLCAP World Fund, Inc. The remaining
shares reported as beneficially owned by CGC are beneficially owned by other
subsidiaries of CGC, none of which individually owns 5% or more of the
outstanding shares of Camco Common Stock. FMR Corp. ("FMR"), Fidelity
Management & Research Company ("Fidelity"), a wholly owned subsidiary of FMR
and a registered investment advisor, Edward C. Johnson 3d, the Chairman and
principal stockholder of FMR, and Abigail P. Johnson, a director and
principal stockholder of FMR, may be deemed to own beneficially 2,578,900
shares of Camco Common Stock. Fidelity Contrafund (the "Fund"), an
investment company advised by Fidelity, beneficially owns 2,264,300 shares
of Camco Common Stock. Edward C. Johnson 3d, FMR, through its control of
Fidelity, and the Fund each has sole power to dispose of the 2,578,900
shares of Camco Common Stock. Neither FMR, nor Edward C. Johnson 3d has sole
power to vote the shares which power resides with the Fund's Board of
Trustees. Of the shares beneficially owned by T. Rowe Price Associates, Inc.
("T. Rowe"), T. Rowe has sole dispositive power over all such shares and
sole voting power over 169,650 of such shares.
63
<PAGE> 71
Management. The following table sets forth as of the Record Date the
beneficial ownership of the outstanding Camco Common Stock by each director and
each executive officer of Camco and all directors and executive officers of
Camco as a group.
<TABLE>
<CAPTION>
PRIOR TO AND
FOLLOWING THE MERGER
-----------------------------
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS(%)
---- ---------------- ----------
<S> <C> <C>
Gary D. Nicholson........................................... 66,524 *
Hugh H. Goerner............................................. 5,435 *
Robert L. Howard............................................ 3,666 *
William A. Krause........................................... 5,832 *
William J. Johnson.......................................... 6,647 *
Charles P. Siess, Jr........................................ 5,332 *
Gilbert H. Tausch........................................... 9,332 *
Merle C. Muckleroy.......................................... 24,961 *
Robert J. Caldwell.......................................... 33,516 *
Herbert S. Yates............................................ 24,102 *
Stephen D. Smith............................................ 16,933 *
All Directors and Executive Officers as a Group (14
persons).................................................. 239,777 1.00
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership by a person includes both outstanding shares of Camco
Common Stock owned and shares of Camco Common Stock which such person has a
right to acquire within 60 days upon the exercise of outstanding options.
Directors and executive officers have sole voting and investment power with
respect to the shares they own. Includes 16,583, 18,138, 5,500, 5,000 and
88,755 shares of Camco Common Stock beneficially owned by Messrs. Muckleroy,
Caldwell, Yates, Smith and all directors and executive officers of Camco as
a group, respectively, pursuant to outstanding options that are exercisable
within 60 days.
DIRECTORS AND EXECUTIVE OFFICERS OF PRODUCTION OPERATORS
Directors. Set forth below is certain information with respect to the
directors of Production Operators.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR
NAME WITH PRODUCTION OPERATORS AGE SINCE
---- ------------------------- --- --------
<S> <C> <C> <C>
Carl W. Knobloch, Jr.................................. Chairman and Director 67 1961
D. John Ogren......................................... President and Director 53 1994
F. E. Ellis........................................... Director 63 1990
Jorge E. Estrada...................................... Director 49 1995
C. Rahl George........................................ Director 77 1964
Henry E. Longley...................................... Director 63 1987
Lester Varn, Jr....................................... Director 72 1964
</TABLE>
Executive Officers. Set forth below is certain information with respect to
the executive officers of Production Operators.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carl W. Knobloch, Jr............................. 67 Chairman and Director
D. John Ogren.................................... 53 President and Director
Thomas R. Reinhart............................... 54 Vice President
John B. Simmons.................................. 44 Treasurer and Chief Financial Officer
Carla Knobloch................................... 38 Secretary
</TABLE>
64
<PAGE> 72
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF PRODUCTION OPERATORS
Principal Stockholders. The following table sets forth as of the Record
Date, the beneficial ownership of each person who is known by Production
Operators to be the beneficial owner of more than five percent of the
outstanding Production Operators Common Stock. Such information is based solely
upon data provided to Production Operators by such persons. The principal
stockholders have sole voting and investment power with respect to such shares,
except as otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED CLASS(%)
---------------- --------------------- ----------
<S> <C> <C>
Denver Investment Advisors LLC.............................. 755,175(1) 7.4
1225 17th Street, 26th Floor
Denver, Colorado 80202
Putnam Investments, Inc..................................... 789,466(1) 7.7
One Post Office Square
Boston, MA 02109
Carl W. Knobloch, Jr........................................ 1,422,354(2)(3) 13.7
Emily C. Knobloch........................................... 1,112,821(3)(4) 10.8
William R. Knobloch......................................... 892,000(3)(5) 8.7
Camco International Inc..................................... 2,018,460(6) 19.8
7030 Ardmore
Houston, Texas 77054
Michael A. Roth and Brian J. Stark(7)....................... 542,300(1) 5.3
1500 West Market Street
Mequon, Wisconsin 53092
</TABLE>
- ------------------
(1) According to information contained in the most recent filings with the
Commission pursuant to Section 13G of the Exchange Act. According to the 13G
filings, such shares were acquired in the ordinary course of business and
were not acquired for the purpose of and do not have the effect of changing
or influencing the control of Production Operators.
(2) Mr. Knobloch has sole voting and dispositive power as to 15,000 shares;
shares voting and dispositive power as a co-trustee with his wife, Emily C.
Knobloch, as to 1,106,335 shares; shares voting and dispositive power as a
co-trustee with his brother, William R. Knobloch, as to 223,500 shares;
shares voting and dispositive power as a co-trustee with his sister-in-law,
Audrey Knobloch, as to 5,000 shares; has 5,210 shares vested in his account
in the Company's Employee Stock Ownership Plan; has the right to acquire
66,500 shares through the exercise of stock options that are exercisable or
become exercisable within 60 days of March 26, 1997; and has 809 shares of
restricted stock. Mr. Knobloch disclaims beneficial ownership of the
following shares included in the table: 223,500 shares held by trusts of
which Mr. Knobloch is a co-trustee with William R. Knobloch for the benefit
of three nephews, two nieces and the three children of Carl W. Knobloch,
Jr.; 206,400 shares held by a trust of which Mr. Knobloch is co-trustee with
Emily C. Knobloch for the benefit of Mrs. Knobloch; 5,000 shares held by a
trust of which Mr. Knobloch is co-trustee with Audrey Knobloch for the
benefit of his brother, William R. Knobloch; and 15,000 shares held by Mr.
Knobloch as trustee of three trusts for the benefit of two nephews and one
niece. Mr. Knobloch's business address is: Production Operators Corp. 11302
Tanner Road, Houston, Texas 77041.
(3) An aggregate of 2,018,460 shares are subject to the Irrevocable Proxy
granted by trusts as to which one or more of Carl W. Knobloch, Jr., Emily C.
Knobloch and William R. Knobloch serves as trustee. See "Terms of the
Merger -- Irrevocable Proxy."
(4) Emily C. Knobloch shares voting and dispositive power as a co-trustee with
Carl W. Knobloch, Jr., as to 1,106,335 shares and as a co-trustee with
William R. Knobloch as to 6,486 shares. Mrs. Knobloch disclaims beneficial
ownership of the following shares included in the table: 899,935 shares held
by a trust of which Mrs. Knobloch is co-trustee with Carl W. Knobloch, Jr.
for the benefit of Carl W. Knobloch,
65
<PAGE> 73
Jr., and 6,486 shares held by a trust of which Mrs. Knobloch is co-trustee
with William R. Knobloch for the benefit of a sister of Carl W. Knobloch,
Jr. and William R. Knobloch. Mrs. Knobloch's address for business purposes
is: Production Operators Corp. 11302 Tanner Road, Houston, Texas 77041.
(5) William R. Knobloch has sole voting and dispositive power as to 656,364
shares; shares voting and dispositive power as co-trustee with Carl W.
Knobloch, Jr. as to 223,500 shares; shares voting and dispositive power as
co-trustee with Emily C. Knobloch as to 6,486 shares; and shares voting and
dispositive power as co-general partner with Audrey Knobloch as to 5,650
shares; William R. Knobloch disclaims beneficial ownership of the following
shares included in the table: 617,340 shares held by trusts of which he is
trustee for the beneficial of four nieces and one nephew; 223,500 shares
held by trusts of which he is co-trustee with Carl W. Knobloch, Jr. for the
benefit of four nieces, one nephew and the three children of William R.
Knobloch; 6,486 shares held by a trust of which he is co-trustee with Emily
C. Knobloch for the benefit of his sister; and 5,650 shares held by a
partnership of which he and his wife, Audrey Knobloch are general partners
for the benefit of their grandchildren. William R. Knobloch's residence
address is: 452 Country Club Road, New Canaan, Connecticut 06840.
(6) Represents the shares of Production Operators Common Stock held by Camco
pursuant to the Irrevocable Proxy. See "Terms of the Merger -- Irrevocable
Proxy".
(7) Messrs. Roth and Stark have shared dispositive and voting power over all
shares beneficially owned, of which shares, 271,150 shares are owned by
Reliant Trading and 271,150 shares are owned by Shepherd Trading Limited.
Messrs. Roth and Stark are members of Staro Asset Management, L.L.C., the
managing partner of Reliant Trading, and are investment managers of Shepherd
Trading Limited.
Management. The following table sets forth as of the Record Date the
beneficial ownership of the outstanding Production Operators Common Stock by
each director and each executive officer of Production Operators and all
directors and executive officers of Production Operators as a group. The
officers and directors have sole voting and investment power with respect to
such shares, except as otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) CLASS(%)
---- --------------------- ----------
<S> <C> <C>
Carl W. Knobloch, Jr............................... 1,422,354(2) 13.7
D. John Ogren...................................... 101,743 *
Lester Varn, Jr.................................... 233,020(3) 2.3
Henry E. Longley................................... 328,000(4) 3.2
F.E. Ellis......................................... 2,000 *
Jorge E. Estrada................................... -- *
C. Rahl George..................................... 5,350 *
Thomas R. Reinhart................................. 46,760 *
John B. Simmons.................................... 2,636 *
All Directors and Executive Officers (9
persons)(5)...................................... 2,141,863 20.7
</TABLE>
- ---------------
* Less than one percent.
(1) The number of shares includes shares beneficially owned as defined in Rule
13d-3 promulgated under the Exchange Act.
(2) Reference is made to "Stock Ownership of Principal Stockholders and
Management of Production Operators -- Principal Stockholders" regarding Mr.
Knobloch's stock ownership.
(3) Included in the table are 75,944 shares held by Mr. Varn and his brother,
George Varn, as co-trustees of a trust for the benefit of Lester Varn, Jr.
Mr. Varn disclaims any beneficial ownership of the following shares included
in the table: 75,974 shares held by a trust of which Mr. Varn and his
brother are co-trustees for the benefit of his brother; 3,036 shares held by
trusts of which Mr. Varn and his brother are co-trustees for the benefit of
Mr. Varn's two children and one of his brother's children; and 4,355 shares
held by trusts of which Mr. Varn, his brother and his mother are
co-trustees, one trust for the benefit of his mother and the other for the
benefit of his and his brother's children. Mr. Varn is co-owner with his
66
<PAGE> 74
brother and their children of three companies and a profit-sharing plan that
hold 71,687 shares, which are included in the table.
(4) Mr. Longley has sole voting and dispositive power as to 230,000 shares and
shares voting and dispositive power with respect to 80,000 shares as one of
three trustees of the Profit Sharing Pension Plan of Longley Supply Company.
Mr. Longley disclaims beneficial ownership of 18,000 shares held in the name
of his wife, Anne Penton Longley, which are included in the table.
(5) For directors, nominees and officers as a group, the number of shares
includes 150,170 shares which are subject to options issued under the
Company's 1980 and 1992 Long-Term Incentive Plans that are exercisable or
become exercisable within 60 days of March 26, 1997.
RELATIONSHIPS WITH INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of Arthur Andersen LLP will be present
at the Camco Special Meeting and at the Production Operators Special Meeting to
respond to appropriate questions of stockholders and to make a statement if they
so desire.
LEGAL MATTERS
The validity of the shares of Camco Common Stock to be issued in connection
with the Merger will be passed upon by Fulbright & Jaworski L.L.P., 1301
McKinney, Suite 5100, Houston, Texas 77010. Certain tax consequences of the
Merger will be passed upon for Camco by Fulbright & Jaworski L.L.P. and for
Production Operators by Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas
77002.
EXPERTS
Camco's consolidated financial statements as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Joint Proxy Statement/Prospectus and the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and
included herein in reliance upon the authority of said firm as experts in
auditing and accounting in giving said report.
Production Operators' consolidated financial statements as of September 30,
1996 and 1995 and for each of the three years in the period ended September 30,
1996, incorporated by reference in this Joint Proxy Statement/Prospectus and the
Registration Statement 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
auditing and accounting in giving said report.
STOCKHOLDERS' PROPOSALS
Any proposals of stockholders of Camco Common Stock intended to be
presented at the Annual Meeting of Stockholders of Camco to be held in 1998 must
be received by Camco, addressed at its principal executive offices, 7030
Ardmore, Houston, Texas 77054, no later than November 28, 1997, to be considered
for inclusion in the proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, any proposals of stockholders of
Production Operators intended to be presented at the Annual Meeting of
Stockholders of Production Operators to be held in 1998 must be received by
Production Operators, addressed to the Secretary at 11302 Tanner Road, Houston,
Texas 77401, no later than September 5, 1997, to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting.
67
<PAGE> 75
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CAMCO INTERNATIONAL INC.
PLANE ACQUISITION CORP.
AND
PRODUCTION OPERATORS CORP
FEBRUARY 27, 1997
<PAGE> 76
<TABLE>
<S> <C> <C> <C>
ARTICLE I
THE MERGER........................................................ 1
SECTION 1.1. The Merger........................................................ 1
SECTION 1.2. Effective Time.................................................... 1
SECTION 1.3. Effects of the Merger............................................. 2
SECTION 1.4. Certificate of Incorporation and By-laws.......................... 2
SECTION 1.5. Directors......................................................... 2
SECTION 1.6. Officers.......................................................... 2
SECTION 1.7. Vacancies......................................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES................ 2
SECTION 2.1. Effect on Capital Stock........................................... 2
(a) Capital Stock of Sub........................................ 2
(b) Cancellation of Company and Parent Owned Stock.............. 2
(c) Conversion of Shares........................................ 2
(d) No Fractional Shares........................................ 3
SECTION 2.2. Exchange of Certificates.......................................... 3
(a) Exchange Agent.............................................. 3
(b) Payment of Merger Consideration............................. 3
(c) Exchange Procedure.......................................... 3
(d) Distributions with Respect to Unexchanged Shares............ 3
(e) No Further Ownership Rights in Shares....................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES.................................... 4
SECTION 3.1. Representations and Warranties of the Company..................... 4
(a) Organization, Standing and Power............................ 4
(b) Subsidiaries................................................ 4
(c) Capital Structure........................................... 4
(d) Authority; Non-contravention................................ 5
(e) SEC Documents............................................... 6
(f) Information Supplied........................................ 6
(g) Absence of Certain Changes or Events........................ 6
State Takeover Statutes; Absence of Supermajority
(h) Provision................................................... 7
(i) Brokers..................................................... 7
(j) Litigation.................................................. 7
(k) Accounting Matters.......................................... 7
(l) Employee Benefit Matters.................................... 7
(m) Taxes....................................................... 8
(n) No Excess Parachute Payments................................ 9
(o) Environmental Matters....................................... 9
(p) Compliance with Laws........................................ 9
(q) Material Contracts and Agreements........................... 9
(r) Title to Properties......................................... 10
(s) Intellectual Property....................................... 10
(t) Labor Matters............................................... 11
(v) Undisclosed Liabilities..................................... 11
(w) Opinion of Financial Advisor................................ 11
(x) Board Recommendation........................................ 11
</TABLE>
i
<PAGE> 77
<TABLE>
<S> <C> <C>
SECTION 3.2. Representations and Warranties of Parent and Sub.................. 11
(a) Organization; Standing and Power............................ 11
(b) Subsidiaries................................................ 11
(c) Capital Structure........................................... 12
(d) Authority; Non-contravention................................ 12
(e) SEC Documents............................................... 13
(f) Information Supplied........................................ 13
(g) Absence of Certain Changes or Events........................ 14
State Takeover Statutes; Absence of Supermajority
(h) Provision................................................... 14
(i) Brokers..................................................... 14
(j) Litigation.................................................. 14
(k) Accounting Matters.......................................... 14
(l) Employee Benefit Matters.................................... 14
(m) Taxes....................................................... 15
(n) Environmental Matters....................................... 15
(o) Compliance with Laws........................................ 15
(p) Material Contracts and Agreements........................... 16
(q) Title to Properties......................................... 16
(r) Intellectual Property....................................... 16
(s) Labor Matters............................................... 17
(t) Undisclosed Liabilities..................................... 17
(u) Opinion of Financial Advisor................................ 17
(v) Board Recommendation........................................ 17
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS......................... 17
SECTION 4.1. Conduct of Business............................................... 17
(a) Ordinary Course............................................. 17
(b) Changes in Employment Arrangements.......................... 19
(c) Severance................................................... 19
(d) Other Actions............................................... 19
SECTION 4.2. Conduct of Business of Parent and Sub............................. 19
(a) Ordinary Course............................................. 19
(b) Other Actions............................................... 20
ARTICLE V
ADDITIONAL AGREEMENTS............................................. 20
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement............................. 20
SECTION 5.2. Letter of the Company's Accountants............................... 21
SECTION 5.3. Letter of Parent's Accountants.................................... 21
SECTION 5.4. Access to Information............................................. 21
SECTION 5.5. Reasonable Efforts; Notification.................................. 21
SECTION 5.6. Employee Benefit Matters.......................................... 23
SECTION 5.7. Indemnification................................................... 23
SECTION 5.8. Fees and Expenses................................................. 24
SECTION 5.9. Public Announcements.............................................. 24
SECTION 5.10. Stockholder Litigation............................................ 24
SECTION 5.11. Accounting Matters................................................ 24
SECTION 5.12. Parent's Board of Directors....................................... 24
SECTION 5.13. Irrevocable Proxies............................................... 25
</TABLE>
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<TABLE>
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ARTICLE VI
CONDITIONS PRECEDENT.............................................. 25
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger........ 25
(a) Stockholder Approval........................................ 25
(b) NYSE Listing................................................ 25
(c) HSR Act..................................................... 25
(d) No Injunctions or Restraints................................ 25
(e) Registration Statement Effectiveness........................ 25
(f) Blue Sky Filings............................................ 25
SECTION 6.2. Conditions of Parent and Sub...................................... 25
(a) Compliance.................................................. 25
(b) Certifications and Opinion.................................. 25
(c) Representations and Warranties True......................... 26
(d) Affiliate Letters........................................... 26
(e) Tax Opinion................................................. 26
(f) Pooling Accounting.......................................... 27
(g) Consents, etc............................................... 27
(h) No Litigation............................................... 27
(i) Fairness Opinion............................................ 27
(j) No Material Adverse Change.................................. 27
SECTION 6.3. Conditions of the Company......................................... 27
(a) Compliance.................................................. 27
(b) Certifications and Opinion.................................. 27
(c) Representations and Warranties True......................... 28
(d) Tax Opinion................................................. 28
(e) Fairness Opinion............................................ 28
(f) No Material Adverse Change.................................. 28
(g) Pooling Accounting.......................................... 28
(h) Consents, etc............................................... 28
(i) No Litigation............................................... 29
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER................................. 29
SECTION 7.1. Termination....................................................... 29
SECTION 7.2. Effect of Termination............................................. 29
SECTION 7.3. Amendment......................................................... 29
SECTION 7.4. Extension; Waiver................................................. 29
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver......... 30
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS.......................... 30
SECTION 8.1. Takeover Defenses of the Company.................................. 30
SECTION 8.2. No Solicitation................................................... 30
SECTION 8.3. Fee and Expense Reimbursements.................................... 31
</TABLE>
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<TABLE>
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ARTICLE IX
GENERAL PROVISIONS................................................ 32
SECTION 9.1. Nonsurvival of Representations and Warranties..................... 32
SECTION 9.2. Notices........................................................... 33
SECTION 9.3. Definitions....................................................... 33
SECTION 9.4. Interpretation.................................................... 34
SECTION 9.5. Counterparts...................................................... 34
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries.................... 34
SECTION 9.7. Governing Law..................................................... 34
SECTION 9.8. Assignment........................................................ 34
SECTION 9.9. Enforcement of the Agreement...................................... 34
SECTION 9.10. Severability...................................................... 35
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of February 27, 1997, by and among
CAMCO INTERNATIONAL INC., a Delaware corporation ("Parent"), PLANE ACQUISITION
CORP., a Delaware corporation ("Sub") and wholly owned subsidiary of Parent, and
PRODUCTION OPERATORS CORP, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions of this Agreement and Plan of Merger (this "Agreement");
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub with and into the Company (the "Merger"), upon
the terms and subject to the conditions of this Agreement, whereby each issued
and outstanding share of the Company's common stock, $1.00 par value (a
"Share"), not owned by the Company, Parent, Sub or any wholly owned subsidiary
of the Company, Parent or Sub will be converted into 1.3 shares of Parent's
common stock, $.01 par value (a "Parent Common"), including the associated
rights to purchase shares of Parent Common ("Rights" and together with the
Parent Common, "Parent Shares");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
hereof and in accordance with the Delaware General Corporation Law (the "DGCL"),
Sub shall be merged with and into the Company at the Effective Time of the
Merger (as hereinafter defined). At the election of Parent, any direct wholly
owned subsidiary (as defined in Section 9.3) of Parent may be substituted for
Sub as a constituent corporation in the Merger. In such event, the parties agree
to execute an appropriate amendment to this Agreement in order to reflect the
foregoing. Following the Merger, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL.
SECTION 1.2. Effective Time. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of the conditions set
forth in Article VI, the Surviving Corporation shall file the certificate of
merger required by the DGCL with respect to the Merger and other appropriate
documents (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time as Sub and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time of the Merger"). The closing of the Merger (the "Closing") shall
take place at the offices of Fulbright & Jaworski L.L.P., in Houston, Texas, on
the date of the meetings of the Company's stockholders (the "Company
Stockholders Meeting") and of Parent's stockholders (the "Parent Stockholders
Meeting"), in each case, to approve the Merger, or, if any of the conditions set
forth in Article VI have not been satisfied, then as soon as practicable
thereafter, or at such other time and place or such other date as Parent and the
Company shall agree (the "Closing Date"). If such meetings are not held or
concluded on the same date, then the Closing Date shall be on the date of the
latter of such meetings.
<PAGE> 81
SECTION 1.3. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. If at any time after the Effective Time of the
Merger, the Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or otherwise are necessary or desirable to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
all rights, title and interests in all real estate and other property and all
privileges, powers and franchises of the Company and Sub, the Surviving
Corporation and its proper officers and directors, in the name and on behalf of
the Company and Sub, shall execute and deliver all such proper deeds,
assignments and assurances in law and do all things necessary and proper to
vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise to carry out the purpose of this Agreement, and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of the Company or otherwise to take any and all such action.
SECTION 1.4. Certificate of Incorporation and By-laws. (a) The Certificate
of Incorporation of the Company, as in effect immediately prior to the Effective
Time of the Merger, shall be amended as of the Effective Time of the Merger to
read as set forth in Exhibit A hereto, and, as so amended, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of Sub as in effect immediately prior to the Effective Time
of the Merger shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.5. Directors. The directors of Sub immediately prior to the
Effective Time of the Merger shall be the directors of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.6. Officers. The officers of the Company immediately prior to the
Effective Time of the Merger shall be the officers of the Surviving Corporation
and shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation from the Effective Time of the Merger until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
SECTION 1.7. Vacancies. If at the Effective Time of the Merger a vacancy
shall exist in the Board of Directors or in any of the offices of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by the
DGCL and the Certificate of Incorporation and By-laws of the Surviving
Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any Shares:
(a) Capital Stock of Sub. Each issued and outstanding share of common
stock, $.01 par value, of Sub shall be converted into and become one fully paid
and nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(b) Cancellation of Company and Parent Owned Stock. All Shares that are
owned by any wholly owned subsidiary of the Company and any Shares owned by
Parent, Sub or any other wholly owned subsidiary of Parent or Sub shall be
canceled and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Subject to Section 2.1(d), each issued and
outstanding Share shall be converted into the right to receive, upon the
surrender of the certificate formerly representing such Shares pursuant to
Section 2.2, 1.3 Parent Shares (the "Merger Consideration"). The ratio of Parent
Shares for each Share is herein referred to as the "Exchange Ratio".
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(d) No Fractional Shares. No fractional Parent Shares shall be issued in
the Merger. All fractional Parent Shares that a holder of Shares would otherwise
be entitled to receive as a result of the Merger shall be aggregated and if a
fractional Parent Share results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the closing sale price per share of Parent Common on the New York
Stock Exchange ("NYSE") on the first trading day immediately preceding the
Effective Time of the Merger by the fraction of a Parent Share to which such
holder would otherwise have been entitled. Alternatively, Parent and Sub shall
have the option of instructing the Exchange Agent (as defined in Section 2.2(a))
to aggregate all fractional Parent Shares, sell such Parent Shares in the public
market and distribute to holders of fractional Parent Shares a pro rata portion
of the proceeds of such sale. No such cash in lieu of fractional Parent Shares
shall be paid to any holder of fractional Parent Shares until Certificates (as
defined in Section 2.2(c)) are surrendered and exchanged in accordance with
Section 2.2(c).
SECTION 2.2. Exchange of Certificates. (a) Exchange Agent. Prior to the
Effective Time of the Merger, Parent shall engage The Bank of New York, or such
other bank or trust company reasonably acceptable to the Company, to act as
exchange agent (the "Exchange Agent") for the issue of the Merger Consideration
upon surrender of Certificates.
(b) Payment of Merger Consideration. Parent shall take all steps necessary
to enable and cause there to be provided to the Exchange Agent on a timely
basis, as and when needed after the Effective Time of the Merger, certificates
for the Parent Shares to be issued upon the conversion of the Shares pursuant to
Section 2.1. Parent or the Surviving Corporation shall timely make available to
the Exchange Agent any cash necessary to make payments in lieu of fractional
shares.
(c) Exchange Procedure. As soon as practicable after the Effective Time of
the Merger, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time of the
Merger represented outstanding Shares (the "Certificates"), other than the
Company, Parent, Sub and any wholly owned subsidiary of the Company, Parent or
Sub, (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in a form and
have such other provisions as Parent and Sub may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the certificates representing the Parent Shares and any cash in lieu of a
fractional Parent Share. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate or certificates representing the number of whole Parent Shares
into which the Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 2.1 and any cash payable in lieu of a
fractional Parent Share, and the Certificate so surrendered shall forthwith be
canceled. If the Parent Shares are to be issued to a Person other than the
Person in whose name the Certificate so surrendered is registered, it shall be a
condition of exchange that such Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
exchange shall pay any transfer or other taxes required by reason of the
exchange to a Person other than the registered holder of such Certificate or
establish to the reasonable satisfaction of the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time of the Merger to represent only the right to receive, upon
surrender of such Certificate, the number of Parent Shares and cash, if any, in
lieu of fractional Parent Shares into which the Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 2.1. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the Parent Shares held by it from time to time hereunder, except
that it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of Persons entitled thereto.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time of the Merger with
respect to the Parent Shares with a record date after the Effective Time of the
Merger shall be paid to the holder of any unsurrendered Certificate with respect
to the Parent Shares represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.1(d)
until the holder of record of such Certificate shall surrender such
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Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
Certificates representing the Parent Shares issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional Parent Share to which such holder is entitled pursuant to
Section 2.1(d) and the amount of dividends or other distributions with a record
date after the Effective Time of the Merger theretofore paid with respect to
such whole Parent Shares, as the case may be, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time of the Merger but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Parent Shares.
(e) No Further Ownership Rights in Shares. All Parent Shares issued upon
the surrender of Certificates in accordance with the terms of this Article II,
together with any dividends payable thereon to the extent contemplated by this
Section 2.2, shall be deemed to have been exchanged and paid in full
satisfaction of all rights pertaining to the Shares theretofore represented by
such Certificates and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Parent and Sub as follows, subject
to any exceptions specified in the Disclosure Letter of the Company provided to
Parent on the date hereof (the "Company Disclosure Letter"):
(a) Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
to do business or in good standing (individually, or in the aggregate) would not
have a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole.
(b) Subsidiaries. The Company's subsidiaries that are corporations are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation and have the requisite
corporate power and authority to carry on their respective businesses as they
are now being conducted and to own, operate and lease the assets they now own,
operate or hold under lease. The Company's subsidiaries are duly qualified to do
business and are in good standing in each jurisdiction in which the nature of
their respective businesses or the ownership or leasing of their respective
properties makes such qualification necessary, other than in such jurisdictions
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
All the outstanding shares of capital stock of the Company's subsidiaries that
are corporations have been duly authorized and validly issued and are fully paid
and non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase of any Person. Except as
disclosed in the Company Disclosure Letter, all such stock and ownership
interests are owned of record and beneficially by the Company or by a direct or
indirect wholly owned subsidiary of the Company, free and clear of all liens,
pledges, security interests, charges, claims, rights of third parties and other
encumbrances of any kind or nature ("Liens"). Except for the capital stock of,
or ownership interests in, its subsidiaries, the Company does not own, directly
or indirectly, any capital stock, equity interest or other ownership interest in
any Person.
(c) Capital Structure. The authorized capital stock of the Company consists
of 15,000,000 shares of common stock, $1.00 par value ("Company Common Stock"),
and 500,000 shares of preferred stock, no par value ("Company Preferred Stock").
At the close of business on February 26, 1997, (i) 10,206,403 Shares (excluding
52,498 Shares held in treasury) were issued and outstanding, including 3,912
Shares subject to
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restricted stock awards granted under the Company's 1992 Long-Term Incentive
Plan, which had not yet vested, (ii) 288,707 shares of Company Common Stock were
reserved for issuance pursuant to awards not yet granted under the Company's
1992 Long-Term Incentive Plan, and (iii) 286,164 and 74,875 shares of Company
Common Stock were reserved for issuance pursuant to outstanding options granted
under the Company's 1992 LongTerm Incentive Plan and 1980 Long-Term Incentive
Plan, respectively. Except as set forth above, no shares of capital stock or
other equity or voting securities of the Company are reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
such shares issuable upon the exercise of stock options will be, validly issued,
fully paid and nonassessable and not subject to preemptive rights. No capital
stock has been issued by the Company since July 1, 1981, other than shares of
Company Common Stock issued pursuant to options outstanding on or prior to such
date in accordance with their terms at such date. Except for options outstanding
under the Company's 1992 Long-Term Incentive Plan and 1980 Long-Term Incentive
Plan (collectively, the "Company Stock Plans") as set forth above, as of
February 26, 1997, there were no outstanding or authorized securities, options,
warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which the Company or any of its
subsidiaries is a party, or by which any of them is bound, obligating the
Company or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, the Company or of any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(d) Authority; Non-contravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to approval of the
Merger and this Agreement by the holders of a majority of the outstanding Shares
as of the record date for the Company Stockholders Meeting present in person or
represented by proxy ("Company Stockholder Approval"), to consummate the
transactions contemplated hereby and to take such actions, if any, as shall have
been taken with respect to the matters referred to in Section 3.1(h). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company, subject to Company
Stockholder Approval. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws or judicial decisions now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement by the Company do
not, and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of or "put" right
with respect to any obligation or to loss of a material benefit under, or result
in the creation of any Lien, upon any of the properties or assets of the Company
or any of its subsidiaries under, any provision of (i) the Certificate of
Incorporation or By-laws of the Company or any provision of the comparable
organizational documents of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
subsidiaries or their respective properties or assets or (iii) subject to
governmental filing and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clause (ii), any
such conflicts, violations, defaults, rights or Liens that individually or in
the aggregate would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole and would not materially impair the ability of the
Company to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or agency,
domestic or foreign, including local authorities (a "Governmental Entity"), is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby,
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except for (i) the filing by the Company of a premerger notification and report
form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (ii) the filing with the Securities and Exchange Commission
(the "SEC") of (A) a joint proxy statement relating to the Company Stockholder
Approval and Parent Stockholder Approval (as defined in Section 3.2(d)) (such
proxy statement as amended or supplemented from time to time, the "Proxy
Statement") and (B) the Registration Statement (as defined in Section 5.1(b))
and (C) such reports under Section 13(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated hereby, and (iii) the filing of the
Certificate of Merger with the Delaware Secretary of State with respect to the
Merger as provided in the DGCL and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business and
such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not
have a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole.
(e) SEC Documents. The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC since September 30, 1994
(such documents, together with all exhibits and schedules thereto and documents
incorporated by reference therein, collectively referred to herein as the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included in
the Company SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and other adjustments
described therein).
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to the Company's
stockholders and at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement, as it relates to the Company Stockholders Meeting, will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty is
made by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub for inclusion or
incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents, since September 30, 1996, the Company has conducted its
business only in the ordinary course consistent with past practice, and there
has not been (i) any material adverse change with respect to the Company, (ii)
any declaration, setting aside or payment of any dividend (whether in cash,
stock or property) with respect to any of the Company's capital stock, (iii) (A)
any granting by the Company or any of its subsidiaries to any executive officer
of the Company or any of its subsidiaries of any increase in compensation,
except in the ordinary course of business consistent with prior practice or as
was required under employment agreements in effect as of September 30, 1996, (B)
any granting by the Company or any of its subsidiaries to any such
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executive officer of any increase in severance or termination pay, except as was
required under employment, severance or termination agreements in effect as of
September 30, 1996, or (C) any entry by the Company or any of its subsidiaries
into any employment, severance or termination agreement with any such executive
officer, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a Material Adverse
Effect on the Company and its subsidiaries, taken as a whole or (v) any change
in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
(h) State Takeover Statutes; Absence of Supermajority Provision. The
Company has taken all action to assure that no state takeover statute or similar
statute or regulation, including, without limitation Section 203 of the DGCL,
shall apply to the Merger or any of the other transactions contemplated hereby.
Except for Company Stockholder Approval, no other stockholder action on the part
of the Company is required for approval of the Merger, this Agreement and the
transactions contemplated hereby. No provision of the Company's Certificate of
Incorporation or By-laws or other governing instruments of its subsidiaries or
the terms of any rights plan or other takeover defense mechanism of the Company
would, directly or indirectly, restrict or impair the ability of Parent to vote,
or otherwise to exercise the rights of a stockholder with respect to, securities
of the Company and its subsidiaries that may be acquired or controlled by Parent
or permit any stockholder to acquire securities of the Company on a basis not
available to Parent in the event that Parent were to acquire securities of the
Company.
(i) Brokers. Except for Morgan Stanley & Co., Incorporated ("Morgan"),
whose fees are to be paid by the Company, no broker, investment banker or other
Person is entitled to receive from the Company or any of its subsidiaries any
investment banking, brokerage or finder's fees in connection with this Agreement
or the transactions contemplated hereby, including any fee for any opinion
rendered by any investment banker. The engagement letter dated June 12, 1996,
between the Company and Morgan provided to Parent on or prior to the date of
this Agreement constitutes the entire understanding of the Company and Morgan
with respect to the matters referred to therein, and has not been amended or
modified, nor will it be amended or modified prior to the Effective Time of the
Merger.
(j) Litigation. Except as disclosed in the Company SEC Documents, there is
no claim, suit, action, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company or any of its
subsidiaries that could reasonably be expected to have a Material Adverse Effect
on the Company and its subsidiaries, taken as a whole, or prevent, hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Company or any of its subsidiaries having, or which, insofar as reasonably can
be foreseen, in the future could have, any such effect.
(k) Accounting Matters. Neither the Company nor, to the best of its
knowledge, any of its affiliates, has through the date of this Agreement taken
or agreed to take any action that (without giving effect to any action taken or
agreed to be taken by Parent or any of its affiliates) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
(l) Employee Benefit Matters. As used in this Section 3.1(l), the "Company"
shall include the Company as defined in the preamble of this Agreement and any
member of a controlled group or affiliated service group, as defined in Sections
414(b), (c), (m) and (o) of the Code, of which the Company is a member. The
Company Disclosure Letter contains a true and complete list of each employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and each other material employee
benefit plan or arrangement (the "Company Plans") which are sponsored by,
participated in or contributed to by or required to be contributed to by the
Company. Except for matters that would not in the aggregate have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole:
(i) The Company Plans are in substantial compliance with the Code and
ERISA, as they may be applicable;
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(ii) With respect to any Company Plan subject to ERISA or the Code,
there has been no transaction described in Sections 406 or 407 of ERISA or
Section 4975 of the Code unless exempt under Section 408 of ERISA or
Section 4975 of the Code;
(iii) All contributions or other amounts payable by the Company with
respect to the Company Plans have either been paid or accrued in the
Company's most recent financial statements included in the Company SEC
Documents;
(iv) To the Company's knowledge, there are no pending or threatened or
anticipated claims (other than routine claims for benefits) by or on behalf
of or against any Company Plan or related trust;
(v) The Company has never maintained a pension plan that is or was
subject to the provisions of Title IV of ERISA or Section 412 of the Code.
The Company has never maintained, had an obligation to contribute to, or
incurred any liability with respect to a multiemployer pension plan as
defined in Section 3(37) of ERISA;
(vi) All Company Plans which are intended to qualify under Section
401(a) of the Code have been submitted to and approved as qualifying under
Section 401(a) of the Code by the Internal Revenue Service or the
applicable remedial amendment period will not have ended prior to the
Effective Time;
(vii) Except as expressly provided in this Agreement or in Section
3.1(l)(vii) of the Company Disclosure Letter and except for stock options
granted under the Company's 1980 and 1992 Long Term Incentive Plans and
supplemental benefits under the Company's Supplemental Benefit Plan, the
transactions contemplated by this Agreement will not accelerate the time of
payment or vesting, increase the amount of compensation due or result in a
severance payment for any director, officer or employee or former director,
officer or employee (including any beneficiary) from the Company; and
(viii) With respect to any entity (whether or not incorporated) that
is both treated as a single employer together with the Company under
Section 414 of the Code and located outside of the United States, any
benefit plans maintained by it for the benefit of its directors, officers,
employees or former employees (or any of their beneficiaries) are in
compliance with applicable laws pertaining to such plans in the
jurisdiction of such entity.
(m) Taxes. Each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which the Company or any of its subsidiaries is or has been a
member, has timely filed all Tax Returns (as defined below) required to be filed
by it on or before the Effective Time of the Merger and has timely paid or
deposited (or the Company has paid or deposited on its behalf) all Taxes which
are required to be paid or deposited on or before the Effective Time of the
Merger. Each of the Tax Returns filed by the Company or any of its subsidiaries
is accurate and complete in all material respects. The most recent consolidated
financial statements of the Company contained in the filed Company SEC Documents
reflect an adequate reserve for all Taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date of
such financial statements whether or not shown as being due on any Tax Returns.
No deficiencies for any Taxes have been proposed, asserted or assessed against
the Company or any of its subsidiaries, no requests for waivers of the time to
assess any such Taxes have been granted or are pending, and there are no tax
liens upon any assets of the Company or any of its subsidiaries. The Federal
income Tax Returns of the Company and its subsidiaries consolidated in such Tax
Returns have been examined by the IRS through the year ended September 30, 1995.
There are no current examinations of any Tax Return of the Company or any of its
subsidiaries being conducted and there are no settlements or any prior
examinations which could reasonably be expected to adversely affect any taxable
period for which the statute of limitations has not run. As used herein, "Tax"
or "Taxes" shall mean all taxes of any kind, including, without limitation,
those on or measured by or referred to as income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment,
estimated, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity,
domestic or foreign. As used
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herein, "Tax Return" shall mean any return, report, statement or information
required to be filed with any Governmental Entity with respect to Taxes.
(n) No Excess Parachute Payments. Any amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Company Benefit Plan currently in effect would not
be characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(o) Environmental Matters. Except as would not have a Material Adverse
Effect on the Company and its subsidiaries, taken as a whole, (i) the business
and operations of the Company and its subsidiaries are being conducted in
compliance with all limitations, restrictions, standards and requirements
established under all environmental laws, (ii) no facts or circumstances exist
that impose on the Company or any of its subsidiaries an obligation under
environmental laws to conduct any removal, remediation, or similar response
action, (iii) there is no obligation, undertaking or liability arising out of or
relating to environmental laws that the Company or any of its subsidiaries has
agreed to, assumed or retained, by contract or otherwise, or that has been
imposed on the Company or any of its subsidiaries by any writ, injunction,
decree, order or judgment, and (iv) there are no actions, suits, claims,
investigations, inquiries or proceedings pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries that arise out of or
relate to environmental laws.
(p) Compliance with Laws. The Company and its subsidiaries hold all
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities, except where the
failure to so hold would not have a Material Adverse Effect on the Company and
its subsidiaries, taken as a whole (the "Company Permits"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits except
where the failure to so comply would not have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. Neither the Company nor any of
its subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, permit or order of any Federal, state or local
government, domestic or foreign, or any Governmental Entity, any arbitration
award or any judgment, decree or order of any court or other Governmental
Entity, applicable to the Company or any of its subsidiaries or their respective
business, assets or operations, except for violations and failures to comply
that could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
(q) Material Contracts and Agreements.
(i) All material contracts of the Company or its subsidiaries have
been included in the Company SEC Documents, except for those contracts not
required to be filed pursuant to the rules and regulations of the SEC.
(ii) Section 3.1(q) of the Company Disclosure Letter sets forth (x) a
list of all written or oral contracts, agreements or arrangements to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective assets is bound which
would be required to be filed as exhibits to the Company's Annual Report on
Form 10-K for the year ending September 30, 1997, and (y) the following
written and oral agreements, arrangements or commitments (all such written
and oral agreements, arrangements or commitments as are required to be set
forth in Section 3.1(q) of the Company Disclosure Letter or filed as an
exhibit to any Company SEC Document, collectively, the "Designated
Contracts"), and further identifies each of the Designated Contracts which
contain change in control provisions:
(A) Each contract or agreement outside the ordinary course of
business to which the Company or any of its subsidiaries is a party
which involves an obligation or commitment to pay or be paid an amount
in excess of $1,000,000 per year;
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(B) Each contract or agreement relating to the employment or
consulting which provides for annual compensation in excess of $100,000
and each severance, termination, confidentiality, non-competition or
indemnification agreement or arrangement with any of the directors,
officers, consultants or employees of the Company or any of its
subsidiaries;
(C) Each contract or agreement to which the Company or any of its
subsidiaries is a party limiting, in any material respect, the right of
the Company or any of its subsidiaries prior to the Effective Time, or
the Surviving Corporation or any of its subsidiaries or Affiliates at or
after the Effective Time, (a) to engage in, or to compete with any
Person in any business, including each contract or agreement containing
exclusivity provisions restricting the geographical area in which, or
the method by which, any business may be conducted by the Company or any
of its subsidiaries prior to the Effective Time, or the Surviving
Corporation or any of its subsidiaries or Affiliates after the Effective
Time or (b) to solicit any customer or client; and
(D) All contracts and agreements between the Company or any of its
subsidiaries, and any Person controlling, controlled by or under common
control with the Company, other than subsidiaries of the Company.
(r) Title to Properties.
(i) Each of the Company and each of its subsidiaries has good and
defensible title to, or valid leasehold interests in, all its properties
and assets purported to be owned by it in the Company SEC Documents, except
for such as are no longer used or useful in the conduct of its businesses
or as have been disposed of in the ordinary course of business and except
for minor defects in title, easements, restrictive covenants and similar
encumbrances or impediments that, in the aggregate, do not and will not
materially interfere with its ability to conduct its business as currently
conducted or as reasonably expected to be conducted. All such assets and
properties, other than assets and properties in which the Company or any of
the subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in the Company SEC Documents and except for
minor Liens, that, in the aggregate, do not and will not materially
interfere with the ability of the Company or any of its subsidiaries to
conduct business as currently conducted or as reasonably expected to be
conducted.
(ii) Except as would not have a Material Adverse Effect on the Company
and its subsidiaries, taken as a whole, each of the Company and each of its
subsidiaries has complied in all material respects with the terms of all
leases to which it is a party and under which it is in occupancy, and all
such leases are in full force and effect. Each of the Company and each of
its subsidiaries enjoys peaceful and undisturbed possession under all such
leases.
(s) Intellectual Property. The Company and its subsidiaries own, or are
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service marks,
service mark rights, copyrights, technology, know how, processes and other
proprietary intellectual property rights and computer programs which are
material to the condition (financial or otherwise) or conduct of the business
and operations of the Company and its subsidiaries, taken as a whole. To the
Company's knowledge, (i) the use of such patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names, copyrights,
technology, know-how, processes and other proprietary intellectual property
rights and computer programs by the Company and its subsidiaries does not
infringe on the rights of any Person, subject to such claims and infringements
as do not, in the aggregate, give rise to any liability on the part of the
Company and its subsidiaries which could have a Material Adverse Effect with
respect to the Company and its subsidiaries, taken as a whole, and (ii) no
Person is infringing on any right of the Company or any of its subsidiaries with
respect to any such patents, patent rights, trademarks, trademark rights,
service marks, service mark rights, trade names, copyrights, technology,
know-how, processes and other proprietary intellectual property rights and
computer programs. No claims are pending or, to the Company's knowledge,
threatened that the Company or any of its subsidiaries is infringing or
otherwise adversely affecting the rights of any Person with regard to any
patent, license, trademark, trade name, service mark, copyright or other
intellectual property right. To the Company's knowledge, no Person is infringing
the rights of the Company or
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any of its subsidiaries with respect to any patent, license, trademark, trade
name, service mark, copyright or other intellectual property right.
(t) Labor Matters. There are no collective bargaining agreements or other
labor union agreements or understandings to which the Company or any of its
subsidiaries is a party or by which any of them is bound, nor is the Company or
any of its subsidiaries the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions. To the Company's
knowledge, since September 30, 1996, neither the Company nor any of its
subsidiaries has encountered any labor union organizing activity, or had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts.
(u) Insurance. There is no default by the Company or any of its
subsidiaries with respect to any provision contained in any insurance policy
maintained by the Company or any of its subsidiaries, and there has not been any
failure to give any notice or present any claim under any such policy in a
timely fashion or in the manner or detail required by the policy, except for
defaults or failures which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole.
(v) Undisclosed Liabilities. Except as set forth in the Company SEC
Documents, at the date of the most recent audited financial statements of the
Company included in the Company SEC Documents, neither the Company nor any of
its subsidiaries had, and since such date neither the Company nor any of such
subsidiaries has incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto or which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse Effect
on the Company and its subsidiaries, taken as a whole.
(w) Opinion of Financial Advisor. The Company has received the opinion of
Morgan dated the date of this Agreement, to the effect that the Exchange Ratio
is fair to the holders of the Shares from a financial point of view, a signed
copy of which opinion has been delivered to Parent.
(x) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by vote of those directors present (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger and the transactions contemplated thereby, are fair to and
in the best interests of the stockholders of the Company and (ii) resolved to
recommend that the holders of the Shares approve this Agreement, the Merger and
the transactions contemplated hereby and thereby.
SECTION 3.2. Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to, and agree with, the Company as follows, subject to
any exceptions specified in the Disclosure Letter of Parent previously provided
to the Company (the "Parent Disclosure Letter"):
(a) Organization; Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Parent is duly qualified to do business and in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified to do business
(individually or in the aggregate) would not have a Material Adverse Effect on
Parent and its subsidiaries, taken as a whole.
(b) Subsidiaries. Parent's subsidiaries that are corporations are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation and have the requisite
corporate power and authority to carry on their respective businesses as they
are now being conducted and to own, operate and lease the assets they now own,
operate or hold under lease. Parent's subsidiaries are duly qualified to do
business and are in good standing in each jurisdiction in which the nature of
their respective businesses or the ownership or leasing of their respective
properties makes such qualification necessary, other than in jurisdictions where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole. All the
outstanding
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shares of capital stock of Parent's subsidiaries that are corporations have been
duly authorized and validly issued and are fully paid and non-assessable and
were not issued in violation of any preemptive rights or other preferential
rights of subscription or purchase of any Person. Except as disclosed in the
Parent Disclosure Letter, all such stock and ownership interests are owned of
record and beneficially by Parent or by a wholly-owned subsidiary of Parent,
free and clear of all Liens. Except for the capital stock of, or ownership
interests in, its subsidiaries, Parent does not own, directly or indirectly, any
capital stock, equity interest or other ownership interest in any Person.
(c) Capital Structure. The authorized capital stock of Parent consists of
100,000,000 shares of common stock, $.01 par value, and 10,000,000 shares of
preferred stock, $.01 par value. At the close of business on February 17, 1997,
(i) 24,180,562 Parent Shares (excluding 1,251,973 Parent Shares held in
treasury) were issued and outstanding, including 204,420 Parent Shares subject
to restricted stock awards granted under Parent's Long-Term Incentive Plan (of
which 84,007 Parent Shares, which vest based upon the completion of certain
service criteria, had not yet vested and 120,413 Parent Shares were earned based
upon certain performance criteria but had not yet been issued), (ii) 368,779
shares of Parent Common were reserved for issuance pursuant to awards not yet
granted under Parent's Long-Term Incentive Plan and Stock Option Plan for
Nonemployee Directors, and (iii) 1,008,996 and 94,332 shares of Parent Common
were reserved for issuance pursuant to outstanding options granted under
Parent's Long-Term Incentive Plan and Stock Option Plan for Nonemployee
Directors, respectively. Except as set forth above, no shares of capital stock
or other equity or voting securities of Parent are reserved for issuance or
outstanding. All outstanding shares of capital stock of Parent are, and all such
shares issuable upon the exercise of options will be, validly issued, fully paid
and nonassessable and not subject to preemptive rights. No capital stock has
been issued by Parent since January 1, 1994, other than Parent Shares issued
pursuant to options outstanding on or prior to such date in accordance with
their terms at such date. Except for the stock options described above, as of
February 17, 1997, there were no outstanding or authorized securities, options,
warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which Parent or any of its
subsidiaries is a party, or by which any of them is bound, obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, Parent or of any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Prior to the Effective Time
of the Merger, Parent shall have taken all necessary action to permit it to
issue the number of Parent Shares to be required to be issued pursuant to the
terms of this Agreement. The Parent Common to be issued pursuant to the terms of
this Agreement will, when issued, be validly issued, fully paid and
nonassessable and not subject to preemptive rights. Such Parent Common, together
with any associated Rights, will, when issued, be registered under the
Securities Act and the Exchange Act and will, when issued, be listed on the
NYSE, subject to notice of official issuance.
(d) Authority; Non-contravention. Parent and Sub have the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of the Merger and this Agreement by the holders of a majority of the
Parent Common present in person or represented by proxy at the Parent
Stockholder Meeting ("Parent Stockholder Approval"), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub, subject to Parent Stockholder Approval. This
Agreement has been duly executed and delivered by Parent and Sub and constitutes
a valid and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws or judicial decisions now or hereafter in effect relating to creditors'
rights generally and (ii) the remedy of specific performance and injunctive
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. Except as set forth in
Section 3.2(d) of the Parent Disclosure Letter, the execution and delivery of
this Agreement by Parent and Sub do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligation or
to loss of a material benefit under, or result in
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the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of Parent or Sub or any of their subsidiaries under,
any provision of (i) the Certificate of Incorporation or By-laws of Sub or of
Parent or any comparable organizational documents of their subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Parent or Sub or any of their subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation or arbitration account applicable to Parent or Sub
or any of their subsidiaries or their respective properties or assets, other
than, in the case of clause (ii), any such conflicts, violations or defaults
that individually or in the aggregate would not have a Material Adverse Effect
on Parent and its subsidiaries taken as a whole and would not materially impair
the ability of Parent and Sub to perform their respective obligations hereunder
or prevent the consummation of any of the transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Parent or
Sub or any of their subsidiaries in connection with the execution and delivery
of this Agreement by Parent and Sub or the consummation by Parent and Sub of the
transactions contemplated hereby, except for (i) the filing by Parent of a
premerger notification and report form under the HSR Act, (ii) the filing with
the SEC of (A) the Proxy Statement with respect to Parent Stockholder Approval
and (B) such reports under Section 13(a) of the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated hereby,
(iii) the filing and effectiveness of the Registration Statement under the
Securities Act, and (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the "takeover"
or "blue sky" laws of various states and such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
(e) SEC Documents. Parent has filed all required reports, schedules, forms,
statements and other documents with the SEC since December 31, 1994 (such
documents, together with all exhibits and schedules thereto and documents
incorporated by reference therein, collectively referred to herein as the
"Parent SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of Parent
included in the Parent SEC Documents comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and other adjustments
described therein).
(f) Information Supplied. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to the Parent's
stockholders and at the time of the Parent Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement, as it relates to the Parent Stockholder Meeting, will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty is
made by Parent or Sub with
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respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by reference
therein.
(g) Absence of Certain Changes or Events. Except as disclosed in the Parent
SEC Documents, since December 31, 1995, Parent has conducted its business only
in the ordinary course consistent with past practice, and there has not been (i)
any material adverse change with respect to Parent, (ii) any declaration,
setting aside or payment of any dividend (whether in cash, stock or property)
with respect to any of Parent's capital stock, (iii) any damage, destruction or
loss, whether or not covered by insurance, that has or reasonably could be
expected to have a Material Adverse Effect on Parent and its subsidiaries, taken
as a whole, or (iv) any change in accounting methods, principles or practices by
Parent materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles.
(h) State Takeover Statutes; Absence of Supermajority Provision. Parent has
taken all action to assure that no state takeover statute or similar statute or
regulation, including, without limitation Section 203 of the DGCL, shall apply
to the Merger or any of the other transactions contemplated hereby. Except for
the Parent Stockholder Approval, no other stockholder action on the part of
Parent is required for approval of the Merger, this Agreement and the
transactions contemplated hereby.
(i) Brokers. Except for Credit Suisse First Boston Corporation ("CSFB"),
whose fees are to be paid by Parent, no broker, investment banker or other
Person, is entitled to receive from Parent or any of its subsidiaries any
investment banking, broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement, including any
fee for any opinion rendered by any investment banker.
(j) Litigation. Except as disclosed in the Parent SEC Documents, there is
no suit, action, proceeding or investigation pending or, to the knowledge of
Parent, threatened against or affecting Parent or any of its subsidiaries that
could reasonably be expected to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole, or prevent, hinder or materially delay the
ability of Parent and its subsidiaries, taken as a whole, to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Parent or any of its subsidiaries having, or which, insofar as
reasonably can be foreseen, in the future could have, any such effect.
(k) Accounting Matters. Neither Parent nor, to the best of its knowledge,
any of its affiliates, has through the date of this Agreement taken or agreed to
take any action that (without giving effect to any action taken or agreed to be
taken by the Company or any of its affiliates) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
(l) Employee Benefit Matters. As used in this Section 3.2(l), "Parent"
shall include Parent as defined in the preamble of this Agreement and any member
of a controlled group or affiliated service group, as defined in Sections
414(b), (c), (m) and (o) of the Code, of which Parent is a member. The Parent
Disclosure Letter contains a true and complete list of each employee benefit
plan as defined in Section 3(3) of ERISA, and each other material employee
benefit plan or arrangement (the "Parent Plans") which are sponsored by,
participated in or contributed to by or required to be contributed to by Parent.
Except for matters that would not in the aggregate have a Material Adverse
Effect on Parent and its subsidiaries taken as a whole:
(i) The Parent Plans are in substantial compliance with the Code and
ERISA, as they may be applicable;
(ii) With respect to any Parent Plan subject to ERISA or the Code,
there has been no transaction described in Sections 406 or 407 of ERISA or
Section 4975 of the Code unless exempt under Section 408 of ERISA or
Section 4975 of the Code;
(iii) All contributions or other amounts payable by Parent with
respect to the Parent Plans have either been paid or accrued in the
Parent's most recent financial statements included in the Parent SEC
Documents;
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(iv) To Parent's knowledge, there are no pending or threatened or
anticipated claims (other than routine claims for benefits) by or on behalf
of or against any Parent Plan or related trust;
(v) Except as disclosed in Section 3.2(1) of the of the Parent
Disclosure Letter, Parent has not maintained a pension plan that is or was
subject to the provisions of Title IV of ERISA or Section 412 of the Code.
Except as disclosed in Section 3.2(1) of the of the Parent Disclosure
Letter, Parent has not maintained, had an obligation to contribute to, or
incurred any liability with respect to a multiemployer pension plan as
defined in Section 3(37) of ERISA;
(vi) All Parent Plans which are intended to qualify under Section
401(a) of the Code have been submitted to and approved as qualifying under
Section 401(a) of the Code by the IRS or the applicable remedial amendment
period will not have ended prior to the Effective Time;
(vii) Except as expressly provided in this Agreement, the transactions
contemplated by this Agreement will not accelerate the time of payment or
vesting, increase the amount of compensation due or result in a severance
payment for any director, officer or employee or former director, officer
or employee (including any beneficiary) from the Parent; and
(viii) With respect to any entity (whether or not incorporated) that
is both treated as a single employer together with the Parent under Section
414 of the Code and located outside of the United States, any benefit plans
maintained by it for the benefit of its directors, officers, employees or
former employees (or any of their beneficiaries) are in compliance with
applicable laws pertaining to such plans in the jurisdiction of such
entity.
(m) Taxes. Each of Parent and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Parent or any of its subsidiaries is or has been a member, has timely filed all
Tax Returns required to be filed by it on or before the Effective Time of the
Merger and has timely paid or deposited (or Parent has paid or deposited on its
behalf) all Taxes which are required to be paid or deposited on or before the
Effective Time of the Merger. Each of the Tax Returns filed by Parent or any of
its subsidiaries is accurate and complete in all material respects. The most
recent consolidated financial statements of Parent contained in the filed Parent
SEC Documents reflect an adequate reserve for all Taxes payable by Parent and
its subsidiaries for all taxable periods and portions thereof through the date
of such financial statements whether or not shown as being due on any Tax
Returns. No deficiencies for any Taxes have been proposed, asserted or assessed
against Parent or any of its subsidiaries, no requests for waivers of the time
to assess any such Taxes have been granted or are pending, and there are no tax
liens upon any assets of Parent or any of its subsidiaries. The Federal income
Tax Returns of Parent and its subsidiaries consolidated in such Tax Returns have
been examined by the IRS through the year ended December 31, 1991. There are no
current examinations of any Tax Return of Parent or any of its subsidiaries
being conducted and there are no settlements or any prior examinations which
could reasonably be expected to adversely affect any taxable period for which
the statute of limitations has not run.
(n) Environmental Matters. Except as would not have a Material Adverse
Effect on Parent and its subsidiaries, taken as a whole, (i) the business and
operations of Parent and its subsidiaries are being conducted in compliance with
all limitations, restrictions, standards and requirements established under all
environmental laws, (ii) no facts or circumstances exist that impose on Parent
or any of its subsidiaries an obligation under environmental laws to conduct any
removal, remediation, or similar response action, (iii) there is no obligation,
undertaking or liability arising out of or relating to environmental laws that
Parent or any of its subsidiaries has agreed to, assumed or retained, by
contract or otherwise, or that has been imposed on Parent or any of its
subsidiaries by any writ, injunction, decree, order or judgment, and (iv) there
are no actions, suits, claims, investigations, inquiries or proceedings pending,
or to Parent's knowledge, threatened against Parent or any of its subsidiaries
that arise out of or relate to environmental laws.
(o) Compliance with Laws. Parent and its subsidiaries hold all required,
necessary or applicable permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities, except where the failure
to so hold would not have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole (the "Parent Permits"). Parent and its
subsidiaries are in compliance with the terms of Parent Permits except
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where the failure to so comply would not have a Material Adverse Effect on
Parent and its subsidiaries, taken a whole. Neither Parent nor any of its
subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, permit or order of any Federal, state or local government,
domestic or foreign, or any Governmental Entity, any arbitration award or any
judgment, decree or order of any court or other Governmental Entity, applicable
to Parent or any of its subsidiaries or their respective business, assets or
operations, except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole.
(p) Material Contracts and Agreements.
(i) All material contracts of Parent or its subsidiaries have been
included in the SEC Documents, except for those contracts not required to
be filed pursuant to the rules and regulations of the SEC.
(ii) Section 3.2(p) of the Parent Disclosure Letter sets forth a list
of all written or oral contracts, agreements or arrangements to which
Parent or any of its subsidiaries is a party or by which Parent or any of
its subsidiaries or any of their respective assets is bound which would be
required to be filed as exhibits to Parent's Annual Report on Form 10-K for
the year ending December 31, 1997.
(q) Title to Properties.
(i) Each of Parent and each of its subsidiaries has good and
defensible title to, or valid leasehold interests in, all its properties
and assets purported to be owned by it in the Parent SEC Documents, except
for such as are no longer used or useful in the conduct of its businesses
or as have been disposed of in the ordinary course of business and except
for minor defects in title, easements, restrictive covenants and similar
encumbrances or impediments that, in the aggregate, do not and will not
materially interfere with its ability to conduct its business as currently
conducted or as reasonably expected to be conducted. All such assets and
properties, other than assets and properties in which Parent or any of the
subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in the Parent SEC Documents and except for minor
Liens, that, in the aggregate, do not and will not materially interfere
with the ability of Parent or any of its subsidiaries to conduct business
as currently conducted or as reasonably expected to be conducted.
(ii) Except as would not have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole, each of Parent and each of its
subsidiaries has complied in all material respects with the terms of all
leases to which it is a party and under which it is in occupancy, and all
such leases are in full force and effect. Each of Parent and each of its
subsidiaries enjoys peaceful and undisturbed possession under all such
leases.
(r) Intellectual Property. Parent and its subsidiaries own, or are licensed
or otherwise have the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know how, processes and other proprietary
intellectual property rights and computer programs which are material to the
condition (financial or otherwise) or conduct of the business and operations of
Parent and its subsidiaries, taken as a whole. To Parent's knowledge, (i) the
use of such patents, patent rights, trademarks, trademark rights, service marks,
service mark rights, trade names, copyrights, technology, know-how, processes
and other proprietary intellectual property rights and computer programs by
Parent and its subsidiaries does not infringe on the rights of any Person,
subject to such claims and infringements as do not, in the aggregate, give rise
to any liability on the part of Parent and its subsidiaries which could have a
Material Adverse Effect with respect to Parent and its subsidiaries, taken as a
whole, and (ii) no Person is infringing on any right of Parent or any of its
subsidiaries with respect to any such patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names, copyrights,
technology, know-how, processes and other proprietary intellectual property
rights and computer programs. No claims are pending or, to Parent's knowledge,
threatened that Parent or any of its subsidiaries is infringing or otherwise
adversely affecting the rights of any Person with regard to any patent, license,
trademark, trade name, service mark, copyright or other intellectual property
right. To Parent's knowledge, no Person is
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infringing the rights of Parent or any of its subsidiaries with respect to any
patent, license, trademark, trade name, service mark, copyright or other
intellectual property right.
(s) Labor Matters. Except as set forth in the Parent Disclosure Letter,
there are no collective bargaining agreements or other labor union agreements or
understandings to which Parent or any of its subsidiaries is a party or by which
any of them is bound, nor is Parent or any of its subsidiaries the subject of
any proceeding asserting that it or any subsidiary has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or conditions. Except as set forth in the Parent Disclosure Letter, to
Parent's knowledge, since December 31, 1994, neither Parent nor any of its
subsidiaries has encountered any labor union organizing activity, or had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts.
(t) Undisclosed Liabilities. Except as set forth in the Parent SEC
Documents, at the date of the most recent audited financial statements of Parent
included in the Parent SEC Documents, neither Parent nor any of its subsidiaries
had, and since such date neither Parent nor any of such subsidiaries has
incurred (except in the ordinary course of business), any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise),
required by generally accepted accounting principles to be set forth on a
financial statement or in the notes thereto or which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
Parent and its subsidiaries, taken as a whole.
(u) Opinion of Financial Advisor. The Board of Directors of Parent has
received the opinion of CSFB, dated the date of this Agreement, to the effect
that, as of the date of this Agreement, the Exchange Ratio is fair to the Parent
from a financial point of view, a signed copy of which opinion will be delivered
to the Company as soon as practicable.
(v) Board Recommendation. The Board of Directors of Parent, at a meeting
duly called and held, has by vote of those directors present (i) determined that
this Agreement and the transactions contemplated hereby, including the Merger
and the transactions contemplated thereby, are fair to and in the best interests
of the stockholders of Parent, and (ii) resolved to recommend that the holders
of the Parent Shares approve the Merger and the transactions contemplated
thereby.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of this Agreement to
the Effective Time of the Merger (except as otherwise specifically contemplated
by the terms of this Agreement), the Company shall and shall cause its
subsidiaries to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use all reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them, in each case consistent with past practice, to the end that
their goodwill and ongoing businesses shall be unimpaired to the fullest extent
possible at the Effective Time of the Merger. Without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this Agreement,
the Company shall not, and shall not permit any of its subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (I)
dividends and distributions by any direct or indirect wholly owned
subsidiary of the Company to the Company or a wholly owned subsidiary of
the Company or (II) regular quarterly cash dividends in an amount not
greater than $.07 per share declared or paid by the Company consistent with
past practices (provided that any such quarterly cash dividend is declared
and paid in coordination with the Parent's payment of its regular dividend
on the Parent Common so that, in respect of any calendar quarter, the
holders of the Company Common Stock (x) will receive a dividend either in
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respect of their shares of Company Common Stock or Parent Common issuable
to them in the Merger and (y) will not receive a dividend on both the
Company Common Stock held by them and the Parent Common issuable to them in
the Merger), (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or
any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities other
than in connection with the exercise of outstanding stock options and
satisfaction of withholding obligations under outstanding stock options and
restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the case
of the Company, the issuance of shares of Company Common Stock upon the
exercise of stock options outstanding on the date of this Agreement in
accordance with their current terms;
(iii) amend its Certificate of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, association,
joint venture, limited liability company or other entity or division
thereof or (B) any assets that, in each case, would be material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole, except purchases in the ordinary course of business consistent
with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales or
leases in the ordinary course of business consistent with past practice and
(B) other immaterial transactions not in excess of $2,000,000 in the
aggregate;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for working capital
borrowings under currently existing revolving credit facilities incurred in
the ordinary course of business, or (B) make any loans, advances or capital
contributions to, or investments in, any other Person that would be
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole, other than to the Company or any direct or
indirect wholly owned subsidiary of the Company;
(vii) make or incur any new capital expenditure (other than purchases
in the ordinary course of business), which, singly or in the aggregate with
all other expenditures, would exceed $2,000,000;
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of the
Company included in the SEC Documents or incurred in the ordinary course of
business consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
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(xii) except as expressly permitted by this Agreement, enter into any
new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC;
(xiv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises:
(A) of litigation where the amount paid in settlement or compromise does
not exceed $100,000, or (B) in consultation and cooperation with Parent,
and, with respect to any such settlement, with the prior written consent of
Parent, which shall not be unreasonably withheld;
(xv) except for those contracts and agreements entered into in the
ordinary course of business with the consent of Parent, which consent shall
not be unreasonably withheld, enter into any contract or agreement that if
in existence on the date hereof would be required to be listed in Section
3.1(q) of the Company Disclosure Letter; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements. Neither the Company nor any of its
subsidiaries shall (except as may be required in order to give effect to the
requirements of Section 5.6) adopt or amend (except as may be required by law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement (including any Company Benefit Plan) for the
benefit or welfare of any employee, director or former director or employee,
increase the compensation or fringe benefits of any officer of the Company or
any of its subsidiaries, or, except as provided in an existing Company Benefit
Plan or in the ordinary course of business consistent with past practice,
increase the compensation or fringe benefits of any employee or former employee
or pay any benefit not required by any existing plan, arrangement or agreement.
(c) Severance. Neither the Company nor any of its subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
(d) Other Actions. The Company shall not, and shall not permit any of its
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of the Company
set forth in this Agreement becoming untrue.
SECTION 4.2. Conduct of Business of Parent and Sub.
(a) Ordinary Course. During the period from the date of this Agreement to
the Effective Time of the Merger (except as otherwise specifically contemplated
by the terms of this Agreement), Parent shall and shall cause each of its
"significant subsidiaries" (as that term is defined in the regulations
promulgated under the Exchange Act) to carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by this Agreement, Parent shall not,
and shall not permit any of its significant subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (I)
dividends and distributions by any direct or indirect wholly owned
subsidiary of Parent to Parent or a wholly owned subsidiary of Parent or
(II) regular quarterly cash dividends declared or paid by Parent consistent
with past practice, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of Parent
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities other
than in connection with exercise of outstanding stock options and
satisfaction of withholding obligations under outstanding stock options and
restricted stock;
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(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the case
of Parent, (A) the issuance of Parent Shares upon the exercise of stock
options outstanding on the date of this Agreement in accordance with their
current terms, or (B) the issuance of a number of Parent Shares, not to
exceed 5% of the Parent Shares currently outstanding, in connection with
the acquisition of assets or equity securities of other entities or
businesses;
(iii) acquire or agree to acquire any business, corporation,
partnership, association, joint venture, limited liability company or other
entity or division thereof involving the payment of consideration in excess
of $200,000,000 without the consent of the Company, which consent shall not
be unreasonably withheld;
(iv) amend its Certificate of Incorporation, By-laws, or other
comparable charter or organizational document;
(v) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(vi) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC; or
(vii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Other Actions. Parent shall not, and shall not permit any of its
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of Parent or
Sub set forth in this Agreement becoming untrue.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement;
Preparation of Registration Statement. (a) Each of the Company and Parent shall,
as soon as practicable following the execution and delivery of this Agreement on
dates to be agreed upon between Parent and the Company, which dates shall be set
taking into account the status of pending regulatory matters pertaining to the
transactions contemplated hereby, duly call, give notice of, convene and hold
the Company Stockholders Meeting and the Parent Stockholders Meeting,
respectively, for the purpose of approving the Merger, this Agreement and the
transactions contemplated hereby. Subject to the provisions of Sections 8.2(b)
and 8.3(b), each of the Company and Parent will, through its Board of Directors,
recommend to its stockholders the approval and adoption of the Merger.
(b) Promptly following the date of this Agreement, the Company and Parent
shall prepare and file with the SEC the Proxy Statement, and Parent shall
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), in which the Proxy Statement will be included as a
prospectus. Each of the Company and Parent shall use its reasonable efforts as
promptly as practicable, subject to the setting of the date for the Company
Stockholders Meeting and Parent Stockholder Meeting as provided in Section
5.1(a), to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. Each of the Company
and Parent will use its reasonable efforts to cause the Proxy Statement to be
mailed to the Company's stockholders and Parent's stockholders, respectively, as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act. Parent shall also take such reasonable actions (other
than qualifying to do business in any jurisdiction in which it is not now so
qualified) as may be required to be taken under any applicable state securities
laws in connection with the issuance of Parent Shares in the Merger, and the
Company shall furnish all information concerning the Company and the holders of
the Shares and rights to acquire Shares pursuant to the Company Stock Plans as
may be reasonably requested in connection with any such action. The Company and
Parent will notify each other promptly of the receipt of any written or oral
comments from the SEC or its staff and of any request by
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the SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply each other with copies of all
correspondence between the Company or Parent, respectively, or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger.
(c) Parent agrees to use its best efforts to effect the listing on the NYSE
prior to the Effective Time of the Merger, upon official notice of issuance,
Parent Shares to be issued pursuant to the Merger.
(d) Parent agrees to cause all Shares, if any, owned by it or by Sub or any
other subsidiary of Parent to be voted in favor of the approval and adoption of
this Agreement. The Company agrees to cause all Parent Shares, if any, owned by
it or any of its subsidiaries to be voted in favor of the approval and adoption
of this Agreement.
(e) The Company will cause its transfer agent to make stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.2. Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP,
the Company's independent public accountants, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with the
Company's efforts to obtain such letter, if requested by Arthur Andersen LLP,
Parent shall provide a representation letter to Arthur Andersen LLP complying
with SAS 72, if then required.
SECTION 5.3. Letter of Parent's Accountants. Parent shall use its best
efforts to cause to be delivered to the Company a letter of Arthur Andersen LLP,
Parent's independent public accountants, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. In connection with Parent's
efforts to obtain such letter, if requested by Arthur Andersen LLP, the Company
shall provide a representation letter to Arthur Andersen LLP complying with SAS
72, if then required.
SECTION 5.4. Access to Information. Upon reasonable notice, the Company and
Parent shall each (and shall cause each of their respective subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access during normal business hours from during
the period from the date hereof to the Effective Time, to all of its properties,
books, contracts, commitments and records, and during such period, each of the
Company and Parent shall (and shall cause each of their respective subsidiaries
to) furnish promptly to the other (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of the Exchange Act or the Securities Act
and (ii) all other information concerning its business, properties and personnel
as such other party may reasonably request. Each of the Company and Parent
agrees that it will not, and it will cause its respective representatives not
to, use any information obtained pursuant to this Section 5.4 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. The Confidentiality Agreement dated August 13, 1996 (the "Company
Confidentiality Agreement"), by and between the Company and Parent shall apply
with respect to information furnished by the Company or its subsidiaries and the
Company's representatives thereunder or hereunder and any other activities
contemplated thereby. The Confidentiality Agreement dated August 13, 1996 (the
"Parent Confidentiality Agreement"), by and between the Company and Parent shall
apply to the information furnished by Parent or its subsidiaries and Parent's
representatives thereunder or hereunder and any other the activities
contemplated thereby. The parties agree that this Agreement and the transactions
contemplated hereby shall not constitute a violation of either the Company
Confidentiality Agreement or Parent Confidentiality Agreement.
SECTION 5.5. Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, except to the extent
otherwise required by United States regulatory considerations and otherwise
provided in this Section 5.5, each of the parties agrees to use reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing,
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all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments (including any required
supplemental indentures) necessary to consummate the transactions contemplated
by this Agreement. In connection with and without limiting the foregoing, each
of the Company and Parent and its respective Board of Directors shall (i) take
all action necessary to ensure that no state takeover statute or similar statute
or regulation is or becomes applicable to the Merger, (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger, take
all action necessary to ensure that the Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and (iii)
cooperate with each other in the arrangements for refinancing any indebtedness
of, or obtaining any necessary new financing for, the Company and the Surviving
Corporation.
(b) The Company shall give prompt notice to Parent, and Parent or Sub shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement becoming untrue or inaccurate in any respect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations or warranties or covenants or agreements of the parties or the
conditions to the obligations of the parties hereunder.
(c) (i) Each of the parties hereto shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this Agreement. Each of
the parties agrees to use reasonable efforts to promptly respond to any request
for additional information pursuant to Section (e)(1) of the HSR Act.
(ii) The Company will furnish to Parent and Sub copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof (collectively, "Company HSR Documents")) between the Company,
or any of its respective representatives, on the one hand, and any Governmental
Entity, or members of the staff of such agency or authority, on the other hand,
with respect to this Agreement or the Merger; provided, however, that (x) with
respect to documents and other materials filed by or on behalf of the Company
with the Antitrust Division of the Department of Justice, the Federal Trade
Commission, or any state attorneys general that are available for review by
Parent and Sub, copies will not be required to be provided to Parent and Sub and
(y) with respect to any Company HSR Documents (1) that contain any information
which, in the reasonable judgment of Vinson & Elkins L.L.P., should not be
furnished to Parent or Sub because of antitrust considerations or (2) relating
to a request for additional information pursuant to Section (e)(1) of the HSR
Act, the obligation of the Company to furnish any such Company HSR Documents to
Parent and Sub shall be satisfied by the delivery of such Company HSR Documents
on a confidential basis to Fulbright & Jaworski L.L.P. pursuant to a
confidentiality agreement in form and substance reasonably satisfactory to
Parent. Except as otherwise required by United States regulatory considerations,
Parent and Sub will furnish to the Company copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof
(collectively, "Parent HSR Documents")) between Parent, Sub or any of their
respective representatives, on the one hand, and any Governmental Entity, or
member of the staff of such agency or authority, on the other hand, with respect
to this Agreement or the Merger; provided, however, that (x) with respect to
documents and other materials filed by or on behalf of Parent or Sub with the
Antitrust Division of the Department of Justice, the Federal Trade Commission,
or any state attorneys general that are available for review by the Company,
copies will not be required to be provided to the Company, and (y) with respect
to any Parent HSR Documents (1) that
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contain information which, in the reasonable judgment of Fulbright & Jaworski
L.L.P., should not be furnished to the Company because of antitrust
considerations or (2) relating to a request for additional information pursuant
to Section (e)(1) of the HSR Act, the obligation of Parent and Sub to furnish
any such Parent HSR Documents to the Company shall be satisfied by the delivery
of such Parent HSR Documents on a confidential basis to Vinson & Elkins L.L.P.
pursuant to a confidentiality agreement in form and substance reasonably
satisfactory to the Company.
(iii) Nothing contained in this Agreement shall be construed so as to
require Parent, Sub or the Company, or any of their respective subsidiaries or
affiliates, to sell, license, dispose of, or hold separate, or to operate in any
specified manner, any assets or businesses of Parent, Sub, the Company or the
Surviving Corporation (or to require Parent, Sub, the Company or any of their
respective subsidiaries or affiliates to agree to any of the foregoing). The
obligations of each party under Section 5.5(a) to use reasonable efforts with
respect to antitrust matters shall be limited to compliance with the reporting
provisions of the HSR Act and with its obligations under this Section 5.5(c).
SECTION 5.6. Employee Benefit Matters. (a) On or prior to the Closing Date,
the Company shall take such action under the Company Stock Plans to assure that
options outstanding under the Company Stock Plans at the Effective Time of the
Merger shall no longer permit the holder thereof to purchase Company Common
Stock and, in lieu thereof, provide the holder thereof the right to purchase,
for the exercise price per share of Company Common Stock, 1.3 shares of Parent
Common, subject to adjustment as provided in the Company Stock Plans and further
provided that such substitute option comply with the applicable IRS regulations
to preserve the tax favored status of any incentive stock options. Parent agrees
to assume the obligations of the Company to issue such shares of Parent Common
upon exercise of such options and to use its best efforts to cause the shares of
Parent Common so issuable to be registered under the Securities Act. Parent
shall issue Parent Common in replacement of any restricted stock outstanding
under the Company Stock Plan at the Exchange Ratio.
(b) On or prior to the Closing Date, the Company shall cause its Employee
Stock Ownership Plan (the "ESOP") to be amended to substitute, effective as the
Effective Time of the Merger, the Parent Common as the "Employer Securities"
under the ESOP and to make such other changes and modifications to the ESOP as
Parent and the Company deem necessary and advisable to permit the ESOP to
continue in effect with respect to the participating employees of the Company
after the Merger without any acceleration of vesting or distributions under the
ESOP.
(c) Parent currently intends to cause the Company as the Surviving
Corporation to take such actions as are necessary so that after the Effective
Time of the Merger, employees of the Company and its subsidiaries remaining with
the Company after the Merger ("Continuing Employees") will be provided with
employee benefit plans, programs, policies and arrangements that are, in the
aggregate, no less favorable to such employees as those provided to such
employees as of the date hereof; provided that it is understood that Parent
shall have no obligation to issue shares of capital stock pursuant to any such
plan or to make additional contributions to the ESOP if such issuances or
contributions are not considered to be desirable by Parent. Parent currently
intends (i) to preserve and maintain with respect to such plans, programs and
arrangements, benefits and service credit accrued to the Continuing Employees
during employment with the Company and its subsidiaries prior to the Effective
Time of the Merger except to the extent that benefits may be duplicated and (ii)
to provide that Continuing Employees shall not be subject to preexisting
condition exclusions or waiting periods (except to the extent so subject prior
to the Effective Time of the Merger) and shall receive full credit for any
copayments and deductibles already incurred during the year in which the Merger
occurs under the comparable plan of the Company and its subsidiaries.
SECTION 5.7. Indemnification. (a) From and after the Effective Time of the
Merger, the Surviving Corporation and Parent shall indemnify and hold harmless
each person who is now, or has been at any time prior to the date hereof or who
becomes prior to the Effective Time of the Merger, an officer or director of the
Company or any of its subsidiaries (the "Indemnified Parties") against (i) all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of, or in connection with, any
claim, action, suit,
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proceeding or investigation based in whole or in part on, or arising in whole or
in part out of, the fact that such person is or was a director, officer or
employee of the Company or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time of the Merger and
whether reasserted or claimed prior to, or at or after, the Effective Time of
the Merger ("Indemnified Liabilities"), and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement or the transactions contemplated hereby, in each
case to the fullest extent provided under the law of their respective states of
incorporation, as applicable, to indemnify directors and officers. Prior to the
Effective Time of the Merger, the Company shall cause each person eligible for
indemnification pursuant to this Section 5.7(a) to execute and deliver to Parent
and any insurance company providing the insurance referred to in Section 5.7(b),
a writing confirming, among other matters that could reasonably give rise to
Indemnified Liabilities, in such form as may be reasonably satisfactory to
Parent and any such insurance company.
(b) The Surviving Corporation or Parent shall use reasonable efforts to
purchase and maintain for the benefit of the Indemnified Parties for a period of
five years after the Effective Time of the Merger directors and officers
liability insurance with respect to acts, omissions and other matters occurring
prior to the Effective Time of the Merger; provided, however, that the Surviving
Corporation may substitute therefor a "runoff" policy of insurance ("Runoff
Policy") having a term of three years following the Effective Time of the Merger
with comparable coverage. Notwithstanding the foregoing, nether Parent nor the
Surviving Corporation shall be required to expend more than $400,000 in premiums
for the aggregate five year-period to obtain such coverage.
(c) The provisions of this Section 5.7 are intended to be for the benefit
of, and shall be enforceable by, the parties hereto and each Indemnified Party,
his heirs and his representatives.
SECTION 5.8. Fees and Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated.
SECTION 5.9. Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from stockholders and may respond to
inquiries from financial analysts and media representatives in a manner
consistent with its past practice and each party may make such disclosure as may
be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange without prior consultation to
the extent such consultation is not reasonably practicable. The parties agree
that the initial press release or releases to be issued in connection with the
execution of this Agreement shall be mutually agreed upon prior to the issuance
thereof.
SECTION 5.10. Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement until the Effective Time of the Merger, and
thereafter, shall give Parent the opportunity to direct the defense of such
litigation and, if Parent so chooses to direct such litigation, Parent shall
give the Company and its directors an opportunity to participate in such
litigation; provided, however, that no settlement of litigation shall be agreed
to without the consent of Parent, the Company and its directors, which consent
shall not be unreasonably withheld.
SECTION 5.11. Accounting Matters. Neither the Company nor Parent shall take
or agree to take, nor shall they permit any of their respective affiliates to
take or agree to take, any action that would prevent Parent from accounting for
the business combination to be effected by the Merger as a pooling of interests.
SECTION 5.12. Parent's Board of Directors. At the Effective Time of the
Merger, the directors of Parent shall elect one Person mutually agreed to by the
Chairman of the Board of Parent and the Chairman of the Board of the Company to
the Board of Directors of Parent. Such director shall be a Class III Director of
Parent and will serve until the annual meeting of Parent's stockholders to be
held in 1999. In addition, as of
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the Effective Time of the Merger, the directors of Parent shall appoint Carl W.
Knobloch to act as an advisory non-voting director to the Board of Directors of
Parent for a term expiring at the annual meeting of Parent's stockholders in
2000, with full rights to notice of and to attend all meetings of the Board of
Directors, and reimbursement of expenses attendant thereto, as if he were a
director. At the end of such three-year term, Mr. Knobloch shall be entitled to
be considered by the directors of Parent for election as a regular director of
Parent.
Section 5.13. Irrevocable Proxies. On the date hereof, the holders of at
least an aggregate of 2,000,000 issued and outstanding shares of Company Common
Stock shall execute and deliver to Parent an irrevocable voting proxy in the
form of Exhibit B hereto (the "Irrevocable Proxies").
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval and Parent
Stockholder Approval shall have been obtained.
(b) NYSE Listing. Parent Shares issuable to the Company's stockholders
pursuant to the Merger shall have been approved for listing on the NYSE, subject
to official notice of issuance.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
parties hereto shall, subject to Section 5.5, use reasonable efforts to have any
such injunction, order, restraint or prohibition vacated.
(e) Registration Statement Effectiveness. The Registration Statement shall
be effective under the Securities Act on the Closing Date, and all
post-effective amendments filed shall have been declared effective or shall have
been withdrawn; and no stop-order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the parties, threatened by the SEC.
(f) Blue Sky Filings. There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky" authorities of any
jurisdiction that are necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance with applicable laws,
the failure to comply with which would have a Material Adverse Effect on Parent
and its subsidiaries, taken as a whole.
SECTION 6.2. Conditions of Parent and Sub. The obligation of Parent and Sub
to consummate the Merger are further subject to the satisfaction at the
Effective Time of the Merger, of the following conditions:
(a) Compliance. The agreements and covenants of the Company to be complied
with or performed on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with or performed in all material respects and
Parent shall have received a certificate dated the Closing Date and executed on
behalf of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) Certifications and Opinion. The Company shall have furnished Parent
with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of the Company approving this Agreement and
consummation of the Merger and the transactions contemplated hereby and
directing the submission of the Merger to a vote of the stockholders of the
Company;
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(ii) a certified copy of a resolution or resolutions duly adopted by
the holders of a majority of the outstanding Shares approving the Merger
and the transactions contemplated hereby;
(iii) a favorable opinion dated the Closing Date, in customary form
and substance, of Vinson & Elkins L.L.P., counsel for the Company, dated
the Closing Date to the effect that:
(A) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
and has corporate power to own its properties and assets and to carry on
its business as presently conducted and as described in the Registration
Statement;
(B) The Company has the requisite corporate power to effect the
Merger as contemplated by this Agreement; the execution and delivery of
this Agreement did not, and the consummation of the Merger will not,
violate any provision of the Company's Certificate of Incorporation or
By-Laws; and upon the filing by the Surviving Corporation of the
Certificate of Merger, the Merger shall become effective;
(C) Each of the Company's U.S. subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation, and has corporate power to own its
properties and assets and to carry on its business as presently
conducted; and
(D) The Board of Directors of the Company has taken all action
required by the DGCL and its Certificate of Incorporation or its By-Laws
to approve the Merger and to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby; the Board of
Directors and the stockholders of the Company have taken all action
required by the DGCL and its Certificate of Incorporation and By-Laws to
authorize the Merger in accordance with the terms of this Agreement; and
this Agreement is a valid and binding Agreement of the Company
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws or judicial decisions now or hereafter in effect
relating to creditor's rights generally or governing the availability of
equitable relief.
(c) Representations and Warranties True. The representations and warranties
of the Company contained in this Agreement (other than any representations and
warranties made as of a specific date) shall be true in all material respects
(except to the extent the representation or warranty is already qualified by
materiality, in which case it shall be true in all respects) on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, except as contemplated or permitted by
this Agreement, and Parent shall have received a certificate to that effect
dated the Closing Date and executed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company.
(d) Affiliate Letters. Parent shall have received from the Company a list
of such Persons, if any, that Parent, after discussions with counsel for the
Company, believes may be "affiliates" of the Company, within the meaning of Rule
145 of the SEC pursuant to the Securities Act ("Affiliates"). The Company shall
deliver or cause to be delivered to Parent an undertaking by each Affiliate in
form satisfactory to Parent that (i) such Affiliate has no current plan or
intention to sell, exchange or otherwise dispose of the Parent Shares to be
received by such Affiliate pursuant to the Merger, (ii) no disposition will be
made by such Affiliate of any Parent Shares received or to be received pursuant
to the Merger until such time as final results of operations of Parent covering
at least 30 days of combined operations of Parent and the Company have been
published and (iii) no Parent Shares received or to be received by such
Affiliate pursuant to the Merger will be sold or disposed of except pursuant to
an effective registration statement under the Securities Act or in accordance
with the provisions of paragraph (d) of Rule 145 under the Securities Act or
another exemption from registration under the Securities Act.
(e) Tax Opinion. Parent shall have received an opinion of Fulbright &
Jaworski L.L.P., in form and substance satisfactory to Parent, to the effect
that for federal income tax purposes and conditioned upon certain
representations of managements of the Company and Parent as to certain customary
facts and circumstances regarding the Merger: (i) the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by the Company, Sub or Parent as a result of the
Merger.
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(f) Pooling Accounting. Parent and Company shall have received a letter
from Arthur Andersen LLP, in form and substance satisfactory to Parent and
Company, to the effect that the Merger should be accounted for as a pooling of
interests under generally accepted accounting principles and applicable
regulations of the SEC.
(g) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as are necessary in connection with the transactions
contemplated hereby have been obtained, except such licenses, permits, consents,
approvals, authorizations, qualifications and orders which are not, individually
or in the aggregate, material to Parent or the Company or the failure of which
to have received would not (as compared to the situation in which such license,
permit, consent, approval, authorization, qualification or order had been
obtained) materially detract from the aggregate benefits to Parent of the
transactions reasonably contemplated hereby.
(h) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other Person any
suit, action or proceeding which has a reasonable likelihood of success), (i)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement or seeking to
obtain from Parent or any of its subsidiaries any damages that are material in
relation to Parent and its subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any of
their respective subsidiaries of any material portion of the business or assets
of the Company, Parent or any of their respective subsidiaries, to dispose of or
hold separate any material portion of the business or assets of the Company,
Parent or any of their respective subsidiaries, as a result of the Merger or any
of the other transactions contemplated by this Agreement, (iii) seeking to
impose limitations on the ability of Parent or Sub to acquire or hold, or
exercise full rights of ownership as to any shares of Common Stock of the
Surviving Corporation, including, without limitation, the right to vote the
Common Stock of the Surviving Corporation on all matters properly presented to
the stockholders of the Surviving Corporation or (iv) seeking to prohibit Parent
or any of its subsidiaries from effectively controlling in any material respect
the business or operations of the Company or its subsidiaries.
(i) Fairness Opinion. CSFB will not have revoked or modified in a
materially adverse manner its opinion referred to in Section 3.2(u).
(j) No Material Adverse Change. There shall not have occurred any material
adverse change with respect to the Company since the date hereof.
SECTION 6.3. Conditions of the Company. The obligations of the Company to
consummate the Merger are further subject to the satisfaction at the Effective
Time of the Merger of the following conditions:
(a) Compliance. The agreements and covenants of Parent to be complied with
or performed on or before the Closing Date pursuant to the terms hereof shall
have been duly complied with or performed in all material respects and the
Company shall have received a certificate dated the Closing Date on behalf of
Parent by the chief executive officer and the chief financial officer of Parent
to such effect.
(b) Certifications and Opinion. Parent shall have furnished the Company
with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors or a duly authorized committee thereof of Parent
approving this Agreement and consummation of the Merger and the
transactions contemplated hereby, including the issuance, listing and
delivery of the Parent Shares pursuant hereto;
(ii) a certified copy of a resolution or resolutions duly adopted by
the holders of a majority of the Parent Shares present or represented by
proxy and entitled to vote at the Parent Stockholder Meeting, approving the
Merger and the transactions contemplated hereby;
(iii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Fulbright & Jaworski L.L.P., counsel for Parent to the
effect that:
(A) Parent and the Sub are corporations duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
and have corporate power to own their properties
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and assets and to carry on their business as presently conducted and as
described in the Proxy Statement. Sub has the requisite corporate power
to merge with the Company as contemplated by this Agreement and Parent
has the requisite corporate power to carry out its obligations under
this Agreement. The execution and delivery of this Agreement did not,
and the consummation of the Merger will not, violate any provision of
Parent's or Sub's Certificate of Incorporation or By-Laws;
(B) Parent and Sub have taken all action required under the DGCL,
their Certificates of Incorporation or their By-Laws to authorize such
execution and delivery and the transactions contemplated by this
Agreement, including the Merger, in accordance with the terms of this
Agreement; and this Agreement is a valid and binding agreement of Parent
and Sub enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter
in effect relating to creditor's rights generally or governing the
availability of equitable relief; and
(C) The Parent Shares to be issued pursuant to the Merger have been
duly authorized and, when issued and delivered as contemplated hereby,
will have been legally and validly issued and will be fully paid and
non-assessable and no stockholder of Parent will have any preemptive
right of subscription or purchase in respect thereof under Delaware law
or Parent's Certificate of Incorporation or By-laws.
(c) Representations and Warranties True. The representations and warranties
of Parent contained in this Agreement (other than any representations and
warranties made as of a specific date) shall be true in all material respects
(except to the extent the representation or warranty is already qualified by
materiality, in which case it shall be true in all respects) on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, except as contemplated or permitted by
this Agreement, and the Company shall have received a certificate to that effect
dated the Closing Date and executed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent.
(d) Tax Opinion. The Company shall have received an opinion of Vinson &
Elkins L.L.P., in form and substance satisfactory to the Company, to the effect
that for federal income tax purposes and conditioned upon certain
representations of managements of the Company and Parent as to certain customary
facts and circumstances regarding the Merger: (i) the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code; (ii) each of
the Company, Parent and Sub are parties to the reorganization within the meaning
of Section 368(b) of the Code; and (iii) no gain or loss will be recognized by
the stockholders of the Company upon the receipt by them of Parent Shares in
exchange for their Shares pursuant to the Merger.
(e) Fairness Opinion. Morgan shall not have revoked or modified in a
materially adverse manner its opinion referred to in Section 3.1(w).
(f) No Material Adverse Change. There shall not have occurred any material
adverse change with respect to Parent since the date hereof.
(g) Pooling Accounting. Parent and Company shall have received a letter
from Arthur Andersen LLP, in form and substance satisfactory to Parent and
Company, to the effect that the Merger should be accounted for as a pooling of
interests under generally accepted accounting principles and applicable
regulations of the SEC.
(h) Consents, etc. The Company shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as are necessary by the Parent in connection with the
transactions contemplated hereby have been obtained, except such licenses,
permits, consents, approvals, authorizations, qualifications and orders which
are not, individually or in the aggregate, material to Parent and its
subsidiaries or the failure of which to have received would not (as compared to
the situation in which such license, permit, consent, approval, authorization,
qualification or order had been obtained) have a Material Adverse Effect on the
Parent and its subsidiaries taken as a whole, after giving effect to the Merger.
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(i) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the stockholders of the Company fail to give any required
approval of the Merger and the transactions contemplated hereby upon a
vote at a duly held meeting of stockholders of the Company or at any
adjournment thereof;
(ii) if the stockholders of Parent fail to give any required
approval of the Merger and the transactions contemplated hereby upon a
vote at a duly held meeting of stockholders of Parent or at any
adjournment thereof;
(iii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger; or
(iv) if the Merger shall not have been consummated on or before
August 31, 1997, unless the failure to consummate the Merger is the
result of a material breach of this Agreement by the party seeking to
terminate this Agreement.
(c) by Parent or the Company to the extent permitted under Section 8.2
or 8.3;
(d) by Parent, if the Company breaches any of its representations or
warranties herein or fails to perform in any material respect any of its
covenants, agreements or obligations under this Agreement; and
(e) by the Company, if Parent or Sub breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement.
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, other than the
confidentiality provisions of Section 5.4 and the provisions of Sections 5.8,
8.2, 8.3 and Article IX.
SECTION 7.3. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the stockholders of the Company or Parent; provided, however,
that after any such approval, there shall be made no amendment that by law
requires further approval by such stockholders without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective Time of
the Merger, the parties may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or the other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (c) subject to
the proviso of Section 7.3, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
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<PAGE> 109
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1. Takeover Defenses of the Company. The Company agrees to take
such action with respect to any anti-takeover provisions in its charter or
afforded it by statute to the extent necessary to consummate the Merger on the
terms set forth in the Agreement.
SECTION 8.2. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor,
agent or representative of the Company or any of its subsidiaries to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any takeover
proposal, (ii) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
takeover proposal; provided, however, in the case of this clause (iii), that
prior to the vote of stockholders of the Company for approval of the Merger (and
not thereafter if the Merger is approved thereby) to the extent required by the
fiduciary obligations of the Board of Directors of the Company, determined in
good faith by a majority of the disinterested members thereof based on the
advice of outside counsel, the Company may, in response to an unsolicited
request therefor, furnish information to any Person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality
agreement on substantially the same terms as provided in Section 5.4(b) hereof,
including the standstill provisions thereof. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the preceding
sentence by any officer, director or employee of the Company or any of its
subsidiaries or any investment banker, attorney or other advisor, agent or
representative of the Company, whether or not such Person is purporting to act
on behalf of the Company or otherwise, shall be deemed to be a material breach
of this Agreement by the Company. For purposes of this Agreement, "takeover
proposal" means (i) any proposal, other than a proposal by Parent or any of its
affiliates, for a merger or other business combination involving the Company,
(ii) any proposal or offer, other than a proposal or offer by Parent or any of
its affiliates, to acquire from the Company or any of its affiliates in any
manner, directly or indirectly, an equity interest in the Company or any
subsidiary, any voting securities of the Company or any subsidiary or a material
amount of the assets of the Company and its subsidiaries, taken as a whole, or
(iii) any proposal or offer, other than a proposal or offer by Parent or any of
its affiliates, to acquire from the stockholders of the Company by tender offer,
exchange offer or otherwise more than 15% of the outstanding Shares.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall, except in connection with the termination of this Agreement pursuant to
Sections 7.1 (a) or (b), (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Sub the approval or recommendation by
the Board of Directors of the Company or any such committee of this Agreement or
the Merger or take any action having such effect or (ii) approve or recommend,
or propose to approve or recommend, any takeover proposal. Notwithstanding the
foregoing, in the event the Board of Directors of the Company receives a
takeover proposal that, in the exercise of its fiduciary obligations (as
determined in good faith by a majority of the disinterested members thereof
based on the advice of outside counsel), it determines to be a superior
proposal, the Board of Directors may withdraw or modify its approval or
recommendation of this Agreement or the Merger and may (subject to the following
sentence) terminate this Agreement, in each case at any time after midnight on
the third business day following Parent's receipt of written notice (a
30
<PAGE> 110
"Notice of Superior Proposal") advising Parent that the Board of Directors has
received a takeover proposal which it has determined to be a superior proposal,
specifying the material terms and conditions of such superior proposal
(including the proposed financing for such proposal and a copy of any documents
conveying such proposal) and identifying the Person making such superior
proposal. The Company may terminate this Agreement pursuant to the preceding
sentence only if the stockholders of the Company shall not yet have voted upon
the Merger and the Company shall have paid to Parent the Termination Fee. Any of
the foregoing to the contrary notwithstanding, the Company may engage in
discussions with any Person or group that has made an unsolicited takeover
proposal for the limited purpose of determining whether such proposal (as
opposed to any further negotiated proposal) is a superior proposal. Nothing
contained herein shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) following Parent's receipt
of a Notice of Superior Proposal.
(c) In the event that the Board of Directors of the Company or any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Sub the approval or recommendation by
the Board of Directors of the Company or any such committee of this Agreement or
the Merger or take any action having such effect or (ii) approve or recommend,
or propose to approve or recommend, any takeover proposal, Parent may terminate
this Agreement.
(d) For purposes of this Agreement, a "superior proposal" means any bona
fide takeover proposal to acquire, directly or indirectly, for consideration
consisting of cash, securities or a combination thereof, all of the Shares then
outstanding or all or substantially all the assets of the Company, and otherwise
on terms which a majority of the disinterested members of the Board of Directors
of the Company determines in its good faith reasonable judgment (based on the
written advice of a financial advisor of nationally recognized reputation, a
copy of which shall be provided to Parent) to be more favorable to the Company's
stockholders than the Merger.
(e) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall promptly advise Parent orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such inquiry or takeover
proposal (including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the Person making any such
takeover proposal or inquiry. The Company will keep Parent fully informed of the
status and details of any such takeover proposal or inquiry.
SECTION 8.3. Fee and Expense Reimbursements.
(a) The Company agrees to pay Parent a fee in immediately available funds
of $15,000,000 (the "Termination Fee") promptly upon the termination of the
Agreement in the event this Agreement is terminated by Parent or the Company
pursuant to Section 7.1(c). The Termination Fee shall be payable promptly upon
termination of this Agreement in the event of a termination pursuant to Section
7.1(c).
(b) In the event this Agreement is terminated for any reason other than a
material breach by Parent or Sub, the Company also agrees to pay to Parent the
Termination Fee if (i) after the date hereof and before the termination of this
Agreement, a takeover proposal shall have been made and publicly announced by
any Person or group of Persons (an "Acquiring Person"), (ii) the stockholders of
the Company shall not have approved the Merger and (iii) after the date hereof
and at or prior to six months after the date of termination of this Agreement,
the Acquiring Person or any affiliate of the Acquiring Person shall have
effected an Alternative Transaction (as defined below). An Alternative
Transaction shall mean (i) any merger or other business combination involving
the Company, (ii) any acquisition from the Company or any subsidiary of 15% of
the voting securities of the Company or any subsidiary or a material amount of
the assets of the Company and its subsidiaries, taken as a whole, or (iii) any
acquisition from the stockholders of the Company by tender offer, exchange offer
or otherwise more than 15% of the outstanding Shares. The Termination Fee
payable under this Section 8.3(b) shall be payable as a condition to the
consummation of the Alternative Transaction.
(c) In the event the Board of Directors of Parent receives a takeover
proposal involving Parent because of which, in the exercise of its fiduciary
obligations (as determined in good faith by a majority of the disinterested
members thereof based on advice of outside counsel), it determines it is
necessary to withdraw or
31
<PAGE> 111
modify its approval or recommendation of this Agreement or the Merger, Parent
may terminate this Agreement at any time after midnight on the business day
following notice of such determination is provided to the Company by advising
the Company that the Board of Directors has received a takeover proposal which
it has determined requires such action, specifying the material terms and
conditions of such proposal (including the proposed financing for such proposal
and a copy of any documents conveying such proposal) and identifying the Person
making such proposal. Parent may terminate this Agreement pursuant to the
preceding sentence only if the stockholders of Parent shall not yet have voted
upon the Merger and Parent shall have paid to the Company the Parent Termination
Fee (as hereinafter defined). Parent agrees to pay the Company a fee in
immediately available funds of $15,000,000 (the "Parent Termination Fee")
promptly upon (i) the termination of this Agreement pursuant to the first
sentence of this Section 8.3(c) or (ii) the stockholders of Parent not approving
the Merger as a result of a hostile takeover of the Parent after the date of
this Agreement. For purposes hereof, a "takeover proposal involving Parent"
shall mean (i) any proposal for a merger or other business combination involving
the Parent, (ii) any proposal or offer to acquire from the Parent or any of its
affiliates in any manner, directly or indirectly, an equity interest in the
Parent or any subsidiary, any voting securities of the Parent or any subsidiary
or a material amount of the assets of the Parent and its subsidiaries taken as a
whole, or (iii) any proposal or offer to acquire from the stockholders of Parent
by tender offer, exchange offer or otherwise, more than 15% of the Parent Common
Stock.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered by the Company pursuant to this Agreement shall survive the
Effective Time of the Merger, except any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time of the
Merger.
32
<PAGE> 112
SECTION 9.2. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
<TABLE>
<S> <C> <C>
(a) if to Parent or Sub, to
Camco International Inc.
7030 Ardmore
Houston, Texas 77054
Telephone: (713) 749-5690
Facsimile: (713) 749-1620
Confirm: (713) 749-4000
Attention: Ronald R. Randall, General Counsel
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Confirm: (713) 651-5496
Attention: Curtis W. Huff, Esq.
(b) if to the Company, to
Production Operators Corp
11302 Tanner Road
Houston, Texas 77041
Telephone: (713) 896-2506
Facsimile: (713) 896-2652
Confirm: (713) 466-0980
Attention: D. John Ogren
with a copy to:
VINSON & ELKINS L.L.P. and Alsup & Petty
2300 First City Tower Three Allen Center
1001 Fannin Street 333 Clay Street, Suite 4930
Houston, Texas 77002-6760 Houston, Texas 77002
Telephone: (713) 758-2222 Telephone: (713) 739-1313
Facsimile: (713) 758-5160 Facsimile: (713) 739-7095
Confirm: (713) 758-2320 Confirm: (713) 739-1313
Attention: Robert H. Whilden, Esq. Richard C. Alsup
</TABLE>
SECTION 9.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) "knowledge" means, with respect to any matter stated herein to be "to
the Company's knowledge," or similar language, the actual knowledge of the
Chairman of the Board, the Chief Executive Officer, President, any Vice
President or Chief Financial Officer of the Company, and with respect to any
matter stated herein to be "to Parent's knowledge," or similar language, the
actual knowledge of the Chairman of the Board, the Chief Executive Officer,
President, any Vice President, Chief Financial Officer or General Counsel of
Parent.
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<PAGE> 113
(c) "Material Adverse Effect" or "material adverse change" means, when used
in connection with any Person, any change or effect (or any development that,
insofar as can reasonably be foreseen, is likely to result in any change or
effect) that is materially adverse to the business, properties, assets,
condition (financial or otherwise) or results of operations of that Person and
its subsidiaries, taken as a whole.
(d) "Person" means an individual, corporation, partnership, joint venture,
limited liability company, association, trust, unincorporated organization or
other entity; and
(e) a "subsidiary" means any corporation, partnership or other legal entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are directly or indirectly owned by such Person.
SECTION 9.4. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (b) except for the provisions of
Sections 5.6 and 5.7, are not intended to confer upon any Person other than the
parties any rights or remedies hereunder. The provisions of Section 5.7 may be
enforced by any Person intended to benefit thereunder in the same manner as if
such provisions constituted a binding contract between such Person and each
party to this Agreement, their successors and assigns.
SECTION 9.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, and such assignment shall relieve Sub of all of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.9. Enforcement of the Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States located in the State of Texas or in any other Texas state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any Federal or state court sitting in the Southern
District of Texas in the event any dispute between the parties hereto arises out
of this Agreement solely in connection with such a suit between the parties, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement in any court other than a
Federal or state court sitting in the State of Texas or in the Southern District
of Texas.
34
<PAGE> 114
SECTION 9.10. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
CAMCO INTERNATIONAL INC.
By /s/ GARY D. NICHOLSON
-----------------------------------
Gary D. Nicholson
Chairman of the Board, President
and Chief Executive Officer
PLANE ACQUISITION CORP.
By /s/ GARY D. NICHOLSON
-----------------------------------
Gary D. Nicholson
President
PRODUCTION OPERATORS CORP
By /s/ CARL W. KNOBLOCH, JR.
-----------------------------------
Carl W. Knobloch, Jr.
Chairman of the Board
35
<PAGE> 115
EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
PRODUCTION OPERATORS CORP
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The original Certificate of Incorporation of Production Operators Corp (the
"Corporation") was filed under the name "UNICAPITAL CORPORATION" on May 9, 1969,
and was amended on December 8, 1980, to change the name to "Production Operators
Corp". On , 1997, the Board of Directors and the sole stockholder of
the Corporation adopted resolutions authorizing the further amendment and the
restatement and integration of the provisions of the amended Certificate of
Incorporation of the Corporation and authorizing the filing of this Amended and
Restated Certificate of Incorporation, in accordance with Sections 242 and 245
of the General Corporation Law of the State of Delaware. This Amended and
Restated Certificate of Incorporation amends and supersedes the amended
Certificate of Incorporation of the Corporation, as presently in effect, in its
entirety as follows:
First: The name of the Corporation is Production Operators Corp.
Second: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
Third: The nature of the business and purpose to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
the State of Delaware.
Fourth: The total number of shares of stock that the Corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, of
the par value of $.01 per share.
Fifth: The Corporation is to have perpetual existence.
Sixth: Election of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Seventh: All of the powers of the Corporation, insofar as the same may
be lawfully vested by this Amended and Restated Certificate of
Incorporation in the Board of Directors of the Corporation, are hereby
conferred upon the Board of Directors of the Corporation.
In furtherance and not in limitation of the foregoing provisions of this
Article Seventh, and for the purpose of the orderly management of the business
and the conduct of the affairs of the Corporation, the Board of Directors of the
Corporation shall have the power to adopt, amend or repeal from time to time the
by-laws of the Corporation, subject to the right of the stockholders of the
Corporation entitled to vote thereon to adopt, amend or repeal by-laws of the
Corporation.
Eighth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by , its
, this day of , 1997.
PRODUCTION OPERATORS CORP
By:
------------------------------------
Name:
Title:
<PAGE> 116
EXHIBIT B TO AGREEMENT AND PLAN OF MERGER
IRREVOCABLE PROXY
This Irrevocable Proxy (this "Proxy") is entered into and delivered as of
February 27, 1997, by the undersigned stockholders of Production Operators Corp,
a Delaware corporation (the "Stockholders"), in favor of Camco International
Inc., a Delaware corporation ("Camco").
RECITALS
As of the date of this Proxy, each Stockholder owns beneficially and of
record such number of shares of common stock, par value $1.00 per share
("Company Common Stock"), of Production Operators Corp, a Delaware corporation
(the "Company"), as is set forth next to such Stockholder's name on the
signature page hereof. All such shares, together with any shares acquired by any
Stockholder prior to the termination of this Proxy, are sometimes referred to
herein as the "Shares".
On the date hereof, Camco, Plane Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Camco ("Mergersub"), and the Company have entered
into an Agreement and Plan of Merger, dated as of the date hereof (as the same
may be amended from time to time, the "Merger Agreement"), which provides for
the merger of Mergersub with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation and a wholly owned subsidiary of
Camco.
Camco has required, in connection with its execution and delivery of the
Merger Agreement that each Stockholder grant Camco a proxy to vote such
Stockholder's Shares on the terms set forth below.
TERMS OF PROXY
In consideration of the mutual representations, warranties, covenants and
agreements set forth in the Merger Agreement and in order to induce Camco to
execute and deliver the Merger Agreement, and, in each case, to consummate the
transactions contemplated hereby, the parties hereto hereby agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Stockholder hereby represents and warrants to Camco as follows:
1.1 Authorization. Each Stockholder is either a [trust] [other entity],
validly existing [and in good standing] under the laws of its state of formation
or an individual residing in the United States. Each Stockholder has the power
and authority to execute and deliver this Proxy and to consummate the
transactions contemplated hereby. Each Stockholder has taken all necessary
actions to authorize the execution, delivery and performance of this Proxy and
the grant of the rights covered hereby. This Proxy has been duly executed and
delivered by and on behalf of each Stockholder and constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general equitable principles, regardless of
whether such enforceability is considered in a proceeding at law or in equity.
1.2 Title to Shares. Each Stockholder is the record and beneficial owner
of the Shares and owns the Shares free and clear of liens, claims, charges,
options or encumbrances or other rights of third parties of any kind or any
proxy or voting restriction other than that granted pursuant to this Proxy.
<PAGE> 117
ARTICLE II
TRANSFER AND VOTING OF SHARES
2.1 Restriction on Transfer of Shares. During the Term (as defined below),
no Stockholder shall (a) sell, transfer, pledge, grant a security interest in or
lien on or otherwise dispose of or encumber any of the Shares, (b) deposit any
of the Shares into a voting trust, enter into a voting agreement or arrangement
or grant any proxy with respect to any of the Shares, or (c) enter into any
contract, option or other arrangement or undertaking with respect to the direct
or indirect acquisition or sale, assignment, transfer, pledge, grant of a
security interest in or lien on or other disposition of or encumbrance of the
Shares.
2.2 Voting of Shares. Each Stockholder hereby irrevocably constitutes and
appoints Camco, or any nominee of Camco, with full power of substitution, during
and for the Term, as such Stockholder's true and lawful attorney and proxy, for
and in such Stockholder's name, place and stead, to vote each of such
Stockholder's Shares as its proxy, at every annual, special or adjourned meeting
of the stockholders of the Company (including the right to sign its name (as
stockholder) to any consent, certificate or other document relating to the
Company that the law of the State of Delaware may permit or require) (i) in
favor of the approval of the Merger Agreement and the consummation of all other
transactions contemplated by the Merger Agreement, (ii) against any takeover
proposal (as defined in the Merger Agreement) involving the Company, or any
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled, and (iii)
in favor of any other matter relating to consummation of the transactions
contemplated by the Merger Agreement. Each Stockholder further agrees to cause
the Shares owned by such Stockholder beneficially to be voted in accordance with
the foregoing.
2.3 Further Assurances. Each Stockholder shall take such further actions
and execute such further documents and instruments as may reasonably be
requested by Camco to vest in Camco (or its designee) the power to vote such
Stockholder's Shares and carry out the provisions of this Proxy.
2.4 Term. The term of this Proxy (the "Term") shall commence on the date
hereof and shall remain valid until the earlier of (a) consummation of the
Merger, (b) termination of the Merger Agreement for any reason (other than
pursuant to Section 8.2(b) of the Merger Agreement), or (c) one year from the
date hereof. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST.
ARTICLE III
GENERAL PROVISIONS
3.1 Severability. If any term or other provision of this Proxy is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Proxy shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, each Stockholder agrees to
negotiate with Camco in good faith to modify this Proxy so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
3.2 Entire Agreement. This Proxy constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written and
oral, between the Stockholders and Camco, with respect to the subject matter
hereof.
3.3 Assignment. This Proxy shall be binding upon Stockholder and such
Stockholder's successors and assigns.
3.4 Parties in Interest. This Proxy shall be binding upon and inure solely
to the benefit of Camco, and nothing in this Proxy, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Proxy.
-2-
<PAGE> 118
3.5 Specific Performance. Each Stockholder agrees that irreparable damage
would occur in the event any provision of this Proxy was not performed in
accordance with the terms hereof and that Camco shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
3.6 Governing Law, Jurisdiction. This Proxy shall be governed by, and
construed in accordance with the laws of the State of Delaware. Any legal
actions, suit or proceeding arising out of or relative to this Proxy shall be
instituted only in the state and federal courts situate in the States of Texas
and Delaware, and each Stockholder hereby waives any objection which it may now
or hereafter have to the laying of venue of such action, suit or proceeding in,
and hereby irrevocably submits to the jurisdiction of, any such court in any
such action, suit or proceeding. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against each
Stockholder if given by mail, postage, prepaid, mailed to such Stockholder at
the Company's principal place of business.
3.7 Counterparts. This Proxy may be executed in one or more counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each Stockholder has caused this Proxy to be duly
executed and delivered as of the day and year first written above.
------------------------------------
By:
Number of Shares:
------------------------------------
By:
Number of Shares:
------------------------------------
Number of Shares:
------------------------------------
Number of Shares:
------------------------------------
Number of Shares:
AGREED AND ACCEPTED:
CAMCO INTERNATIONAL INC.
By:
-3-
<PAGE> 119
APPENDIX C
[MORGAN STANLEY LETTERHEAD]
February 27, 1997
Board of Directors
Production Operators Corp
11302 Tanner Road
Houston, TX 77041
Members of the Board:
We understand that Production Operators Corp ("POI" or the "Company"), Camco
International, Inc., ("Camco") and Plane Acquisition Corp., a wholly owned
subsidiary of Camco ("Merger Sub"), have entered into an Agreement and Plan of
Merger, dated as of February 27, 1997 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Merger Sub with and into
the Company. Pursuant to the Merger, POI will become a wholly owned subsidiary
of Camco and each issued and outstanding share of common stock, par value $1.00
per share, of POI (the "POI Common Stock"), other than shares held in treasury
or held by Camco or any affiliate of Camco, will be converted into the right to
receive 1.3000 (the "Exchange Ratio") shares of common stock, par value $.01
per share, of Camco (the "Camco Common Stock"). The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of
shares of POI Common Stock.
For purposes of the opinion set forth herein, we have:
(i) received certain publicly available financial statements and
other information of Camco;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Camco prepared by the
management of Camco;
(iii) analyzed certain financial projections prepared by the
management of Camco;
(iv) discussed the past and current operations and financial
condition and the prospects of Camco with senior executives of
Camco, and analyzed the pro
<PAGE> 120
Production Operators Corp MORGAN STANLEY
February 27, 1997
Page 2
forma impact of the Merger on Camco's earnings per share,
consolidated capitalization and financial ratios;
(v) reviewed certain publicly available financial statements and
other information of POI;
(vi) reviewed certain internal financial statements and other
financial and operating data concerning POI prepared by the
management of POI;
(vii) analyzed certain financial projections prepared by the
management of POI;
(viii) discussed the past and current operations and financial
condition and the prospects of POI with senior executives
of POI;
(ix) reviewed reported prices and trading activity for the Camco
Common Stock and the POI Common Stock;
(x) compared the financial performance of Camco and the prices and
trading activity of the Camco Common Stock and the POI Common
Stock with that of certain other comparable publicly traded
companies and their securities;
(xi) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(xii) reviewed and discussed with the senior management of POI and
Camco the strategic rationale for the Merger and the synergies,
cost savings and other benefits expected to be derived from
the Merger;
(xiii) participated in discussions and negotiations among
representatives of Camco and POI and their financial and
legal advisors;
(xiv) reviewed the Merger Agreement and certain related documents;
and
(xv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of POI and Camco.
We have also relied upon, without independent verification, estimates by the
management of POI of the synergies, cost savings and other benefits expected to
be derived from the Merger. In addition, we have
<PAGE> 121
Production Operators Corp
February 27, 1997 Morgan Stanley
Page 3
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement, including among other things, that the Merger
will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. generally accepted accounting principles. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of POI in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financing services for Camco and have received fees for the rendering of these
services.
It is understood that this letter is for the information of the Board of
Directors of POI and may not be used for any other purpose without our prior
written consent, except that this letter may be included in its entirety in any
filings made by POI with the Securities and Exchange Commission in connection
with the Merger. In addition, we express no opinion or recommendation as to how
the holders of POI Common Stock should vote at the shareholders' meeting held
in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of POI Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
<PAGE> 122
APPENDIX B
February 27, 1997
Board of Directors
Camco International, Inc.
7030 Ardmore
Houston, Texas 77054
Members of the Board:
You have asked us to advise you with respect to the fairness to Camco
International, Inc. ("Camco") from a financial point of view of the proposed
Exchange Ratio (as defined below) provided for in the Agreement and Plan of
Merger, dated as of February 27, 1997 (the "Merger Agreement"), among Camco,
Production Operators Corp ("Production Operators") and Plane Acquisition
Corporation ("Sub"). The Merger Agreement provides for, among other things,
the merger of Sub with and into Production Operators pursuant to which
Production Operators will become a wholly owned subsidiary of Camco and each
outstanding share of the common stock, par value $1.00 per share, of Production
Operators will be converted into the right to receive 1.3 shares (the "Exchange
Ratio") of the common stock, par value $0.01 per share, of Camco (the "Camco
Common Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and certainly
publicly available business and financial information relating to Camco and
Production Operators. We have also reviewed certain other information relating
to Camco and Production Operators, including financial forecasts, provided to
us by Camco and Production Operators, and have met with the managements of
Camco and Production Operators to discuss the businesses and prospects of Camco
and Production Operators.
We have also considered certain financial and stock market data of Camco and
Production Operators, and we have compared those data with similar data for
other publicly held companies in businesses similar to Camco and Production
Operators, and we have considered, to the extent publicly available, the
financial terms of certain other business combinations and other transactions
which have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Camco and Production Operators as to the future
financial performance of Camco and Production Operators. In addition, we have
not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Camco or
Production Operators, nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon information available to us,
and financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to the
actual value of the Camco Common Stock when issued pursuant to the Merger or
the prices at which the Camco Common Stock will trade subsequent to the Merger.
<PAGE> 123
Board of Directors
Camco International, Inc.
February 27, 1997
Page 2
We have acted as financial advisor to Camco in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We are currently providing
financial advisory services to Camco unrelated to the proposed Merger, for
which services we will receive compensation. In the ordinary course of its
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of both Camco and Production Operators for their own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Camco in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to any matter relating to the Merger, and is not to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to Camco from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation has the power to indemnify a director, officer,
employee or agent of the corporation and certain other persons serving at the
request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made a party by reason of such position, if such person
shall have acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful; provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Restated Certificate of Incorporation contains provisions which
eliminate the personal liability of the Registrant's directors for monetary
damages resulting from breaches of their fiduciary duty other than liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, violations under
Section 174 of the General Corporation Law of the State of Delaware or any
transaction from which the director derived an improper personal benefit.
Article VIII of the Registrant's By-laws contains detailed provisions for
the indemnification by the Registrant of current and former directors, officers,
employees and agents of the Registrant on terms that have been derived from
Section 145 of the General Corporation Law of the State of Delaware.
The Registrant has obtained directors' and officers' liability insurance
that covers certain liabilities and expenses of the Registrant's directors and
officers. In addition, the Registrant has entered into indemnification
agreements with each of its directors and certain of its executive officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit No. 2.1 to Form
8-K, File 1-10718, filed March 7, 1997).
2.2 -- Irrevocable Proxy dated February 27, 1997 (incorporated
by reference to Exhibit No. 2.2 to Form 8-K, File
1-10718, filed March 7, 1997).
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
3.2 -- By-laws of the Registrant (incorporated by reference to
Exhibit 3.4 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
the Company and First Chicago Trust Company of New York,
as Rights Agent, which includes as exhibits, the form of
Right Certificate and the Summary of Rights to Purchase
Common Shares (incorporated by reference to Exhibit No. 1
to the Company's Registration Statement on Form 8-A dated
December 19, 1994).
</TABLE>
II-1
<PAGE> 125
<TABLE>
<S> <C>
4.4 -- Credit Facility dated December 7, 1993 (incorporated by
reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.5 -- First Amendment to Credit Facility dated August 29, 1994
(incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (Reg. No.
33-83562)).
5.1 -- Opinion of Fulbright & Jaworski L.L.P., regarding
legality of securities.
8.1 -- Opinion of Fulbright & Jaworski L.L.P., regarding certain
tax matters.
8.2 -- Opinion of Vinson & Elkins L.L.P., regarding certain tax
matters.
23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibits 5.1 and 8.1).
23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
8.2).
23.3 -- Consent of Arthur Andersen LLP, with respect to the
financial statements of Camco International Inc.
23.4 -- Consent of Arthur Andersen LLP, with respect to the
financial statements of Production Operators Corp.
23.5 -- Consent of Carl W. Knobloch, Jr., with respect to being
named an advisory director of the Registrant.
23.6 -- Consent of Lester Varn, Jr., with respect to being named
a director of the Registrant.
24.1 -- Powers of Attorney (contained on page II-4).
99.1 -- Proxy card for use at Special Meeting of Stockholders of
Camco International Inc.
99.2 -- Proxy card for use at Special Meeting of Stockholders of
Production Operators Corp.
99.3 -- Consent of Credit Suisse First Boston Corporation with
respect to their fairness opinion.
99.4 -- Consent of Morgan Stanley & Co. Incorporated with respect
to their fairness opinion.
</TABLE>
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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
II-2
<PAGE> 126
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.
The undersigned Registrant hereby undertakes that:
(1) 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; and
(2) Every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act, 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, 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.
The undersigned Registrant hereby undertakes 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 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.
The undersigned Registrant hereby undertakes 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> 127
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 Houston, State of Texas,
on May 12, 1997.
CAMCO INTERNATIONAL INC.
By: /s/ GARY D. NICHOLSON
----------------------------------
Gary D. Nicholson
Chairman of the Board, President
and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary D. Nicholson, Herbert S. Yates and Ronald R.
Randall, and each of them, any of whom may act without joinder of the others,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or 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 attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, and each of them, or the substitute
or substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <C>
/s/ GARY D. NICHOLSON Chairman of the Board, President and May 12, 1997
- ----------------------------------------------------- Chief Executive Officer (Principal
Gary D. Nicholson Executive Officer)
/s/ HERBERT S. YATES Senior Vice President -- Finance and May 12, 1997
- ----------------------------------------------------- Chief Financial Officer (Principal
Herbert S. Yates Financial Officer)
/s/ BRUCE F. LONGAKER, JR. Vice President -- Finance and May 12, 1997
- ----------------------------------------------------- Corporate Controller (Principal
Bruce F. Longaker, Jr. Accounting Officer)
/s/ HUGH H. GOERNER Director May 12, 1997
- -----------------------------------------------------
Hugh H. Goerner
/s/ ROBERT L. HOWARD Director May 12, 1997
- -----------------------------------------------------
Robert L. Howard
/s/ WILLIAM J. JOHNSON Director May 12, 1997
- -----------------------------------------------------
William J. Johnson
/s/ WILLIAM A. KRAUSE Director May 12, 1997
- -----------------------------------------------------
William A. Krause
/s/ CHARLES P. SIESS, JR. Director May 12, 1997
- -----------------------------------------------------
Charles P. Siess, Jr.
/s/ GILBERT H. TAUSCH Director May 12, 1997
- -----------------------------------------------------
Gilbert H. Tausch
</TABLE>
II-4
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit No. 2.1 to Form
8-K, File 1-10718, filed March 7, 1997).
2.2 -- Irrevocable Proxy dated February 27, 1997 (incorporated
by reference to Exhibit No. 2.2 to Form 8-K, File
1-10718, filed March 7, 1997).
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
3.2 -- By-laws of the Registrant (incorporated by reference to
Exhibit 3.4 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
the Company and First Chicago Trust Company of New York,
as Rights Agent, which includes as exhibits, the form of
Right Certificate and the Summary of Rights to Purchase
Common Shares (incorporated by reference to Exhibit No. 1
to the Company's Registration Statement on Form 8-A dated
December 19, 1994).
4.4 -- Credit Facility dated December 7, 1993 (incorporated by
reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.5 -- First Amendment to Credit Facility dated August 29, 1994
(incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (Reg. No.
33-83562)).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P., regarding
legality of securities.
*8.1 -- Opinion of Fulbright & Jaworski L.L.P., regarding certain
tax matters.
*8.2 -- Opinion of Vinson & Elkins L.L.P., regarding certain tax
matters.
*23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibits 5.1 and 8.1).
*23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
8.2).
*23.3 -- Consent of Arthur Andersen LLP, with respect to the
financial statements of Camco International Inc.
*23.4 -- Consent of Arthur Andersen LLP, with respect to the
financial statements of Production Operators Corp.
*23.5 -- Consent of Carl W. Knobloch, Jr., with respect to being
named an advisory director of the Registrant.
*23.6 -- Consent of Lester Varn, Jr., with respect to being named
a director of the Registrant.
*24.1 -- Powers of Attorney (contained on page II-4).
*99.1 -- Proxy card for use at Special Meeting of Stockholders of
Camco International Inc.
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
*99.2 -- Proxy card for use at Special Meeting of Stockholders of
Production Operators Corp.
*99.3 -- Consent of Credit Suisse First Boston Corporation with
respect to their fairness opinion.
*99.4 -- Consent of Morgan Stanley & Co. Incorporated with respect
to their fairness opinion.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Fulbright & Jaworski L.L.P.]
May 13, 1997
Camco International Inc.
7030 Ardmore
Houston, Texas 77054
Ladies and Gentlemen:
We have acted as counsel for Camco International Inc., a Delaware
corporation (the "Company"), in connection with the filing by it of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission for the registration under the Securities Act
of 1933 (the "Act") of 13,798,184 shares (the "Shares") of the Company's common
stock, $1.00 par value ("Common Stock"), and associated Rights to purchase
shares of Common Stock. The Shares are to be issued in connection with the
proposed merger (the "Merger") of Plane Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of the Company ("Sub"), with and into
Production Operators Corp, a Delaware corporation ("Production Operators"),
pursuant to an Agreement and Plan of Merger dated February 27, 1997, by and
among the Company, Sub and Production Operators.
In connection therewith, we have examined originals or copies certified or
otherwise identified to our satisfaction of the Registration Statement, the
Merger Agreement, the Restated Certificate of Incorporation of the Company, the
By-laws of the Company, the corporate proceedings with respect to the Merger and
the proposed issuance of the Shares and such other documents and instruments as
we have deemed necessary or appropriate for the expression of the opinions
contained herein.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals of
those records, certificates and other instruments submitted to us as copies and
the correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.
Based on the foregoing, and having regard for such legal considerations as
we have deemed relevant, we are of the opinion that the Shares proposed to be
issued by the Company in connection with the Merger have been duly authorized
for issuance and, when issued in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the federal laws of the United States
of America and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus contained in the Registration
Statement.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
------------------------------------
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Fulbright & Jaworski L.L.P.]
May 13, 1997
Camco International Inc.
7030 Ardmore Street
Houston, Texas 77054
Gentlemen:
You have requested our opinion concerning certain federal income tax
consequences of the proposed statutory merger (the "Merger") of Plane
Acquisition Corp., a Delaware corporation ("Sub") and wholly-owned subsidiary of
Camco International Inc., a Delaware corporation ("Parent"), with and into
Production Operators Corp., a Delaware corporation ("Company"). Descriptions of
the parties and of the Merger and related transactions are set forth in the
Agreement and Plan of Merger, dated as of February 27, 1997 (the "Agreement"),
entered into by Company, Sub, and Parent. Company and Parent have represented to
us that the information contained in the Agreement is accurate and complete in
all material respects as of its execution date. Also, we assume such information
will be accurate and complete in all respects material hereto as of the
effective time of the Merger.
BACKGROUND
In connection with this opinion we have reviewed the Agreement, and Company
and Parent have represented to us that the Merger and related transactions will
be carried out in accordance with the terms of the Agreement.
SUMMARY OF TRANSACTIONS
Pursuant to the Agreement, at the effective time Sub will be merged with
and into Company pursuant to the provisions of and with the effect provided in
the Delaware General Corporation Law. Company will be the surviving corporation
resulting from the Merger. In the Merger, the Company will succeed to all of the
assets of Sub.
At the effective time of the Merger, the issued and outstanding capital
stock of Company will consist solely of shares of common stock, $1.00 par value.
In the Merger, each share of Company common stock, $1.00 par value not owned by
Company, Parent, Sub or any wholly-owned subsidiary of Company, Parent or Sub,
will be converted into one and three-tenths (1.3) shares of voting common stock,
$.01 par value, of Parent ("Parent Common"), including the related right to
purchase shares of Parent Common (collectively, the "Parent Stock") as provided
in the Agreement.
Under the Agreement, cash will be paid in lieu of any fractional shares of
Parent Stock. Apart from the cash paid in lieu of fractional shares, the
consideration paid to Company shareholders for their Company Stock will consist
solely of Parent Stock.
The Agreement provides that the parties intend the Merger to constitute a
reorganization, within the meaning of section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Further, Company and Parent have made
certain representations to us in certificates dated the same date as this
opinion. Copies of those certificates are attached hereto as Exhibit A.
Based upon the foregoing and such legal considerations as we deem relevant,
it is our opinion that for federal income tax purposes:
1. The Merger will qualify as a reorganization within the meaning of
section 368(a) of the Code.
2. No gain or loss will be recognized by Company, Sub, or Parent as a
result of the Merger.
<PAGE> 2
MISCELLANEOUS
This opinion is based on statutes, regulations promulgated thereunder, and
governmental rulings and court decisions published to date, all of which are
subject to change by the Congress, governmental agencies, and the courts. Our
opinion does not address all tax consequences applicable to the Merger and is
limited to the conclusions set forth above, and no other opinions are expressed
or implied. Further, our opinion is limited to the federal income tax
consequences of the transactions described herein. Thus, for example, no opinion
is expressed concerning any state, local, or foreign tax consequences of such
transactions.
The parties have not requested or received any advance ruling from the
Internal Revenue Service (the "Service") pertaining to the transactions
described herein. Our opinion is not binding upon the Service or any court.
Accordingly, the Service may challenge some or all of the conclusions set forth
above in an audit of a Company shareholder or of one or more of the parties to
the Merger. If such challenge occurs, it may be necessary to resort to
administrative proceedings or litigation in an effort to sustain such
conclusions, and there can be no assurance that such conclusions ultimately will
be sustained.
The opinions set forth above are based in part upon facts and
representations concerning the transactions contained in the Agreement and upon
the additional representations set forth in the certificates of Company and
Parent, copies of which are attached hereto as Exhibit A. We have not made an
independent investigation to determine the accuracy or completeness of such
facts and representations, and our opinion is conditioned on the accuracy and
completeness of such facts and representations and upon the assumption that they
will be accurate and complete as of the effective time of the Merger.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission, and to the reference to us under the captions "Terms of The
Merger -- Certain U.S. Federal Income Tax Consequences" and "Legal Matters" in
the Joint Proxy Statement/Prospectus forming a part of the Registration
Statement. In giving this consent, however, we do not hereby 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 thereunder.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
------------------------------------
Fulbright & Jaworski L.L.P.
Attachments
2
<PAGE> 3
CAMCO INTERNATIONAL INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of Camco International Inc., a
Delaware corporation ("Parent"), and acting as such, in connection with the
opinions to be delivered by the law firms of Fulbright & Jaworski L.L.P. and
Vinson & Elkins L.L.P. with respect to the Agreement and Plan of Merger dated as
of February 27, 1997 (the "Agreement"), between Parent, Plane Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and
Production Operators Corp, a Delaware corporation ("Company"), and recognizing
that said law firms will rely on this Certificate in delivering their opinions,
hereby certifies that to the best knowledge and belief of the management of
Parent, the facts that relate to the proposed merger (the "Merger") of Sub with
and into Company and related transactions pursuant to the Agreement, are true,
correct and complete in all material respects, and the undersigned further
certifies to the best knowledge and belief of the management of Parent as
follows:
1. The fair market value of the Parent stock and other consideration to be
received by the Company's shareholders will be approximately equal to the fair
market value of Company stock surrendered by such shareholders in exchange
therefor.
2. Prior to the Merger, Parent will be in control of Sub within the meaning
of section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code").
3. Following the Merger, Company will hold at least 90 percent of the fair
market value of its net assets and at least 70 percent of the fair market value
of its gross assets and at least 90 percent of the fair market value of Sub's
net assets and at least 70 percent of the fair market value of Sub's gross
assets held immediately prior to the Merger, taking into account amounts paid by
Company or Sub to dissenters, amounts paid by Company or Sub to shareholders who
receive cash or other property, amounts used by Company or Sub to pay merger
expenses, and any redemptions or distributions other than regular dividends.
4. Parent has no plan or intention to (i) liquidate Company, (ii) merge
Company with and into another corporation, (iii) sell or otherwise dispose of
the stock of Company except for transfers of stock to corporations controlled
(within the meaning of section 368(c) of the Code) by Parent, (iv) cause or
permit Company to issue additional shares of its capital stock that would result
in Parent losing control (within the meaning of section 368(c) of the Code) of
Company, (v) cause or permit Company to sell or otherwise dispose of any of its
assets or any of the assets acquired from Sub, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by Company, or (vi) reacquire any of its stock issued to the holders
of Company stock pursuant to the Merger.
5. Sub will have no liabilities assumed by Company, and will not transfer
to Company any assets subject to liabilities, in the Merger.
6. Following the Merger, Company will continue its historic business or use
a significant portion of its historic business assets in a business.
7. Parent and Sub will each pay their respective expenses, if any, incurred
in connection with the Merger.
8. There is no intercorporate indebtedness existing between Parent and
Company or between Sub and Company that was issued or acquired or will be
settled at a discount.
9. Parent does not own and has not owned during the past five years, any
shares of the capital stock of Company.
10. Parent is not an investment company as defined in sections
368(a)(2)(F)(iii) and (iv) of the Code.
11. None of the compensation to be received by any shareholder-employees of
Company will be separate consideration for, or allocable to, any of their shares
of Company stock; none of the shares of Parent stock to be received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employee will
be for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
3
<PAGE> 4
12. The payment of cash in lieu of fractional shares of Parent stock is
solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid instead of issuing
fractional shares of Parent stock will not exceed one percent of the total
consideration that will be issued pursuant to the Merger to the Company
shareholders in exchange for their Company stock. The fractional share interests
will be aggregated, and no Company shareholder will receive cash in an amount
greater than the value of one full share of Parent stock.
13. The Merger and related transactions will be carried out in accordance
with the terms of the Agreement, including attachments thereto, and there are no
other relevant agreements, arrangements or understandings relating to the Merger
other than those described or referenced in the Agreement.
14. Parent is authorized to make all of the representations made by it and
set forth herein.
We understand that (i) you will rely upon the above representations by us
in connection with issuing your opinion, (ii) the representations in this
Certificate are made as of the date hereof and as of the effective date of the
Merger, and (iii) you may disclose these representations in connection with
issuing your opinion.
Dated: May 13, 1997.
CAMCO INTERNATIONAL INC.
By /s/ RONALD R. RANDALL
-----------------------------------
Ronald R. Randall
Vice President and General Counsel
4
<PAGE> 1
EXHIBIT 8.2
[VINSON & ELKINS LETTERHEAD]
May 12, 1997
Production Operators Corp
11302 Tanner Road
Houston, Texas 77041
Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code") of
the proposed merger of a newly-formed Delaware corporation ("Sub") wholly-owned
by Camco International, Inc., a Delaware Corporation ("Parent") with and into
Production Operators Corp, a Delaware corporation (the "Company") as hereinafter
described (the "Merger"). Our opinion is based upon the Agreement and Plan of
Merger dated February 27, 1997 by and among the Company, Parent, and Sub (the
"Merger Agreement").(1) In addition, our opinion assumes that prior to the
Closing, officers of Parent and the Company shall have provided Certificates
substantially in the form attached hereto setting forth representations as to
certain facts and circumstances regarding Parent, Company, Sub and the Merger.
Our opinion is based upon the accuracy at the Effective Time of the
representations set forth in those certificates. Our opinion also assumes that
the Merger will be undertaken to achieve real and substantial non-tax business
objectives of Parent and the Company, that the Merger will be effectuated
strictly in accordance with the Merger Agreement and that there are no other
relevant agreements, arrangements or understandings among Parent, Company, Sub
or the stockholders of Parent or the Company other than those described or
referenced in the Merger Agreement.
THE MERGER
The Merger Agreement provides for the merger of Sub with and into the
Company in accordance with the Delaware General Corporation Law. As a result of
the Merger, the separate existence of Sub shall cease and the Company, as the
Surviving Corporation in the Merger, shall be a wholly-owned subsidiary of
Parent, shall continue its corporate existence under the laws of the State of
Delaware, and shall succeed to all of the properties, rights, debts and
liabilities of the Company and Sub.
At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares held in
the Company's treasury or by any of the Company's subsidiaries and shares held
by Parent, Sub or any other subsidiary of Parent, which shares shall be
canceled) shall, by virtue of the Merger and without any action on the part of
Sub, the Company or the holder thereof, be converted into and shall become 1.3
shares of a fully paid and nonassessable Parent Common Stock.
No fractional shares of Parent Common Stock shall be issued in the Merger,
but in lieu thereof, each holder of shares of Company Common Stock otherwise
entitled to a fraction of a share of Parent Common Stock shall be entitled to
receive an amount of cash (without interest) determined by multiplying the
closing price for Parent Common Stock as reported on the New York Stock Exchange
Composite Transactions for the first trading day immediately preceding the
Effective Time of the Merger by the fractional share interest to which such
holder would otherwise be entitled. Alternatively, the Parent may elect to have
the Exchange Agent aggregate all fractional shares and sell such shares into the
public market and distribute the proceeds of such sale in lieu of fractional
shares.
- ---------------
(1) Capitalized terms used but not defined herein have the meanings ascribed to
them in the Merger Agreement.
<PAGE> 2
Production Operators Corp
Page 2
May 12, 1997
Holders of shares of Company Common Stock and holders of shares of Parent
Common Stock are not entitled to dissenters' appraisal rights.
At the Effective Time, each outstanding share of common stock of Sub shall
be converted into one share of common stock of the Surviving Corporation.
STATEMENT OF AUTHORITIES
Section 368(a)(1)(A) of the Code defines a "reorganization" to include a
statutory merger or consolidation. Section 368(a)(2)(E) provides that a
transaction otherwise qualifying under section 368(a)(1)(A) shall not be
disqualified by reason of the fact that stock of a corporation (referred to as
the "controlling corporation") which before the merger was in control of the
merged corporation is used in the transaction, if (i) after the transaction, the
corporation surviving the merger holds substantially all of its properties and
of the properties of the merged corporation (other than stock of the controlling
corporation distributed in the transaction), and (ii) in the transaction, former
shareholders of the surviving corporation exchanged, for an amount of voting
stock of the controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such corporation.
Section 368(b) of the Code provides that the term "a party to a
reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another, and that in the case of a reorganization qualifying under section
368(a)(1)(A) by reason of section 368(a)(2)(E), also includes the controlling
corporation referred to in section 368(a)(2)(E). Section 368(c) provides that
the term "control" means the ownership of stock possessing at least 80 percent
of the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares of all other classes of stock
of the corporation.
Section 368(a)(2)(F) of the Code provides generally that if two or more
parties to a transaction described in section 368(a)(1) were investment
companies (as defined in section 368(a)(2)(F)(iii) and (iv)) immediately before
the transaction, then the transaction shall not be considered to be a
reorganization with respect to any such investment company (and its
shareholders). Section 368(a)(3) provides additional rules with respect to the
reorganization of a corporation in a title 11 or similar case.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization.
Treas. Reg. sec. 1.368-1(b) provides that requisite to a reorganization
under the Code are a continuity of the business enterprise under the modified
corporate form and a continuity of interest therein on the part of those persons
who, directly or indirectly, were the owners of the enterprise prior to the
reorganization.
Treas. Reg. sec. 1.368-1(d) provides that the continuity of business
enterprise requirement is satisfied if the acquiring corporation either (i)
continues the historic business of the acquired corporation or (ii) uses a
significant portion of the acquired corporation's historic business assets in a
business.
<PAGE> 3
Production Operators Corp
Page 3
May 12, 1997
In Revenue Procedure 77-37, 1977-2 C.B. 568, the Internal Revenue Service
published operating rules used in considering requests for rulings involving
corporate reorganizations. Section 3.02 of Revenue Procedure 77-37 provides that
the "continuity of interest" requirement of Treas. Reg. sec. 1.368-1(b) is
satisfied if there is continuing interest through stock ownership in the
acquiring corporation (or a corporation in control thereof) on the part of the
former shareholders of the acquired corporation which is equal in value, as of
the effective date of the reorganization, to at least 50 percent of the value of
all of the formerly outstanding stock of the acquired corporation as of the same
date. Sales, redemptions, and other dispositions of stock occurring prior or
subsequent to the reorganization will be considered in determining whether there
is a 50 percent continuing interest through stock ownership as of the effective
date of the reorganization. Revenue Procedure 77-37, by its terms, does not
define, as a matter of law, the lower limits of continuity of interest. See,
e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935); Helvering v.
Minnesota Tea Co., 296 U.S. 378 (1935); Miller v. Commissioner, 84 F.2d 415 (6th
Cir. 1936); and United States v. Adkins-Phelps, Inc., 400 F.2d 737 (8th Cir.
1968).
In Revenue Procedure 86-42, 1986-2 C.B. 722, the Internal Revenue Service
set forth standard representations to be submitted as a prerequisite to the
issuance of rulings on the tax consequences of a reorganization described in
section 368(a)(1)(A) and section 368(a)(2)(E) of the Code, which to the extent
relevant are substantially the same as the representations set forth in the
Parent and Company Officer's Certificates. In Revenue Procedure 90-56, 1990-2,
C.B. 639, the Internal Revenue Service stated that it will no longer issue
advance rulings on whether a transaction constitutes a corporate reorganization
within the meaning of section 368(a)(1)(A) of the Code, but did not revoke
Revenue Procedure 86-42.
CONCLUSIONS
Based upon the facts as summarized above and the representations set forth
in the Officer's Certificates of the Company and the Parent and the authorities
and ruling policies of the Internal Revenue Service discussed above as applied
to those facts and representations, and conditioned upon our understanding that
the transactions contemplated by the Merger Agreement will be carried out
strictly in accordance with the terms of the Merger Agreement, it is our opinion
that:
(i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code:
(ii) each of Parent, Sub and the Company will be a party to the
reorganization within the meaning of section 368(b) of the Code; and
(iii) no gain or loss for Federal income tax purposes will be
recognized by a shareholder of the Company as a result of the Merger with
respect to shares of Company Common Stock converted into shares of Parent
Common Stock (except to the extent of cash received in lieu of fractional
shares of Parent Common Stock).
We express no opinion as to the tax treatment of the Merger under the
provisions of any other sections of the Code which also may be applicable
thereto or to the tax treatment of any conditions existing at the time of, or
effects resulting from, the transactions which are not specifically addressed in
the foregoing opinion.
We hereby consent to the use of our name in the Proxy Statement to be
prepared in connection with the Merger and to the filing of this letter with the
Securities and Exchange Commission as an exhibit thereto.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 10,
1997 included in Camco International Inc.'s Form 10-K for the year ended
December 31, 1996, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 13, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated November 20,
1996 included in Production Operators Corp's Form 10-K/A for the year ended
September 30, 1996, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 13, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT
The undersigned hereby consents to being named in the Camco International
Inc. Form S-4 Registration Statement as a nominee for advisory director of Camco
International Inc. upon consummation of the proposed Agreement and Plan of
Merger dated as of February 27, 1997 by and among Camco International Inc.,
Plane Acquisition Corp. and Production Operators Corp.
/s/ CARL W. KNOBLOCH, JR.
------------------------------------
Carl W. Knobloch, Jr.
May 6, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT
The undersigned hereby consents to being named in the Camco International
Inc. Form S-4 Registration Statement as a nominee for director of Camco
International Inc. upon consummation of the proposed Agreement and Plan of
Merger dated as of February 27, 1997 by and among Camco International Inc.,
Plane Acquisition Corp. and Production Operators Corp.
/s/ LESTER VARN, JR.
------------------------------------
Lester Varn, Jr.
May 6, 1997
<PAGE> 1
EXHIBIT 99.1
CAMCO INTERNATIONAL INC.
PROXY FOR
SPECIAL MEETING OF STOCKHOLDERS
JUNE 13, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Camco International Inc. ("Camco") hereby
appoints Gary D. Nicholson, Herbert S. Yates and Ronald R. Randall, or any of
them, as proxies, each with power to act without the others and with full power
of substitution, for the undersigned to vote the number of shares of Common
Stock of Camco that the undersigned would be entitled to vote if personally
present at the Special Meeting of Stockholders of Camco to be held on Friday,
June 13, 1997, at 9:00 a.m., Houston time, at Chevron Tower Auditorium, 1301
McKinney, Houston, Texas, and at any adjournment or postponement thereof, on the
following matters that are more particularly described in the Joint Proxy
Statement/Prospectus dated May 14, 1997:
(1) Proposal to approve and adopt the Agreement and Plan of Merger dated
February 27, 1997 (the "Merger Agreement"), among Camco, Plane
Acquisition Corp., a wholly owned subsidiary of Camco ("Sub"), and
Production Operators Corp ("Production Operators"), pursuant to which
Sub will merge with and into Production Operators and each outstanding
share of Production Operators common stock will be converted into the
right to receive 1.30 shares of Camco Common Stock. Under the terms of
the Merger Agreement, an aggregate of approximately 13,800,000 shares of
Camco Common Stock would be issued or reserved for issuance
(representing approximately 35.4% of the outstanding shares of Camco
Common Stock on a fully diluted basis).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) To consider and take action upon any other business that may properly
come before the meeting or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. RECEIPT OF THE
JOINT PROXY STATEMENT/PROSPECTUS DATED MAY 14, 1997, IS HEREBY ACKNOWLEDGED.
-------------------------------
SIGNATURE OF STOCKHOLDER(S)
-------------------------------
SIGNATURE OF STOCKHOLDER(S)
PLEASE SIGN YOUR NAME EXACTLY
AS IT APPEARS HEREON. JOINT
OWNERS MUST EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS IT APPEARS THEREON.
DATE: , 1997.
PLEASE MARK, SIGN, DATE AND RETURN USING THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
PRODUCTION OPERATORS CORP
PROXY FOR
SPECIAL MEETING OF STOCKHOLDERS
JUNE 13, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Production Operators Corp ("Production
Operators") hereby appoints Carl W. Knobloch, Jr. and D. John Ogren, or either
of them, as proxies, each with power to act without the other and with full
power of substitution, for the undersigned to vote the number of shares of
Common Stock of Production Operators that the undersigned would be entitled to
vote if personally present at the Special Meeting of Stockholders of Production
Operators to be held on Friday, June 13, 1997, at 10:00 a.m., Houston time, at
the office of Production Operators, 11302 Tanner Road, Houston, Texas, and at
any adjournment or postponement thereof, on the following matters that are more
particularly described in the Joint Proxy Statement/Prospectus dated May 14,
1997:
(1) Proposal to approve and adopt the Agreement and Plan of Merger dated
February 27, 1997 ("Merger Agreement"), among Camco International Inc.
("Camco"), Plane Acquisition Corp., a wholly owned subsidiary of Camco
("Sub"), and Production Operators, pursuant to which Sub will merge with
and into Production Operators and each outstanding share of Production
Operators Common Stock will be converted into the right to receive 1.30
shares of Camco Common Stock, $.01 par value.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) To consider and take action upon any other business that may properly
come before the meeting or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. RECEIPT OF THE
JOINT PROXY STATEMENT/PROSPECTUS DATED MAY 14, 1997, IS HEREBY ACKNOWLEDGED.
-------------------------------
SIGNATURE OF STOCKHOLDER(S)
-------------------------------
SIGNATURE OF STOCKHOLDER(S)
PLEASE SIGN YOUR NAME EXACTLY
AS IT APPEARS HEREON. JOINT
OWNERS MUST EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS IT APPEARS THEREON.
DATE: , 1997.
PLEASE MARK, SIGN, DATE AND RETURN USING THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.3
[Letterhead of Credit Suisse First Boston Corporation]
Board of Directors
Camco International Inc.
7030 Ardmore
Houston, Texas 77054
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Camco International Inc. ("Camco"), dated February 27, 1997, as
Appendix B to the Joint Proxy Statement/Prospectus of Camco and Production
Operators Corp ("Production Operators") relating to the proposed merger
transaction involving Camco and Production Operators and references to such
opinion letter in the Joint Proxy Statement/Prospectus under the captions
"SUMMARY -- Opinions of Financial Advisors -- Camco", "THE
MERGER -- Background", " -- Camco's Reasons for the Merger" and "-- Opinions of
Financial Advisors -- CFSB Opinion". In giving such consent, we do not admit
that we come within the category of persons whose consent is required under, and
we do not admit that we are "experts" for purposes of, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
Credit Suisse First Boston Corporation
New York, New York
May 13, 1997
<PAGE> 1
EXHIBIT 99.4
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
MAY 13, 1997
PRODUCTION OPERATORS CORP.
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of Camco
International Inc. ("Camco"), relating to the proposed merger of Plane
Acquisition Corp., a wholly owned subsidiary of Camco, with and into Production
Operators Corp., of our opinion letter in the Joint Proxy Statement/Prospectus
which is a part of the Registration Statement, and to the references of our firm
name therein. In giving such consent we do not thereby admit that we come 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 adopted by the
Securities and Exchange Commission thereunder nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
