-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
V4BCCd2A/KETLieO3+PpZdHzn0MjZWxKhojxxqUL7so4RppHc2Ctl2yC4prqaZH6
vjkTbfuhbh+HWOaVzmWoCg==
<SEC-DOCUMENT>0000950129-02-001580.txt : 20020415
<SEC-HEADER>0000950129-02-001580.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950129-02-001580
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020328
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NATIONAL OILWELL INC
CENTRAL INDEX KEY: 0001021860
STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533]
IRS NUMBER: 760475815
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12317
FILM NUMBER: 02590231
BUSINESS ADDRESS:
STREET 1: 10000 RICHMOND AVENUE
STREET 2: 4TH FLOOR
CITY: HOUSTON
STATE: TX
ZIP: 77042-4200
BUSINESS PHONE: 7133467500
MAIL ADDRESS:
STREET 1: 10000 RICHMOND AVENUE
STREET 2: 4TH FLOOR
CITY: HOUSTON
STATE: TX
ZIP: 77042-4200
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>h95422e10-k.txt
<DESCRIPTION>NATIONAL-OILWELL INC - DECEMBER 31, 2001
<TEXT>
<PAGE>
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0475815
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
10000 RICHMOND AVENUE
4TH FLOOR
HOUSTON, TEXAS
77042-4200
----------------------------------------
(Address of principal executive offices)
(713) 346-7500
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 NEW YORK STOCK EXCHANGE
---------------------------- -----------------------
(Title of Class) (Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 22, 2002, 80,947,105 common shares were outstanding. Based upon the
closing price of these shares on the New York Stock Exchange and, excluding
solely for purposes of this calculation 5,798,591 shares beneficially owned by
directors and executive officers, the aggregate market value of the common
shares of National-Oilwell, Inc. held by non-affiliates was approximately $1.8
billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 2002 Annual Meeting of
Stockholders are incorporated in Part III of this report.
<PAGE>
ITEM 1. BUSINESS
GENERAL
National Oilwell is a worldwide leader in the design, manufacture and sale of
comprehensive systems and components used in oil and gas drilling and
production, as well as in providing supply chain integration services to the
upstream oil and gas industry.
National Oilwell manufactures and assembles drilling machinery, including
drawworks, mud pumps and top drives, which are the major mechanical components
of drilling rigs, as well as masts, derricks, cranes and substructures. Many of
these components are designed specifically for more demanding applications,
which include offshore, extended reach and deep land drilling. We also provide
electrical power systems, computer control systems and automation systems for
drilling rigs. Our systems are used in many of the industry's most
technologically demanding applications. In addition, we provide engineering and
fabrication services to integrate our drilling products and deliver complete
land drilling and workover rigs as well as drilling modules for mobile offshore
drilling rigs or offshore drilling platforms.
Our Products and Technology segment also designs and manufactures drilling
motors and specialized downhole tools for rent and sale. Drilling motors are
essential components of systems for horizontal, directional, extended reach and
performance drilling. Downhole tools include fishing tools, drilling jars, shock
tools and other specialized products.
Our Distribution Services segment offers comprehensive supply chain integration
services to the drilling and production segments. Our network of service centers
located in the United States and Canada and near other major drilling and
production activity worldwide use state of the art information technology
platforms to provide procurement, inventory management and logistics services.
These service centers stock and sell a variety of expendable items for oilfield
applications and spare parts for equipment manufactured by National Oilwell.
BUSINESS STRATEGY
National Oilwell's business strategy is to enhance its market positions and
operating performance by:
Leveraging our Installed Base of Drilling Machinery and Equipment
We believe our market position and comprehensive product offering present
substantial opportunities to capture a significant portion of expenditures for
the construction of new drilling rigs and equipment as well as the upgrade and
refurbishment of existing drilling rigs and equipment. Over the next few years,
the advanced age of the existing fleet of drilling rigs, coupled with drilling
activity involving greater depths and extended reach, is expected to generate
demand for new equipment. National Oilwell's automation and control systems
offer the potential to improve the performance of new and existing drilling
rigs. The large installed base of our equipment also provides recurring demand
for spare parts and expendable products necessary for proper and efficient
operation.
Expanding our Downhole Products Business
We believe economic opportunities for directional, horizontal, extended reach
and other value-added drilling applications will increase, providing an
opportunity for growth in the rental and sale of high-performance drilling
motors and downhole tools.
Furthering our Information Technology and Process Improvement Strategy
National Oilwell has developed an integrated information technology and process
improvement strategy to enhance procurement, inventory management and logistics
activities. As a result of the need to improve industry efficiency, oil and gas
companies and drilling contractors are frequently seeking alliances with
suppliers, manufacturers and
1
<PAGE>
service providers to achieve cost and capital improvements. We believe we are
well positioned to provide these services as a result of our:
- large and geographically diverse network of distribution service
centers in major oil and gas producing areas;
- strong relationship with a large community of industry suppliers;
- knowledge of customers procurement processes, suppliers capabilities
and products performance; and
- information systems that offer customers and suppliers enhanced
e-commerce capabilities.
In addition, the integration of our distribution expertise, extensive network
and growing base of customer alliances provides an increased opportunity for
cost-effective marketing of our manufactured parts and equipment.
Continuing our Acquisitions Strategy
We believe the oilfield service and equipment industry will continue to
experience consolidation as businesses seek to align themselves with other
market participants in order to gain access to broader markets and integrated
product offerings. From 1997 through January 2002, National Oilwell has made a
total of twenty-seven acquisitions and plans to continue to participate in this
trend.
OPERATIONS
Products and Technology
National Oilwell designs, manufactures and sells drilling systems and components
for both land and offshore drilling rigs as well as complete land drilling and
well servicing rigs. The major mechanical components include drawworks, mud
pumps, top drives, SCR houses, solids control equipment, traveling equipment and
rotary tables. These components are essential to the pumping of fluids and
hoisting, supporting and rotating of the drill string. Many of these components
are designed specifically for applications in offshore, extended reach and deep
land drilling. This equipment is installed on new rigs and often replaced during
the upgrade and refurbishment of existing rigs.
Masts, derricks and substructures are designed and manufactured for use on land
rigs and on fixed and mobile offshore platforms, and are suitable for drilling
applications to depths of up to 30,000 feet or more. Other products include
pedestal cranes, reciprocating and centrifugal pumps and fluid end expendables
for all major manufacturers' pumps. Our business includes the sale of
replacement parts for our own manufactured machinery and equipment.
We also design and produce control and data acquisition systems for drilling
related operations and automated and remotely controlled machinery for drilling
rigs. Products include the Cyberbase(TM) operator system which incorporates
computer software, keypads and joysticks rather than traditional gauges, lights
and switches. The Cyberbase(TM) system forms the basis for the state-of-the-art
driller's cabin. Another product is the automated pipe handling system that
provides an efficient and cost effective method of joining lengths of drill pipe
or casing.
While offering a complete line of conventional rigs, National Oilwell has
extensive experience in providing rig designs to satisfy requirements for harsh
or specialized environments. Such products include drilling and well servicing
rigs designed for the Arctic, highly mobile drilling and well servicing rigs for
jungle and desert use, modular well servicing rigs for offshore platforms and
modular drilling facilities for North Sea platforms. We also design and produce
fully integrated drilling solutions for the topside of offshore rigs.
National Oilwell designs and manufactures drilling motors, drilling jars and
specialized drilling tools for rent and sale. We also design and manufacture a
complete line of fishing tools used to remove objects stuck in the wellbore.
2
<PAGE>
Distribution Services
National Oilwell provides distribution services through its network of
approximately 150 distribution service centers. These distribution service
centers stock and sell a variety of expendable items for oilfield applications
and spare parts for our proprietary equipment. As oil and gas companies and
drilling contractors have refocused on their core competencies and emphasized
efficiency initiatives to reduce costs and capital requirements, our
distribution services have expanded to offer outsourcing and alliance
arrangements that include comprehensive procurement, inventory management and
logistics support. In addition, we believe we have a competitive advantage in
the distribution services business by distributing market-leading products
manufactured by us.
The supplies and equipment stocked by our distribution service centers vary by
location. Each distribution point generally offers a large line of oilfield
products including valves, fittings, flanges, spare parts for oilfield equipment
and miscellaneous expendable items.
Most drilling contractors and oil and gas companies typically buy supplies and
equipment pursuant to non-exclusive contracts, which normally specify a discount
from list price for each product or product category. Strategic alliances are
also significant to the Distribution Services business and differ from standard
agreements for supplies and equipment in that we become the customer's primary
supplier of those items. In certain cases, we assume responsibility for
procurement, inventory management and product delivery for the customer,
occasionally by working directly out of the customer's facilities.
We believe e-commerce brings a significant advantage to larger companies that
are technologically proficient. During the last few years, we have invested over
$20 million to improve our information technology systems. Our e-commerce system
can interface directly with customers' systems to maximize efficiencies for us
and for our customers. We believe we have an advantage in this effort due to our
investment in technology, geographic size, knowledge of the industry and
customers, existing relationships with vendors and existing means of product
delivery.
Marketing
Substantially all of our capital equipment and spare parts sales, and a large
portion of our smaller pumps and parts sales, are made through our direct sales
force and distribution service centers. Sales to foreign state-owned oil
companies are typically made in conjunction with agent or representative
arrangements. Our downhole products are generally rented and sold worldwide
through our own sales force and through commissioned representatives.
Distribution sales are made through our network of distribution service centers.
Customers for our products and services include drilling and other service
contractors, exploration and production companies, supply companies and
nationally owned or controlled drilling and production companies.
Competition
The oilfield services and equipment industry is highly competitive and our
revenues and earnings can be affected by price changes, introduction of new
technologies and products and improved availability and delivery. We compete
with a large number of companies, none of which are dominant.
Manufacturing and Backlog
National Oilwell has manufacturing facilities located in the United States,
Canada and Norway. The manufacture of parts or purchase of components is
sometimes outsourced to qualified subcontractors. The manufacturing operations
require a variety of components, parts and raw materials which we purchase from
multiple commercial sources. We have not experienced and do not expect any
significant delays in obtaining deliveries of materials.
3
<PAGE>
Sales of products are made on the basis of written orders and oral commitments.
Our backlog for equipment at recent year ends has been:
<Table>
<S> <C>
December 31, 2001 $385 million
December 31, 2000 282 million
December 31, 1999 114 million
December 31, 1998 83 million
</Table>
Distribution Suppliers
National Oilwell obtains products sold by its Distribution Services business
from a number of suppliers, including our own Products and Technology segment.
No single supplier of products is significant to our operations. We have not
experienced and do not expect a shortage of products that we sell.
Engineering
National Oilwell maintains a staff of engineers and technicians to:
- design and test new products, components and systems for use in
drilling and pumping applications;
- enhance the capabilities of existing products; and
- assist our sales organization and customers with special projects.
Our product engineering efforts focus on developing technology to improve the
economics and safety of drilling and pumping processes, and to emphasize
technology and complete drilling solutions.
Patents and Trademarks
National Oilwell owns or has a license to use a number of patents covering a
variety of products. Although in the aggregate these patents are of importance,
we do not consider any single patent to be of a critical or essential nature. In
general, our business has historically relied upon technological capabilities,
quality products and application of expertise rather than patented technology.
Employees
As of December 31, 2001, we had a total of 6,200 employees, 3,400 of whom were
salaried and 2,800 of whom were paid on an hourly basis. Of this workforce,
1,365 employees are employed in Canada and 574 are employed in other locations
outside the United States.
RISK FACTORS
Before purchasing any shares of National Oilwell common stock, you should
consider carefully the following factors, in addition to the other information
contained or incorporated by reference herein.
National Oilwell Depends on the Oil and Gas Industry
National Oilwell is dependent upon the oil and gas industry and its willingness
to explore for and produce oil and gas. The industry's willingness to explore
and produce depends upon the prevailing view of future product prices. Many
factors affect the supply and demand for oil and gas and therefore influence
product prices, including:
4
<PAGE>
- level of production from known reserves;
- cost of producing oil and gas;
- level of drilling activity;
- worldwide economic activity;
- national government political requirements;
- development of alternate energy sources; and
- environmental regulation.
If there is a significant reduction in demand for drilling services, in cash
flows of drilling contractors or production companies or in drilling or well
servicing rig utilization rates, then demand for our products will decline.
Oil and Gas Prices Are Volatile
Oil and gas prices have been volatile over the last ten years, ranging from $10
- - $40 per barrel. Oil prices were low in 1998, generally ranging from $11 to $16
per barrel. In 1999, oil prices recovered to more normal historical levels, and
were generally in the $25-$30 per barrel range during 2000. Prices once again
declined in the second half of 2001, generally ranging between $18 and $22. Spot
gas prices have also been volatile over the last ten years, ranging from less
than $1.00 per mmbtu to above $10.00. Gas prices were moderate in 1998 and 1999,
generally ranging from $1.80 to $2.50 per mmbtu. Gas prices strengthened
throughout 2000, generally ranging from $4-$8 per mmbtu. Since the second
quarter of 2001, gas prices have been under pressure again, and have generally
ranged from $2.20 to $3.00 per mmbtu.
These price changes have caused many shifts in the strategies and expenditure
levels of oil and gas companies and drilling contractors, particularly with
respect to decisions to purchase major capital equipment of the type we
manufacture. In the second half of 1998, lower oil prices slowed production and
new drilling, particularly in areas with high per barrel cost of production.
This slowdown quickly affected our Distribution Services segment and
subsequently negatively impacted our Products and Technology segment. While
activity increased in 2000 and 2001, demand again declined in the fourth quarter
of 2001. We cannot predict future oil and gas prices or the effect prices will
have on exploration and production levels.
National Oilwell's Industry Is Highly Competitive
The oilfield products and services industry is highly competitive. The following
competitive actions can each affect our revenues and earnings:
- price changes;
- new product and technology introductions; and
- improvements in availability and delivery.
We compete with many companies and there are low barriers to entry in many of
our businesses. Some of the companies with which we now or may in the future
compete may possess greater financial resources or offer certain products that
we do not have.
5
<PAGE>
National Oilwell Faces Potential Product Liability and Warranty Claims
Customers use some of our products in potentially hazardous drilling, completion
and production applications that can cause:
- injury or loss of life;
- damage to property, equipment or the environment; and
- suspension of operations.
We maintain amounts and types of insurance coverage that we believe are
consistent with normal industry practice. We cannot guarantee that insurance
will be adequate to cover all liabilities we may incur. We also may not be able
to maintain insurance in the future at levels we believe are necessary and at
rates we consider reasonable.
National Oilwell may be named as a defendant in product liability or other
lawsuits asserting potentially large claims if an accident occurs at a location
where our equipment and services have been used. We are currently party to
various legal and administrative proceedings. We cannot predict the outcome of
these proceedings, nor can we guarantee any negative outcomes will not be
significant to us.
Instability of Foreign Markets Could Have a Negative Impact on the Revenues of
National Oilwell
Some of our revenues depend upon customers in the Middle East, Africa, Southeast
Asia, South America and other international markets. These revenues are subject
to risks of instability of foreign economies and governments. Laws and
regulations limiting exports to particular countries can affect our sales, and
sometimes export laws and regulations of one jurisdiction contradict those of
another.
National Oilwell is exposed to the risks of changes in exchange rates between
the U.S. dollar and foreign currencies. We do not currently engage in or plan to
engage in any significant hedging or currency trading transactions designed to
compensate for adverse currency fluctuations.
National Oilwell May Not Be Able to Successfully Manage Its Growth
National Oilwell has acquired 26 companies during the past five years, including
nine in 2001. We also made one acquisition in January 2002 and intend to acquire
additional companies in the future. We cannot predict whether suitable
acquisition candidates will be available on reasonable terms or if we will have
access to adequate funds to complete any desired acquisition. Once acquired, we
cannot guarantee that we will successfully integrate the operations of the
acquired companies. Combining organizations could interrupt the activities of
some or all of our businesses and have a negative impact on operations.
National Oilwell Has Debt
In 1998, National Oilwell issued $150 million of 6 7/8% unsecured senior notes
due July 1, 2005. In 2001, we issued an additional $150 million of 6 3/4%
unsecured senior notes due March 15, 2011. As a result of these issuances, we
became more leveraged. It is also possible that we will incur additional debt in
the future in connection with acquisitions, operations or other matters. As of
December 31, 2001, we had a total of $310 million of debt and a total of $868
million of stockholders' equity. Our leverage requires us to use some of our
cash flow from operations for payment of interest on our debt. Our leverage may
also make it more difficult to obtain additional financing in the future.
Further, our leverage could make us more vulnerable to economic downturns and
competitive pressures.
6
<PAGE>
ITEM 2. PROPERTIES
National Oilwell owned or leased approximately 240 facilities worldwide as of
December 31, 2001, including the following principal manufacturing and
administrative facilities:
<Table>
<Caption>
APPROXIMATE
BUILDING SPACE
LOCATION (SQUARE FOOT) DESCRIPTION STATUS
-------- -------------- ----------- ------
<S> <C> <C> <C>
Pampa, Texas 548,000 Manufactures drilling machinery and equipment Owned
Houston, Texas 540,000 Manufactures downhole tools and mobile rigs Owned
Houston, Texas 260,000 Manufactures and services drilling machinery and Leased
equipment
Sugarland, Texas 190,000 Manufactures braking systems and generators Owned
Galena Park, Texas 188,000 Fabricates drilling components and rigs Owned
Houston, Texas 178,000 Manufactures SCR systems Owned
Edmonton, Alberta, Canada 162,000 Manufactures downhole tools Owned
Tulsa, Oklahoma 140,000 Manufactures pumps and expendable parts Owned
McAlester, Oklahoma 117,000 Manufactures pumps and expendable parts Owned
Houston, Texas 100,000 Administrative offices Leased
Stavanger, Norway 87,000 Engineering and manufacturing of drilling components Leased
and systems
Calgary, Alberta, Canada 76,000 Engineering, fabrication and assembly of coiled Owned
tubing units and wireline trucks
Victoria, Texas 71,000 Manufactures and services mobile rigs Owned
Marble Falls, Texas 65,000 Manufactures drilling expendable parts Owned
Nisku, Alberta, Canada 59,000 Manufactures drilling machinery and equipment Owned
Stavanger, Norway 62,000 Engineering and manufacturing of drilling components Owned
and systems
Edmonton, Alberta, Canada 57,000 Manufactures drilling machinery and equipment Owned
</Table>
We own or lease 61 satellite repair and manufacturing facilities that refurbish
and manufacture new equipment and parts and approximately 150 distribution
service centers worldwide. We believe the capacity of our facilities is adequate
to meet demand currently anticipated for 2002.
ITEM 3. LEGAL PROCEEDINGS
National Oilwell has various claims, lawsuits and administrative proceedings
that are pending or threatened, all arising in the ordinary course of business,
with respect to commercial, product liability and employee matters. Although no
assurance can be given with respect to the outcome of these or any other pending
legal and administrative proceedings and the effect such outcomes may have, we
believe any ultimate liability resulting from the outcome of such proceedings
will not have a material adverse effect on our consolidated financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 2001.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
National Oilwell common stock is listed on the New York Stock Exchange (ticker
symbol: NOI). The following table sets forth the stock price range during the
past three years:
<Table>
<Caption>
2001 2000 1999
----------------------- ----------------------- -----------------------
Quarter High Low High Low High Low
- --------- ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
First $40.50 $ 33.65 $ 31.38 $ 14.25 $13.69 $ 8.50
Second 39.55 26.80 32.89 22.94 14.13 10.00
Third 25.74 12.91 37.50 27.25 18.50 13.00
Fourth 20.86 13.85 39.19 28.25 16.50 12.00
</Table>
As of March 22, 2002, there were 506 holders of record of National Oilwell
common stock. Many stockholders choose to own shares through brokerage accounts
and other intermediaries rather than as holders of record so the actual number
is unknown but significantly higher. National Oilwell has never paid cash
dividends, and none are anticipated during 2002.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Data for all periods shown below is restated to combine IRI International,
Dupre' and Dreco results pursuant to pooling-of-interests accounting.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997(1)
---------- ---------- ----------- ---------- ----------
(in thousands of U.S. dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $1,747,455 $1,149,920 $ 839,648 $1,449,248 $1,282,772
Operating income(2) 189,277 48,456 1,325 139,815 114,405
Income (loss) before taxes and extraordinary loss(3) 168,017 27,037 (14,859) 125,021 101,466
Income (loss) before extraordinary loss(3) 104,063 13,136 (9,385) 81,336 67,362
Net income (loss) 104,063 13,136 (9,385) 81,336 65,227
Income (loss) per share before extraordinary loss(3)
Basic 1.29 0.17 (0.13) 1.19 1.01
Diluted 1.27 0.16 (0.13) 1.19 1.00
Net income (loss) per share
Basic 1.29 0.17 (0.13) 1.19 0.98
Diluted 1.27 0.16 (0.13) 1.19 0.97
OTHER DATA:
Depreciation and amortization 38,873 35,034 25,541 20,518 21,194
Capital expenditures 27,358 24,561 17,547 39,246 40,538
BALANCE SHEET DATA:
Working capital 631,257 480,321 452,015 529,937 417,731
Total assets 1,471,696 1,278,894 1,005,715 1,091,028 844,674
Long-term debt, less current maturities 300,000 222,477 196,053 222,209 61,813
Stockholders' equity 867,540 767,206 596,375 603,568 482,614
</Table>
(1) In order to conform Dreco's fiscal year end to match National Oilwell's
year end, the results of operations for the month of June 1997 have been
included directly in stockholders' equity. Dreco's revenues and net income
were $13.4 million and $0.9 million for the month.
(2) In connection with the IRI International Corporation merger in 2000, we
recorded charges of $14,500,000 related to direct merger costs, personnel
reductions, and facility closures and inventory write-offs of $15,684,000
due to product line rationalization. A credit of $418,000 was also recorded
in 2000 related to previous charges. In 1999, a $1,779,000 charge was
recorded by IRI prior to the merger which related to personnel reductions
resulting from consolidating our manufacturing operations. In 1998, a
$17,023,000 charge was recorded related to personnel reductions and
facility closures and a $5,600,000 charge related to the write-down of
certain tubular inventories. In 1997, we recorded a $10,660,000 charge
related to merger expenses incurred in connection with the combination with
Dreco.
(3) National Oilwell recorded an extraordinary loss in 1997 of $2,135,000, net
of income tax benefits, due to the write-off of deferred debt issuance
costs.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
National Oilwell is a worldwide leader in the design, manufacture and sale of
drilling systems, drilling equipment and downhole products as well as the
distribution to the oil and gas industry of maintenance, repair and operating
products. Our revenues are directly related to the level of worldwide oil and
gas drilling and production activities and the profitability and cash flow of
oil and gas companies and drilling contractors, which in turn are affected by
current and anticipated prices of oil and gas. Oil and gas prices have been
volatile over the last ten years, ranging from $10 - $40 per barrel. Oil prices
were low in 1998, generally ranging from $11 to $16 per barrel. In 1999, oil
prices recovered to more normal historical levels, and were generally in the
$25-$30 per barrel range during 2000. Prices once again declined in the second
half of 2001, generally ranging between $18 and $22. Spot gas prices have also
been volatile over the last ten years, ranging from less than $1.00 per mmbtu to
above $10.00. Gas prices were moderate in 1998 and 1999, generally ranging from
$1.80 to $2.50 per mmbtu. Gas prices strengthened throughout 2000, generally
ranging from $4-$8 per mmbtu. Since the second quarter of 2001, gas prices have
been under pressure again, and have generally ranged from $2.20 to $3.00 per
mmbtu. We expect our revenues to increase if our customers gain confidence in
sustained commodity prices and as their cash flows from operations improve. See
"Risk Factors".
We conduct our operations through the following segments:
Products and Technology
The Products and Technology segment designs and manufactures a large line of
proprietary products, including drawworks, mud pumps, top drives, automated pipe
handling, electrical control systems and downhole motors and tools, as well as
complete land drilling and well servicing rigs, and structural components such
as cranes, masts, derricks and substructures for offshore rigs. A substantial
installed base of these products results in a recurring replacement parts and
maintenance business. Sales of new capital equipment can result in large
fluctuations in volume between periods depending on the size and timing of the
shipment of orders. In addition, the segment provides drilling pump expendable
products for maintenance of National Oilwell's and other manufacturers'
equipment.
Distribution Services
Distribution Services revenues result primarily from the sale of maintenance,
repair and operating supplies ("MRO") from our network of distribution service
centers. These products are purchased from numerous manufacturers and vendors,
including our Products and Technology segment.
RESULTS OF OPERATIONS
Operating results by segment, which have been restated to reflect a business
combination accounted for under the pooling-of-interests method during 2000, are
as follows (in millions):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Products and Technology $ 1,120.9 $ 683.5 $ 460.0
Distribution Services 707.8 521.3 410.3
Eliminations (81.3) (54.8) (30.7)
------------ ------------ ------------
Total $ 1,747.4 $ 1,150.0 $ 839.6
============ ============ ============
Operating Income:
Products and Technology $ 171.0 $ 61.0 $ 23.6
Distribution Services 28.5 12.9 (6.0)
Corporate (10.2) (11.3) (14.5)
------------ ------------ ------------
189.3 62.6 3.1
Special Charge -- 14.1 1.8
------------ ------------ ------------
Total $ 189.3 $ 48.5 $ 1.3
============ ============ ============
</Table>
10
<PAGE>
Products and Technology
Revenues for the Products and Technology segment in 2001 increased by $437.4
million (64%) from 2000 as virtually all products experienced significant
revenue growth. Capital equipment revenues were up $285 million, drilling spares
up $35 million, expendable pumps and parts were higher by $47 million and
downhole tools increased $75 million. As a result of this robust revenue growth,
operating income in 2001 increased by $110.0 million from the prior year.
Revenues from acquisitions completed in 2001 under the purchase method of
accounting accounted for $34 million in incremental revenues.
Revenues for the Products and Technology segment in 2000 increased by $223.5
million (49%) from 1999 primarily due to increased sales of major capital
equipment and drilling spares of $110 million, expendable pumps and pump parts
of $35 million and downhole tools of $52 million. Operating income in 2000
increased by $37.4 million from the prior year due primarily to this substantial
revenue increase. Revenues from acquisitions completed in 2000 under the
purchase method of accounting accounted for $56 million in incremental revenues.
Backlog of the Products and Technology capital products was $385 million at
December 31, 2001, $282 million at December 31, 2000 and $114 million at
December 31, 1999. Substantially all of the current backlog is expected to be
shipped by the end of 2002.
Distribution Services
Distribution Services revenues in 2001 increased $186.5 million from the 2000
level with all areas and products participating in the upswing that lasted until
the middle of the 4th quarter 2001. U.S. revenues of maintenance, repair and
operating ("MRO") supplies were up 44% while Canadian revenues were 13% higher
than the prior year. Operating income in 2001 increased by $15.6 million from
the prior year due to the higher revenue volume and cost efficiencies linked to
the new global operating system. Revenues from acquisitions completed in 2001
under the purchase method of accounting accounted for $24 million in incremental
revenues.
Distribution Services revenues in 2000 increased $111.0 million from the 1999
level, reflecting the enhanced drilling activity driven primarily by higher,
more stable oil and gas prices. Revenues of maintenance, repair and operating
("MRO") supplies in the United States were 26% greater while Canadian revenues
were 30% higher than the prior year. Operating income of $12.9 million in 2000
reflects an $18.9 million improvement from 1999. The margin increase resulting
from the higher revenues and the absence of startup costs associated with the
installation of a new operating system were the primary contributors to this
significant improvement.
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. Year 2001 costs of $10.2 million represents a 10% reduction
from the prior year as various e-strategy and e-commerce initiatives became
operational. A reduction of $3.2 million in 2000 as compared to 1999 reflects
the elimination of the IRI corporate operations as a result of the merger. Year
2002 corporate charges are expected to approximate the year 2001 level.
Special Charges
During 2000, the Company recorded a special charge, net of a $0.4 million credit
from previous special charges, of $14.1 million ($11.0 million after tax, or
$0.14 per share) related to the merger with IRI International. Components of the
charge were (in millions):
<Table>
<S> <C>
Direct transaction costs $ 6.6
Severance 6.4
Facility closures 1.5
----------
14.5
Prior year reversal (0.4)
----------
$ 14.1
----------
</Table>
11
<PAGE>
The cash and non-cash elements of the charge approximate $13 million and $1.1
million, respectively. Approximately $11 million of the direct cash outlays were
spent by the end of 2000, and essentially all of the remainder had been spent at
December 31, 2001. Facility closure costs consist of lease cancellation costs
and impairment of a closed manufacturing facility that is classified with
"Property held for sale" on our balance sheet. All of this charge is applicable
to the Products and Technology business segment.
During 1999 and prior to the merger with National Oilwell, a $1.8 million charge
was recorded by IRI related to additional severance costs resulting from
consolidating our manufacturing operations.
Interest Expense
Despite continual borrowing rate declines during 2001, interest expense
increased approximately $5.5 million over 2000 due to our higher debt level to
support the working capital associated with the robust business climate. In
March 2001, we sold $150 million of 6 1/2% unsecured senior notes which
increased our total senior debt to $300 million. Year 2001 average monthly debt,
including the senior notes, was $334 million or $118 million (54%) greater than
the 2000 level.
Interest expense was greater in 2000 than the prior year due to an average
borrowing rate increase of 0.25 basis points and a higher debt level throughout
the year.
Income Taxes
National Oilwell is subject to U.S. federal, state and foreign taxes and
recorded a combined tax rate of 38% in 2001, 51% in 2000 and 37% in 1999. The
2000 effective tax rate was impacted by certain transaction costs associated
with the IRI merger and the inclusion of pre-merger IRI capital losses due to
pooling-of-interests accounting that may not be deductible. Excluding the impact
of merger-related costs and capital losses, our combined effective tax rate for
2000 was 36% compared to 43% in 1999.
We have net operating loss carryforwards in the United States, which expire at
various dates through 2009, that could reduce future tax expense by up to $4.5
million. Additional loss carryforwards in Europe generally would reduce goodwill
if realized in the future. Due to the uncertainty of future utilization, most of
the potential benefits described above have been fully reserved. We realized a
tax benefit of $0.9 million during 2001, 2000 and 1999 from our U.S.
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, National Oilwell had working capital of $631.3 million, an
increase of $150.9 million from December 31, 2000. During 2001, accounts
receivable and inventory increased by $87 million and $80 million, respectively.
Current portion of long-term debt increased approximately $10 million due to the
classification of our revolving credit agreement as a current liability due to
its expiration in September 2002. We have entered negotiations to secure a
revolving credit facility of a similar size prior to the expiration of the
current facility.
Total capital expenditures were $27.4 million during 2001, $24.6 million in 2000
and $17.5 million in 1999. Additions and enhancements to the downhole rental
tool fleet and information management and inventory control systems represent
the majority of these capital expenditures. Capital expenditures are expected to
approximate $30 million in 2002. We believe we have sufficient existing
manufacturing capacity to meet currently anticipated demand through 2002 for our
products and services.
In September 1997, we entered into a five-year unsecured $125 million revolving
credit facility. The credit facility is available for acquisitions and general
corporate purposes. The credit facility provides for interest at prime or LIBOR
plus 0.5 %, subject to downward adjustment based on our Capitalization Ratio, as
defined. It also contains financial covenants and ratios regarding minimum
tangible net worth, maximum debt to capital and minimum interest coverage. We
have not violated any financial covenants during the term of this credit
facility.
We believe cash generated from operations and amounts available under the credit
facility and from other sources of debt will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
12
<PAGE>
obligations. We also believe any significant increase in capital expenditures
caused by any need to increase manufacturing capacity can be funded from
operations or through debt financing.
We have not entered into any transactions, arrangements, or relationships with
unconsolidated entities or other persons which would materially affect
liquidity, or the availability of or requirements for capital resources. A
summary of our outstanding contractual obligations and other commercial
commitments at December 31, 2001 is as follows (in thousands):
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------
LESS THAN 1
CONTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ----------------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Long Term Debt $ 310,213 $ 10,213 $ 150,000 $ -- $ 150,000
Operating Leases 47,418 14,265 25,748 5,950 1,455
------------ ------------ ------------ ------------ ------------
Total contractual obligations $ 357,631 $ 24,478 $ 175,748 $ 5,950 $ 151,455
============ ============ ============ ============ ============
</Table>
<Table>
<Caption>
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
-------------------------------------------------------------
LESS THAN 1
COMMERCIAL COMMITMENTS TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ---------------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Line of Credit $ 125,000 $ 125,000 -- -- --
Standby Letters of Credit $ 23,152 20,663 2,489 -- --
------------ ------------ ------------ ------------ ------------
Total commercial commitments $ 148,152 $ 145,663 $ 2,489 $ -- $ --
============ ============ ============ ============ ============
</Table>
We intend to pursue additional acquisition candidates, but the timing, size or
success of any acquisition effort and the related potential capital commitments
cannot be predicted. We expect to fund future cash acquisitions primarily with
cash flow from operations and borrowings, including the unborrowed portion of
the credit facility or new debt issuances, but may also issue additional equity
either directly or in connection with acquisitions. There can be no assurance
that acquisition funds will be available at terms acceptable to us.
Inflation has not had a significant impact on National Oilwell's operating
results or financial condition in recent years.
MARKET RISK DISCLOSURE
We are subject to market risk exposure related to changes in interest rates on
our credit facility which is comprised of revolving credit notes in the United
States and Canada. A portion of the borrowings are denominated in Canadian funds
which could expose us to market risk with exchange rate movements, although such
is mitigated by our substantial operations in Canada. These instruments carry
interest at a pre-agreed upon percentage point spread from either the prime
interest rate or LIBOR. Under our credit facility, we may, at our option, fix
the interest rate for certain borrowings based on a spread over LIBOR for 30
days to 6 months. At December 31, 2001 and December 31, 2000, we had $10.2
million and $72.5 million outstanding under our credit facilities. Based on
these balances, an immediate change of one percent in the interest rate would
cause a change in annual interest expense of approximately $0.1 million in 2001
and $0.7 million in 2000. Our objective in maintaining a portion of our debt in
variable rate borrowings is the flexibility obtained regarding early repayment
without penalties and lower overall cost as compared with fixed-rate borrowings.
13
<PAGE>
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements requires us to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Our estimation process generally relates to
potential bad debts, obsolete and slow moving inventory, value of intangible
assets, and deferred income tax accounting. Note 3 to the consolidated financial
statements contains the accounting policies governing each of these matters. Our
estimates are based on historical experience and on our future expectations that
we believe to be reasonable under the circumstances. The combination of these
factors result in the amounts shown as carrying values of assets and liabilities
in the financial statements and accompanying notes. Actual results could differ
from our current estimates and those differences may be material.
We believe the following accounting policies are the most critical in the
preparation of our consolidated financial statements:
We maintain an allowance for doubtful accounts for accounts receivables by
providing for specifically identified accounts where collectibility is doubtful
and a general allowance based on the aging of the receivables compared to past
experience and current trends. A majority of our revenues come from drilling
contractors, independent oil companies, international oil companies and
government-owned or government-controlled oil companies, and we have
receivables, some denominated in local currency, in many foreign countries. If,
due to changes in worldwide oil and gas drilling activity or changes in economic
conditions in certain foreign countries, our customers were unable to repay
these receivables, additional allowances would be required.
Reserves for inventory obsolescence are determined based on our historical usage
of inventory on-hand as well as our future expectations related to our
substantial installed base and the development of new products. The amount
reserved is the recorded cost of the inventory minus its estimated realizable
value. Changes in worldwide oil and gas drilling activity and the development of
new technologies associated with the drilling industry could require additional
allowances to reduce the value of inventory to the lower of its cost or net
realizable value.
Business acquisitions are accounted for using the purchase method of accounting.
The cost of the acquired company is allocated to identifiable tangible and
intangible assets based on estimated fair value, with the excess allocated to
goodwill. The determination of impairment on long-lived assets, including
goodwill, is conducted as indicators of impairment are present. If such
indicators were present, the determination of the amount of impairment would be
based on our judgments as to the future operating cash flows to be generated
from these assets throughout their estimated useful lives. Our industry is
highly cyclical and our estimates of the period over which future cash flows
will be generated, as well as the predictability of these cash flows, can have a
significant impact on the carrying value of these assets. In periods of
prolonged down cycles, impairment charges may result.
Our net deferred tax assets and liabilities are recorded at the amount that is
more likely than not to be realized or paid. Should we determine that we would
not be able to realize all or part of the net deferred tax asset in the future,
an adjustment to the deferred tax assets would be charged to income in the
period of such determination.
SUBSEQUENT EVENT
On January 10, 2002, we completed the acquisition of the assets and business of
HAL Oilfield Pump & Equipment Company for approximately $16 million. This
business, which designs, manufactures and distributes centrifugal pumps, pump
packages and expendable parts, is complementary to our Mission pump product
line. The acquisition was accounted for as a purchase with goodwill
approximating $10 million.
14
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the statement. Other
intangible assets will continue to be amortized over their useful lives. In
addition, accounting for acquisitions under the pooling-of-interests method is
no longer permitted. We will adopt the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the non-amortization provisions of the statement for 2001 would have resulted in
an increase in net income of $11 million ($0.13 per diluted share). Pursuant to
SFAS 142, we will test goodwill for impairment upon adoption and, if impairment
is indicated, record such impairment as a cumulative effect of an accounting
change. We are currently evaluating the effect that the adoption may have on our
consolidated results of operations and financial position.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion ("APB") No. 30, Reporting the Results of Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions. This statement
retains the fundamental provisions of SFAS No. 121 and the basic requirements of
APB No. 30; however, it establishes a single accounting model to be used for
long-lived assets to be disposed of by sale and it expands the presentation of
discontinued operations to include more disposal transactions. The provisions of
this statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. We do not anticipate that the statement will
have a material impact on our financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Some of the information in this document contains, or has incorporated by
reference, forward-looking statements. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements typically are identified by use of terms
such as "may," "will," "expect," "anticipate," "estimate," and similar words,
although some forward-looking statements are expressed differently. You should
be aware that our actual results could differ materially from results
anticipated in the forward-looking statements due to a number of factors,
including changes in oil and gas prices, customer demand for our products and
worldwide economic activity. You should also consider carefully the statements
under "Risk Factors" which address additional factors that could cause our
actual results to differ from those set forth in the forward-looking statements.
Given these uncertainties, current or prospective investors are cautioned not to
place undue reliance on any such forward-looking statements. We disclaim any
obligation or intent to update any such factors or forward-looking statement to
reflect future events or developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference to Item 7 above, "Market Risk Disclosure."
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Attached hereto and a part of this report are financial statements and
supplementary data listed in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the definitive Proxy Statement for the
2002 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the definitive Proxy Statement for the
2002 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the definitive Proxy Statement for the
2002 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the definitive Proxy Statement for the
2002 Annual Meeting of Stockholders .
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
a) Financial Statements and Exhibits
1. Financial Statements
The following financial statements are presented in response to Part
II, Item 8: Page(s) in This Report
<Table>
<S> <C>
Consolidated Balance Sheets...................................................................................21
Consolidated Statements of Operations.........................................................................22
Consolidated Statements of Cash Flows.........................................................................23
Consolidated Statements of Stockholders' Equity...............................................................24
Notes to Consolidated Financial Statements....................................................................25
</Table>
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, not required
or the information is included in the financial statements or notes
thereto.
3. Exhibits
3.1 Amended and Restated Certificate of Incorporation of National-Oilwell,
Inc. (Exhibit 3.1) (5)
3.2 By-laws of National-Oilwell, Inc. (Exhibit 3.2) (1)
10.1 Employment Agreement dated as of January 1, 2002 between Merrill A.
Miller, Jr. and National Oilwell, with a similar agreement with Steven
W. Krablin
10.2 Employment Agreement dated as of January 1, 2002 between Dwight W.
Rettig and National Oilwell, with similar agreements with Robert L.
Bloom, Kevin Neveu, Mark A. Reese and Robert R. Workman
10.3 Employment Agreement dated as of June 28, 2000 between Gary W.
Stratulate and IRI International, Inc., which has now merged into
National Oilwell
10.4 Amended and Restated Stock Award and Long-Term Incentive Plan (Exhibit
10.6) (2)*
10.5 Loan Agreement dated September 25, 1997 (Exhibit 10.1) (4)
10.6 Amendment to Loan Agreement dated as of December 31, 1999 (Exhibit
10.9) (6)
10.7 Employment Agreement dated as of March 1, 2000 between Jon Gjedebo and
a National Oilwell subsidiary (Exhibit 10.8) (3)
10.8 Non-competition Agreement dated as of June 28, 2000 between Hushang
Ansary and National Oilwell (Exhibit 10.9) (3)
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page hereto)
17
<PAGE>
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
- ----------
* Compensatory plan or arrangement for management or others
(1) Filed as an Exhibit to Registration Statement No. 333-11051 on Form
S-1, as amended, initially filed on August 29, 1996.
(2) Filed with the Proxy Statement for the 1999 Annual Meeting of
Stockholders, filed on May 12, 1999.
(3) Filed as an Exhibit to our Annual Report on Form 10-K filed on March
1, 2001.
(4) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
November 7, 1997.
(5) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
August 11, 2000.
(6) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
March 16, 2000.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NATIONAL-OILWELL, INC.
DATE: MARCH 27, 2002 BY: /s/ STEVEN W. KRABLIN
---------------- ---------------------------
STEVEN W. KRABLIN
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES AND ON THE DATES INDICATED.
EACH PERSON WHOSE SIGNATURE APPEARS BELOW IN SO SIGNING, CONSTITUTES AND
APPOINTS STEVEN W. KRABLIN AND M. GAY MATHER, AND EACH OF THEM ACTING ALONE, HIS
TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION, FOR
HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO EXECUTE AND
CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ANY AND ALL
AMENDMENTS TO THIS REPORT, AND IN EACH CASE TO FILE THE SAME, WITH ALL EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND
CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MERRILL A. MILLER, JR.
--------------------------------- PRESIDENT AND CHIEF EXECUTIVE OFFICER MARCH 27, 2002
MERRILL A. MILLER, JR. (PRINCIPAL EXECUTIVE OFFICER)
/s/ STEVEN W. KRABLIN VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
--------------------------------- (PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL MARCH 27, 2002
STEVEN W. KRABLIN ACCOUNTING OFFICER)
/s/ JOEL V. STAFF
--------------------------------- CHAIRMAN OF THE BOARD MARCH 27, 2002
JOEL V. STAFF
/s/ HUSHANG ANSARY
--------------------------------- DIRECTOR MARCH 27, 2002
HUSHANG ANSARY
/s/ W. MCCOMB DUNWOODY
--------------------------------- DIRECTOR MARCH 27, 2002
W. MCCOMB DUNWOODY
/s/ JON GJEDEBO
--------------------------------- DIRECTOR MARCH 27, 2002
JON GJEDEBO
/s/ BEN A. GUILL
--------------------------------- DIRECTOR MARCH 27, 2002
BEN A. GUILL
/s/ ROGER L. JARVIS
--------------------------------- DIRECTOR MARCH 27, 2002
ROGER L. JARVIS
/s/ WILLIAM E. MACAULAY
--------------------------------- DIRECTOR MARCH 27, 2002
WILLIAM E. MACAULAY
/s/ FREDERICK W. PHEASEY
--------------------------------- DIRECTOR MARCH 27, 2002
FREDERICK W. PHEASEY
</Table>
19
<PAGE>
REPORTS OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
National-Oilwell, Inc.
We have audited the accompanying consolidated balance sheets of
National-Oilwell, Inc., as of December 31, 2001 and 2000, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit, in 1999, the financial statements of IRI
International Corporation, a wholly-owned subsidiary, which statements reflect
revenues of $92,190,000 for the year ended December 31, 1999. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for IRI International
Corporation, is based solely upon the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of National-Oilwell, Inc., at December 31,
2001 and 2000, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 8, 2002
To the Shareholders and Board of Directors
of IRI International Corporation:
We have audited the consolidated statements of operations, shareholders'
equity and comprehensive income, and cash flows of IRI International Corporation
and Subsidiaries for the year ended December 31,1999. (not presented separately
herein) These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of IRI International Corporation and Subsidiaries for the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
Houston, Texas
March 8, 2000
20
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
December 31, December 31,
2001 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43,220 $ 42,459
Receivables, less allowance of $9,094 and $5,885 382,153 295,163
Inventories 455,934 375,734
Deferred income taxes 16,825 17,105
Prepaid and other current assets 10,434 12,642
------------ ------------
Total current assets 908,566 743,103
Property, plant and equipment, net 168,951 173,646
Deferred income taxes 16,663 19,919
Goodwill, net 352,094 329,340
Property held for sale 12,144 8,271
Other assets 13,278 4,615
------------ ------------
$ 1,471,696 $ 1,278,894
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 10,213 --
Accounts payable 161,277 165,801
Customer prepayments 9,843 19,371
Accrued compensation 23,661 10,996
Other accrued liabilities 72,315 66,614
------------ ------------
Total current liabilities 277,309 262,782
Long-term debt 300,000 222,477
Deferred income taxes 20,380 16,030
Other liabilities 6,467 10,399
------------ ------------
Total liabilities 604,156 511,688
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 80,902,882 and 80,508,535 shares
issued and outstanding at December 31, 2001 and December 31, 2000 809 805
Additional paid-in capital 592,507 583,225
Accumulated other comprehensive loss (34,873) (21,858)
Retained earnings 309,097 205,034
------------ ------------
867,540 767,206
------------ ------------
$ 1,471,696 $ 1,278,894
============ ============
</Table>
The accompanying notes are an integral part of these statements.
21
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Year Ended December 31,
---------------------------------------------
2001 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 1,747,455 $ 1,149,920 $ 839,648
Cost of revenues:
Cost of products and services sold 1,319,621 884,774 686,510
Merger related inventory write-offs -- 15,684 --
----------- ----------- -----------
Gross profit 427,834 249,462 153,138
Selling, general, and administrative 238,557 186,924 150,034
Special charge -- 14,082 1,779
----------- ----------- -----------
Operating income 189,277 48,456 1,325
Interest and financial costs (24,929) (19,069) (15,872)
Interest income 1,775 2,908 2,276
Other income (expense), net 1,894 (5,258) (2,588)
----------- ----------- -----------
Income (loss) before income taxes 168,017 27,037 (14,859)
Provision/(benefit) for income taxes 63,954 13,901 (5,474)
----------- ----------- -----------
Net income (loss) $ 104,063 $ 13,136 $ (9,385)
=========== =========== ===========
Net income (loss) per share:
Basic $ 1.29 $ 0.17 $ (0.13)
=========== =========== ===========
Diluted $ 1.27 $ 0.16 $ (0.13)
=========== =========== ===========
Weighted average shares outstanding:
Basic 80,813 79,325 71,672
=========== =========== ===========
Diluted 81,733 80,760 71,672
=========== =========== ===========
</Table>
The accompanying notes are an integral part of these statements.
22
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
Year Ended December 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 104,063 $ 13,136 $ (9,385)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 38,873 35,034 25,541
Provision for losses on receivables 3,897 1,589 3,055
Provision for deferred income taxes 7,847 (5,881) 2,528
Gain on sale of assets (2,878) (3,522) (2,939)
Foreign currency transaction (gain) loss 573 (1,397) 464
Special charge -- 14,082 1,779
Merger related inventory write-offs -- 15,684 --
Changes in assets and liabilities, net of acquisitions:
Marketable securities -- 14,686 (11,686)
Receivables (74,700) (65,619) 131,962
Inventories (71,906) (27,219) 10,616
Income taxes receivable -- 12,888 (2,717)
Prepaid and other current assets 2,411 (4,802) 3,309
Accounts payable (23,357) 47,345 (46,003)
Other assets/liabilities, net (20,199) (19,391) (21,971)
--------- --------- ---------
Net cash provided (used) by operating activities (35,376) 26,613 84,553
--------- --------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (27,358) (24,561) (17,547)
Proceeds from sale of assets 7,927 8,227 6,280
Proceeds from product line dispositions -- -- 26,599
Businesses acquired and investments in joint ventures, net of cash (38,517) (48,208) (67,029)
--------- --------- ---------
Net cash used by investing activities (57,948) (64,542) (51,697)
--------- --------- ---------
Cash flow from financing activities:
Borrowings (payments) on line of credit (60,226) 19,174 (33,597)
Net proceeds from issuance of long-term debt 146,631 -- --
Proceeds from stock options exercised 9,286 14,247 164
Other -- (662) (959)
--------- --------- ---------
Net cash provided (used) by financing activities 95,691 32,759 (34,392)
--------- --------- ---------
Effect of exchange rate losses on cash (1,606) (462) 189
--------- --------- ---------
Increase (decrease) in cash and equivalents 761 (5,632) (1,347)
Cash and cash equivalents, beginning of year 42,459 48,091 49,438
--------- --------- ---------
Cash and cash equivalents, end of year $ 43,220 $ 42,459 $ 48,091
========= ========= =========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 20,772 $ 16,807 $ 16,899
Income taxes 26,775 7,333 11,558
</Table>
The accompanying notes are an integral part of these statements.
23
<PAGE>
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK CAPITAL LOSS EARNINGS TOTAL
--------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 714 $ 417,067 $ (15,783) $ 201,655 $ 603,653
Net income (9,385) (9,385)
Currency translation adjustments 1,332 1,332
Marketable securities valuation adjustment 540 540
Change in minimum pension liability 1,988 1,988
------------
Comprehensive loss (5,525)
Stock options exercised 3 165 168
Tax benefit of options exercised 217 217
Reversal of 1997 option tax benefits (1,736) (1,736)
Other (12) (390) (402)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 717 $ 415,701 $ (11,923) $ 191,880 $ 596,375
------------ ------------ ------------ ------------ ------------
Net income 13,136 13,136
Currency translation adjustments (10,684) (10,684)
Marketable securities valuation adjustment 749 749
------------
Comprehensive income 3,201
Stock issued for acquisition 79 153,948 154,027
Stock options exercised 9 8,580 8,589
Tax benefit of options exercised 4,901 4,901
Other 95 18 113
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 $ 805 $ 583,225 $ (21,858) $ 205,034 $ 767,206
------------ ------------ ------------ ------------ ------------
Net income 104,063 104,063
Currency translation adjustments (11,569) (11,569)
Marketable securities valuation adjustment (1,446) (1,446)
------------
Comprehensive income 91,048
Stock options exercised 4 6,934 6,938
Tax benefit of options exercised 2,348 2,348
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 $ 809 $ 592,507 $ (34,873) $ 309,097 $ 867,540
============ ============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these statements.
24
<PAGE>
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Information concerning common stock and per share data assumes the exchange of
all Exchangeable Shares issued in connection with the combination with Dreco
Energy Services Ltd. effective September 25, 1997. Each Exchangeable Share is
intended to have substantially identical economic and legal rights as, and are
expected to be exchanged during 2002 on a one-for-one basis for, a share of
National Oilwell common stock. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported and contingent amounts of
assets and liabilities as of the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. ACQUISITIONS
Year 2001
We made nine acquisitions in 2001, ranging in value from $600,000 to a high of
$16.5 million, for a total cash outlay of $51.5 million. All of these
acquisitions were accounted for under the purchase method of accounting and
generated approximately $30 million in goodwill. Two of the larger acquisitions,
Integrated Power Systems and Maritime Hydraulics (Canada) Ltd., were acquired in
early January 2001 and their financial results were included in our consolidated
financial results for substantially the entire year. Pro-forma information
related to acquisitions has not been provided as such amounts are not material
individually or in the aggregate.
Year 2000
In February 2000, the merger with Hitec ASA was completed for approximately $158
million as we issued 7.9 million shares of common stock. This transaction was
accounted for as a purchase effective February 1, 2000 and generated goodwill of
approximately $150 million.
In June 2000, IRI International Corporation was merged with the Company and
accounted for as a pooling-of-interests. We issued 13.5 million shares of common
stock valued at approximately $447 million. All prior periods have been
restated.
25
<PAGE>
Revenues, net income before special charges, and net income of the separate
companies for the periods preceding the merger were as follows (in thousands):
<Table>
<Caption>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
---------------- -----------------
<S> <C> <C>
Revenues:
National-Oilwell $ 461,925 $ 745,215
IRI International 72,271 94,433
------------- -------------
$ 534,196 $ 839,648
Net income (loss) before special charges:
National-Oilwell $ 8,048 $ 1,520
IRI International (2,724) (9,891)
------------- -------------
$ 5,324 $ (8,371)
Net income (loss):
National-Oilwell $ (2,256) $ 1,520
IRI International (2,724) (10,905)
------------- -------------
$ (4,980) $ (9,385)
</Table>
There were no material transactions between the Company and IRI prior to the
merger. The effects of conforming IRI's accounting policies to those of the
Company were not material. Certain reclassifications were made to IRI's
historical amounts to conform with the Company's presentation.
During 2000 we also acquired four other businesses for approximately $48 million
in cash. The purchase method of accounting was used to account for these
acquisitions and generated approximately $9 million in goodwill. Pro-forma
information has not been provided as such amounts are not material.
Year 1999
During 1999 we made three acquisitions valued at approximately $92 million. The
purchase method of accounting was used to record two acquisitions and the other
acquisition was recorded under the pooling-of-interests accounting method.
Pro-forma information related to acquisitions has not been provided as such
amounts are not material individually or in the aggregate.
Subsequent Event
On January 10, 2002, we completed the acquisition of the assets and business of
HAL Oilfield Pump & Equipment Company for approximately $16 million. This
business, which designs, manufactures and distributes centrifugal pumps, pump
packages and expendable parts, is complementary to our Mission pump product
line. The acquisition was accounted for as a purchase with goodwill
approximating $10 million.
26
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of National Oilwell
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments
Financial instruments consist primarily of cash and cash equivalents,
receivables, payables and debt instruments. Cash equivalents include only those
investments having a maturity of three months or less at the time of purchase.
The carrying values of these financial instruments approximate their respective
fair values.
Inventories
Inventories consist of oilfield products, manufactured equipment, manufactured
specialized drilling products and downhole motors and spare parts for
manufactured equipment and drilling products. Inventories are stated at the
lower of cost or market using the first-in, first-out or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for major
improvements that extend the lives of property and equipment are capitalized
while minor replacements, maintenance and repairs are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight-line method or declining balance method over the estimated useful
lives of individual items.
Investments in Affiliates
During 2001 we formed a joint venture with Lanzhou Petroleum & Chemical
Machinery Equipment & Engineering Group Corporation, a major manufacturer of
drilling equipment located in the People's Republic of China. We made an initial
capital contribution of $6.7 million to acquire a 60% ownership in the joint
venture. Due to substantive participating rights retained by the minority
partner and foreign exchange restriction concerns, we use the equity method to
account for this investment. The investment totaled $7.3 million at December 31,
2001.
Intangible Assets
Deferred financing costs are amortized on a straight-line basis over the life of
the related debt security and accumulated amortization was $1,366,000 and
$873,000 at December 31, 2001 and 2000, respectively. Through December 31, 2001,
goodwill was amortized on a straight-line basis over its estimated life of 10-40
years. Accumulated amortization at December 31, 2001 and 2000 was $31,612,000
and $19,559,000. On an annual basis, the Company estimates the future estimated
discounted cash flows of the business to which goodwill relates in order to
determine that the carrying value of the goodwill has not been impaired.
27
<PAGE>
Foreign Currency
The functional currency for National Oilwell's Canadian, United Kingdom,
Netherlands, German and Australian operations is the local currency. The
cumulative effects of translating the balance sheet accounts from the functional
currency into the U.S. dollar at current exchange rates are included in
accumulated other comprehensive income. The U.S. dollar is used as the
functional currency for the Singapore and Venezuelan operations. Accordingly,
certain assets are translated at historical exchange rates and all translation
adjustments are included in income. For all operations, gains or losses from
remeasuring foreign currency transactions into the functional currency are
included in income.
Revenue Recognition
Revenue from the sale and rental of products and delivery of services is
recognized upon passage of title, incurrence of rental charges or delivery of
services to the customer. Revenue is recognized on certain significant contracts
in the Products and Technology segment using the percentage of completion method
based on the percentage of total costs incurred to total costs expected.
Provision for estimated losses, if any, is made in the period such losses are
estimable.
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to amounts which are more likely than not to be realized.
Concentration of Credit Risk
National Oilwell grants credit to its customers, which operate primarily in the
oil and gas industry. National Oilwell performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral,
but may require letters of credit for certain international sales. Reserves are
maintained for potential credit losses and such credit losses have historically
been within management's expectations.
Stock-Based Compensation
National Oilwell uses the intrinsic value method in accounting for its
stock-based employee compensation plans.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the statement. Other
intangible assets will continue to be amortized over their useful lives. In
addition, accounting for acquisitions under the pooling-of-interests method is
no longer permitted. We will adopt the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the non-amortization provisions of the statement for 2001 would have resulted in
an increase in net income of $11 million ($0.13 per diluted share). Pursuant to
SFAS 142, we will test goodwill for impairment upon adoption and, if impairment
is indicated, record such impairment as a cumulative effect of an accounting
change. We are currently evaluating the effect that the adoption may have on our
consolidated results of operation and financial position.
28
<PAGE>
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion ("APB") No. 30, Reporting the Results of
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. This
statement retains the fundamental provisions of SFAS No. 121 and the basic
requirements of APB No. 30; however, it establishes a single accounting model to
be used for long-lived assets to be disposed of by sale and it expands the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. We do not anticipate that
the statement will have a material impact on our financial position or results
of operations.
Net Income Per Share
The following table sets forth the computation of weighted average basic and
diluted shares outstanding (in thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2001 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Denominator for basic earnings per
share--weighted average shares 80,813 79,325 71,672
Effect of dilutive securities:
Employee stock options 920 1,435 --
----------- ----------- -----------
Denominator for diluted earnings per
share--adjusted weighted average
shares and assumed conversions 81,733 80,760 71,672
=========== =========== ===========
</Table>
4. INVENTORIES
Inventories consist of (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 39,272 $ 32,306
Work in process 101,376 63,758
Finished goods and purchased products 315,286 279,670
------------ ------------
Total $ 455,934 $ 375,734
============ ============
</Table>
29
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of (in thousands):
<Table>
<Caption>
ESTIMATED DECEMBER 31, DECEMBER 31,
USEFUL LIVES 2001 2000
-------------- -------------- --------------
<S> <C> <C> <C>
Land and improvements 2-20 Years $ 9,557 $ 11,109
Buildings and improvements 5-31 Years 53,268 55,640
Machinery and equipment 5-12 Years 89,268 87,794
Computer and office equipment 3-10 Years 73,322 67,302
Rental equipment 1-7 Years 63,971 63,315
-------------- --------------
289,386 285,160
Less accumulated depreciation (120,435) (111,514)
-------------- --------------
$ 168,951 $ 173,646
============== ==============
</Table>
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
<S> <C> <C>
Revolving credit facilities $ 10,213 $ 72,477
6 7/8% senior notes 150,000 150,000
6 1/2% senior notes 150,000 --
------------ ------------
310,213 222,477
Less current portion 10,213 --
------------ ------------
$ 300,000 $ 222,477
============ ============
</Table>
In March 2001, we sold $150 million of 6 1/2 % unsecured senior notes due March
15, 2011. Proceeds were used to repay indebtedness under our existing revolving
credit facility and to fund working capital needs. Interest is payable on March
15 and September 15 of each year.
In June 1998, we sold $150 million of 6 7/8 % unsecured senior notes due July 1,
2005. Interest is payable on January 1 and July 1 of each year.
In 1997, National Oilwell entered into a five-year unsecured $125 million
revolving credit facility. The credit facility is available for acquisitions and
general corporate purposes and provides up to $50 million for letters of credit,
of which $20.7 million were outstanding at December 31, 2001. The credit
facility provides for interest at prime or LIBOR plus 0.5% (4.75% and 2.94% at
December 31, 2001) subject to adjustment based on National Oilwell's
Capitalization Ratio, as defined. Current portion of long-term debt increased
$10.2 million due to the classification of our revolving credit facility as a
current liability due to its expiration in September 2002. We have entered
negotiations to secure a revolving credit facility of a similar size prior to
the expiration of the current facility.
The senior notes contain reporting covenants and the credit facility contains
financial covenants and ratios regarding minimum tangible net worth, maximum
debt to capital and minimum interest
30
<PAGE>
coverage. At December 31, 2001, the Company was in compliance with all covenants
governing these facilities.
National Oilwell also has additional credit facilities totaling $50.4 million
used primarily for letters of credit, of which $2.5 million were outstanding at
December 31, 2001.
7. PENSION PLANS
National Oilwell and its consolidated subsidiaries have pension plans covering
substantially all of its employees. Defined-contribution pension plans cover
most of the U.S. and Canadian employees and are based on years of service, a
percentage of current earnings and matching of employee contributions. For the
years ended December 31, 2001, 2000 and 1999, pension expense for
defined-contribution plans was $6.0 million, $4.2 million and $3.8 million, and
all funding is current.
Certain retired or terminated employees of predecessor or acquired companies
also participate in defined benefit plans in the United States which have been
retained by National Oilwell subsidiaries but which no longer accrue benefits.
Active employees are ineligible to participate in any of these defined benefit
plans. In addition, approximately 168 U.S. retirees and spouses participate in
defined benefit health care plans of predecessor or acquired companies that
provide postretirement medical and life insurance benefits.
The change in benefit obligation, plan assets and the funded status of defined
pension and postretirement plans in the United States follows:
<Table>
<Caption>
Pension benefits Postretirement benefits
----------------------------- -----------------------------
At year end 2001 2000 2001 2000
- -------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 15,695 $ 15,293 $ 3,107 $ 3,122
Service cost -- 108 21 16
Interest cost 1,194 1,186 506 232
Actuarial (gain) loss 1,199 726 4,079 17
Benefits paid (1,020) (1,618) (503) (321)
Retiree contributions -- -- -- 35
Other 279 -- 206 6
------------ ------------ ------------ ------------
BENEFIT OBLIGATION AT END OF YEAR $ 17,347 $ 15,695 $ 7,416 $ 3,107
------------ ------------ ------------ ------------
Fair value of plan assets at beginning of year $ 14,494 $ 16,091 $ -- $ --
Actual return (2,454) (508) -- --
Benefits paid (1,020) (1,618) (503) (321)
Contributions 351 529 503 321
Other 600 -- -- --
------------ ------------ ------------ ------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 11,971 $ 14,494 -- --
------------ ------------ ------------ ------------
Funded status $ (5,376) $ (1,202) (7,416) (3,107)
Unrecognized actuarial net loss/ (gain) 5,724 1,256 3,389 (551)
Prior service costs not yet recognized -- 257 90
------------ ------------ ------------ ------------
PREPAID (ACCRUED) BENEFIT COST $ 348 $ 54 (3,770) (3,568)
------------ ------------ ------------ ------------
</Table>
31
<PAGE>
Significant assumptions used for the plans follow:
<Table>
<Caption>
Pension benefits Postretirement benefits
---------------------------------------- --------------------------------------
For the year 2001 2000 1999 2001 2000 1999
- ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions:
Discount rate 6.9% 7.6% 8.0% 6.9% 7.6% 7.3%
Expected long-term rate of return 8.0% 8.0% 8.0% n/a n/a n/a
Rate of compensation increase n/a n/a n/a n/a n/a n/a
</Table>
A 17% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2001, decreasing by approximately 3% points per year to
5.5% in 2006, with 5.5% increases per year thereafter.
Net periodic benefit cost (credit):
<Table>
<Caption>
Pension benefits Postretirement benefits
------------------------------------- -----------------------------------
For the year 2001 2000 1999 2001 2000 1999
------------ --------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the period $ -- $ 108 $ 134 $ 21 $ 16 $ 22
Interest cost on projected benefit obligation 1,194 1,186 907 506 232 218
Expected return on plan assets (1,183) (1,280) (944) -- -- --
Net amortization and deferral 46 (8) 64 178 (13) (4)
--------- --------- --------- --------- --------- ---------
NET PERIODIC BENEFIT COST (CREDIT) $ 57 $ 6 $ 161 $ 705 $ 235 $ 236
========= ========= ========= ========= ========= =========
</Table>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the postretirement benefits. A one percentage point change in
assumed health care cost trend rates would have the following effects:
<Table>
<Caption>
1% Point Increase 1% Point Decrease
----------------- -----------------
(in thousands)
<S> <C> <C>
Effect on total of service and interest cost components in 2001 $ 43 $ (37)
Effect on postretirement benefit obligation at year-end 2001 $ 678 $ (577)
</Table>
Our subsidiaries in the United Kingdom have a defined benefit pension
plan whose participants are primarily retired and terminated employees
who are no longer accruing benefits. The pension plan assets are
invested primarily in equity securities, United Kingdom government
securities, overseas bonds and cash deposits. At December 31, 2001, the
plan assets at fair market value were $39.2 million and the projected
benefit obligation was $32.3 million.
32
<PAGE>
8. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The components of other comprehensive loss are as follows (in thousands):
<Table>
<Caption>
CUMULATIVE CUMULATIVE
CHANGE IN CURRENCY MARKETABLE
MINIMUM TRANSLATION SECURITIES
PENSION LIABILITY ADJUSTMENT VALUATION ADJUSTMENT TOTAL
----------------- ------------ -------------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ (1,988) $ (13,971) $ 176 $ (15,783)
Currency translation adjustments 1,332 1,332
Unrealized gain on marketable
securities, net of deferred taxes of ($275) 540 540
Change in pension liability 1,988 1,988
------------ ------------ ------------ ------------
Balance at December 31, 1999 -- (12,639) 716 (11,923)
Currency translation adjustments (10,684) (10,684)
Unrealized gain on marketable
securities, net of deferred taxes of ($387) 749 749
------------ ------------ ------------ ------------
Balance at December 31, 2000 -- (23,323) 1,465 (21,858)
Currency translation adjustments (11,569) (11,569)
Realized gain on marketable
securities, net of deferred taxes of $745 (1,446) (1,446)
------------ ------------ ------------ ------------
Balance at December 31, 2001 $ -- $ (34,892) $ 19 $ (34,873)
============ ============ ============ ============
</Table>
9. COMMITMENTS AND CONTINGENCIES
National Oilwell leases land, buildings and storage facilities, vehicles and
data processing equipment and software under operating leases expiring in
various years through 2009. Rent expense for the years ended December 31, 2001,
2000 and 1999 was $19.0 million, $12.6 million and $14.3 million. Our minimum
rental commitments for operating leases at December 31, 2001, excluding future
payments applicable to facilities closed as part of the 1998 and 2000 Special
Charge, were as follows: 2002 - $14.3 million; 2003 - $12.0 million; 2004 - $8.2
million; 2005 - $5.5 million; 2006 - $4.5 million and subsequent to 2006 - $2.9
million.
National Oilwell is involved in various claims, regulatory agency audits and
pending or threatened legal actions involving a variety of matters. The total
liability on these matters at December 31, 2001 cannot be determined; however,
in the opinion of management, any ultimate liability, to the extent not
otherwise provided for, should not materially affect our financial position,
liquidity or results of operations.
Our business is affected both directly and indirectly by governmental laws and
regulations relating to the oilfield service industry in general, as well as by
environmental and safety regulations that specifically apply to our business.
Although National Oilwell has not incurred material costs in connection with its
compliance with such laws, there can be no assurance that other developments,
such as stricter environmental laws, regulations and enforcement policies
thereunder could not result in additional, presently unquantifiable costs or
liabilities to National Oilwell.
33
<PAGE>
10. COMMON STOCK
National Oilwell has authorized 150 million shares of $.01 par value common
stock. We also have authorized 10 million shares of $.01 par value preferred
stock, none of which is issued or outstanding.
Under the terms of National Oilwell's Stock Award and Long-Term Incentive Plan,
as amended, 4.5 million shares of common stock are authorized for the grant of
options to officers, key employees, non-employee directors and other persons.
Options granted under our stock option plan generally vest over a three-year
period starting one year from the date of grant and expire five or ten years
from the date of grant. The purchase price of options granted may not be less
than the market price of National Oilwell common stock on the date of grant. At
December 31, 2001, approximately 1.2 million shares were available for future
grants.
We also have inactive stock option plans that were acquired in connection with
the acquisitions of Dreco Energy Services, Ltd. in 1997, and of Hitec ASA and
IRI International Corporation in 2000. We converted the outstanding stock
options under these plans to options to acquire our common stock and no further
options are being issued under these plans. Stock option information summarized
below includes amounts for the National Oilwell Stock Award and Long-Term
Incentive Plan and stock plans of acquired companies.
Options outstanding at December 31, 2001 under the stock option plans have
exercise prices between $5.62 and $40.50 per share, and expire at various dates
from March 21, 2002 to February 14, 2011. The weighted average exercise price on
the 3,094,160 outstanding options at December 31, 2001 is $22.95.
34
<PAGE>
The following summarizes option activity:
<Table>
<Caption>
WEIGHTED AVERAGE TOTAL
SHARE PRICE OPTIONS
---------------- ------------
<S> <C> <C>
OPTIONS OUTSTANDING:
Balance at December 31, 1998 $ 21.74 904,511
Granted 10.43 1,357,255
Cancelled 20.73 (194,656)
Exercised 6.85 (25,906)
------------
Balance at December 31, 1999 $ 14.59 2,041,204
------------
Granted 23.56 758,961
Options from Acquisitions 10.52 1,006,342
Cancelled 14.10 (86,425)
Exercised 11.80 (927,497)
------------
Balance at December 31, 2000 $ 16.50 2,792,585
------------
Granted 40.50 911,626
Cancelled 25.47 (218,086)
Exercised 16.39 (391,965)
------------
Balance at December 31, 2001 $ 22.95 3,094,160
============
OPTIONS EXERCISABLE:
Exercisable at December 31, 1998 $ 13.97 114,206
Vested 15.39 329,234
Cancelled 21.61 (37,073)
Exercised 6.85 (25,906)
------------
Exercisable at December 31, 1999 $ 15.31 380,461
------------
Vested 12.21 1,697,123
Cancelled 10.12 (52,760)
Exercised 11.80 (927,497)
------------
Exercisable at December 31, 2000 $ 13.73 1,097,327
------------
Vested 18.89 783,342
Cancelled 22.74 (13,871)
Exercised 16.39 (391,965)
------------
Exercisable at December 31, 2001 $ 15.68 1,474,833
------------
</Table>
The weighted average fair value of options granted during 2001, 2000 and 1999
was approximately $22.04, $15.70, and $7.71 per share, respectively, as
determined using the Black-Scholes option-pricing model. Assuming that National
Oilwell had accounted for its stock-based compensation using the alternative
fair value method of accounting under FAS No. 123 and amortized the fair value
to expense over the option's vesting period, diluted earnings per share would
have been affected by $0.12, $0.09, and $0.07 for 2001, 2000 and 1999,
respectively, from the amounts reported. These pro forma results may not be
indicative of future effects.
The Company evaluates annually the grant of options to eligible participants and
in January 2002, 972,500 options to purchase shares of common stock were granted
at an exercise price of $18.53, the fair value of the common stock at the date
of grant.
35
<PAGE>
11. INCOME TAXES
The domestic and foreign components of income before income taxes were as
follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
Domestic $ 101,700 $ (10,555) $ (28,549)
Foreign 66,317 37,592 13,690
------------- ------------- -------------
$ 168,017 $ 27,037 $ (14,859)
============= ============= =============
</Table>
The components of the provision (benefit) for income taxes consisted of (in
thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 32,222 $ 5,401 $ (11,777)
State 581 123 (745)
Foreign 23,304 14,258 4,520
------------ ------------ ------------
56,107 19,782 (8,002)
------------ ------------ ------------
Deferred:
Federal 4,925 (6,757) 1,028
State 391 (507) 572
Foreign 2,531 1,383 928
------------ ------------ ------------
7,847 (5,881) 2,528
------------ ------------ ------------
$ 63,954 $ 13,901 $ (5,474)
============ ============ ============
</Table>
The difference between the effective tax rate reflected in the provision for
income taxes and the U.S. federal statutory rate was as follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 58,806 $ 9,462 $ (5,200)
Foreign income tax rate differential 1,405 781 (68)
State income tax, net of federal benefit 299 336 (181)
S Corporation earnings -- -- 824
Tax benefit of foreign sales corporation (1,575) (1,492) --
Nondeductible expenses 2,423 4,626 2,243
Amortization of negative goodwill -- -- (1,409)
Foreign dividends net of FTCs (1,967) (1,046) --
Net operating loss carryforwards 2,948 1,744 990
Change in deferred tax valuation allowance 1,223 (606) (2,787)
Other 392 96 114
------------ ------------ ------------
$ 63,954 $ 13,901 $ (5,474)
============ ============ ============
</Table>
36
<PAGE>
Significant components of National Oilwell's deferred tax assets and
liabilities were as follows (in thousands):
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities $ 9,408 $ 9,122
Net operating loss carryforwards 16,107 21,265
Foreign tax credit carryforwards 13,580 10,942
Capital loss carryforward 3,527 3,594
Other 20,378 20,390
------------ ------------
Total deferred tax assets 63,000 65,313
Valuation allowance for deferred tax assets (29,512) (28,289)
------------ ------------
33,488 37,024
------------ ------------
Deferred tax liabilities:
Tax over book depreciation 10,366 8,594
Other 10,014 7,436
------------ ------------
Total deferred tax liabilities 20,380 16,030
------------ ------------
Net deferred tax assets $ 13,108 $ 20,994
============ ============
</Table>
In the United States, the Company has $13.0 million of net operating loss
carryforwards as of December 31, 2001, which expire at various dates through
2009. These operating losses were acquired in the combination with Dreco Energy
Services, Ltd. in 1997 and are associated with Dreco's US subsidiary. As a
result of share exchanges occurring since the date of the combination resulting
in a more than 50% aggregate change in the beneficial ownership of Dreco, the
availability of these loss carryforwards to reduce future United States federal
taxable income may have become subject to various limitations under Section 382
of the Internal Revenue Code of 1986, as amended. In addition, these net
operating losses can only be used to offset separate company taxable income of
Dreco's US subsidiary. Since the ultimate realization of these net operating
losses is uncertain, the related potential benefit of $4.5 million has been
recorded with a $3.7 million valuation allowance. Future income tax expense will
be reduced if the Company ultimately realizes the benefit of these net operating
losses.
Also in the United States, the Company has $9.1 million of capital loss
carryforwards as of December 31, 2001, which expire at various dates through
2005. These capital loss carryforwards can only be used to offset future capital
gains generated by the Company. Since the ultimate realization of these capital
loss carryforwards is uncertain, the related potential benefit of $3.5 million
has been recorded with a valuation allowance of $2.5 million. Future income tax
expense will be reduced if the Company ultimately realizes the benefit of these
capital loss carryforwards. In addition, the Company has $13.6 million of
foreign tax credit carryforwards as of December 31, 2001, which expire at
various dates through 2005. Since the ultimate realization of these credits is
uncertain, the related potential benefit has been recorded with a valuation
allowance of $12.6 million. Future income tax expense will be reduced if the
Company ultimately realizes the benefit of these foreign tax credits.
37
<PAGE>
Outside the United States, the company has $39.1 million of net operating loss
carryforwards as of December 31, 2001. Of this amount, $33.5 million will expire
at various dates through 2010 and $5.6 million is available indefinitely. The
related potential benefit available of $11.6 million has been recorded with a
valuation allowance of $9.8 million. If the Company ultimately realizes the
benefit of these net operating losses, $9.2 million would reduce goodwill and
other intangible assets and $0.6 million would reduce income tax expense.
The deferred tax valuation allowance increased $1.2 million for the period
ending December 31, 2001 resulting primarily from the addition of excess foreign
tax credits that may not be realized in the future. National Oilwell's deferred
tax assets are expected to be realized principally through future earnings.
Undistributed earnings of our foreign subsidiaries amounted to $149.2 million
and $113.0 million at December 31, 2001 and December 31, 2000, respectively.
Those earnings are considered to be permanently reinvested and no provision for
U.S. federal and state income taxes has been made. Distribution of these
earnings in the form of dividends or otherwise would result in both U.S. federal
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable in various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practical; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $10.4 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 2001.
12. SPECIAL CHARGES
During 2000, we recorded a special charge, net of a $0.4 million credit from
previous special charges, of $14.1 million ($11.0 million after tax, or $0.14
per share) related to the merger with IRI International. Components of the
charge were (in millions):
<Table>
<S> <C>
Direct transaction costs $ 6.6
Severance 6.4
Facility closures 1.5
---------
14.5
Prior year reversal (0.4)
---------
$ 14.1
=========
</Table>
The cash and non-cash elements of the charge approximate $13 million and $1.1
million, respectively. Approximately $11 million of the direct cash outlays were
spent by the end of 2000, and essentially all of the remainder had been spent at
December 31, 2001. Facility closure costs consist of lease cancellation costs
and impairment of a closed manufacturing facility that is classified with
"Property held for sale" on our balance sheet. All of this charge is applicable
to the Products and Technology business segment.
During 1999 and prior to the merger with National Oilwell, a $1.8 million charge
was recorded by IRI related to additional severance costs resulting from
consolidating our manufacturing operations.
38
<PAGE>
13. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
National Oilwell's operations consist of two segments: Products and Technology
and Distribution Services. The Products and Technology segment designs and
manufactures a variety of oilfield equipment for use in oil and gas drilling,
completion and production activities. The Distribution Services segment
distributes an extensive line of oilfield supplies and equipment. Intersegment
sales and transfers are accounted for at commercial prices and are eliminated in
consolidation. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies of the
Company. The Company evaluates performance of each reportable segment based upon
its operating income, excluding non-recurring items.
No single customer accounted for 10% or more of consolidated revenues during the
three years ended December 31, 2001.
39
<PAGE>
Summarized financial information is as follows (in thousands):
Business Segments
<Table>
<Caption>
PRODUCTS AND DISTRIBUTION CORPORATE/
TECHNOLOGY SERVICES ELIMINATIONS(1) TOTAL
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 2001
Revenues from:
Unaffiliated customers $ 1,041,614 $ 705,817 $ 24 $ 1,747,455
Intersegment sales 79,305 2,001 (81,306) --
------------ ------------ ------------ ------------
Total revenues 1,120,919 707,818 (81,282) 1,747,455
Operating income (loss) 171,013 28,473 (10,209) 189,277
Capital expenditures 22,170 4,066 1,122 27,358
Depreciation and amortization 31,882 6,428 563 38,873
Identifiable assets 1,178,118 260,212 33,366 1,471,696
DECEMBER 31, 2000
Revenues from:
Unaffiliated customers $ 629,967 $ 519,911 $ 42 $ 1,149,920
Intersegment sales 53,500 1,362 (54,862) --
------------ ------------ ------------ ------------
Total revenues 683,467 521,273 (54,820) 1,149,920
Operating income (loss) 60,992(2) 12,884 (25,420) 48,456(2)
Capital expenditures 14,960 7,387 2,214 24,561
Depreciation and amortization 28,712 5,985 337 35,034
Identifiable assets 1,001,391 223,973 53,530 1,278,894
DECEMBER 31, 1999
Revenues from:
Unaffiliated customers $ 429,968 $ 409,680 $ -- $ 839,648
Intersegment sales 30,053 674 (30,727) --
------------ ------------ ------------ ------------
Total revenues 460,021 410,354 (30,727) 839,648
Operating income (loss) 23,552 (5,959) (16,268) 1,325
Capital expenditures 7,472 9,968 107 17,547
Depreciation and amortization 24,964 4,269 334 29,567
Identifiable assets 772,305 197,918 35,492 1,005,715
</Table>
(1) Operating loss of Corporate includes a special charge of $14,082 for 2000
related to the merger with IRI and $1,779 for 1999.
(2) Includes $15,684 of inventory write-offs related to the merger with IRI.
40
<PAGE>
Geographic Areas:
<Table>
<Caption>
UNITED UNITED
STATES CANADA NORWAY KINGDOM OTHER ELIMINATIONS TOTAL
---------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31,2001
Revenues from:
Unaffiliated customers $1,280,598 $ 337,447 $ 38,171 $ 42,978 $ 48,261 $ -- $1,747,455
Interarea sales 129,525 45,890 11,591 7,421 445 (194,872) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues 1,410,123 383,337 49,762 50,399 48,706 (194,872) 1,747,455
Long-lived assets 768,160 379,976 223,747 49,750 50,063 -- 1,471,696
DECEMBER 31,2000
Revenues from:
Unaffiliated customers $ 799,415 $ 239,940 $ 31,961 $ 48,050 $ 30,554 $ -- $1,149,920
Interarea sales 43,521 28,302 3,786 4,796 737 (81,142) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues 842,936 268,242 35,747 52,846 31,291 (81,142) 1,149,920
Long-lived assets 646,210 338,319 216,866 44,633 32,866 -- 1,278,894
DECEMBER 31,1999
Revenues from:
Unaffiliated customers $ 613,724 $ 163,597 $ -- $ 35,723 $ 26,604 $ -- $ 839,648
Interarea sales 31,249 22,577 -- 2,441 619 (56,886) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues 644,973 186,174 -- 38,164 27,223 (56,886) 839,648
Long-lived assets 618,291 317,558 -- 37,637 32,229 -- 1,005,715
</Table>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results, as restated in the first and second quarters of
2000 to reflect the merger with IRI International, were as follows (in
thousands, except per share data):
<Table>
<Caption>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2001
Revenues $ 360,272 $ 434,628 $ 486,812 $ 465,743 $1,747,455
Gross Profit 91,173 103,494 119,905 113,262 427,834
Income before taxes 34,640 40,805 47,369 45,203 168,017
Net income 21,478 25,299 28,938 28,348 104,063
Net income per diluted share 0.26 0.31 0.36 0.35 1.27
YEAR ENDED DECEMBER 31, 2000
Revenues $ 263,891 $ 270,305 $ 286,325 $ 329,399 $1,149,920
Gross Profit(1) 57,714 58,184 64,285 69,279 249,462
Special charge -- 13,000 -- 1,082 14,082
Income (loss) before taxes 7,229 (11,645) 19,207 12,246 27,037
Net income (loss) 4,484 (9,464) 11,908 6,208 13,136
Net income (loss) per diluted share 0.06 (0.12) 0.15 0.08 0.16
</Table>
(1) The 4th quarter includes $15,684 of inventory write-offs related to the
merger with IRI.
41
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
National-Oilwell, Inc. (Exhibit 3.1) (5)
3.2 By-laws of National-Oilwell, Inc. (Exhibit 3.2) (1)
10.1 Employment Agreement dated as of January 1, 2002 between Merrill A.
Miller, Jr. and National Oilwell, with a similar agreement with
Steven W. Krablin
10.2 Employment Agreement dated as of January 1, 2002 between Dwight W.
Rettig and National Oilwell, with similar agreements with Robert L.
Bloom, Kevin Neveu, Mark A. Reese and Robert R. Workman
10.3 Employment Agreement dated as of June 28, 2000 between Gary W.
Stratulate and IRI International, Inc., which has now merged into
National Oilwell
10.4 Amended and Restated Stock Award and Long-Term Incentive Plan
(Exhibit 10.6) (2)*
10.5 Loan Agreement dated September 25, 1997 (Exhibit 10.1) (4)
10.6 Amendment to Loan Agreement dated as of December 31, 1999 (Exhibit
10.9) (6)
10.7 Employment Agreement dated as of March 1, 2000 between Jon Gjedebo
and a National Oilwell subsidiary (Exhibit 10.8) (3)
10.8 Non-competition Agreement dated as of June 28, 2000 between Hushang
Ansary and National Oilwell (Exhibit 10.9) (3)
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page hereto)
</Table>
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
- ----------
* Compensatory plan or arrangement for management or others
(1) Filed as an Exhibit to Registration Statement No. 333-11051 on Form
S-1, as amended, initially filed on August 29, 1996.
(2) Filed with the Proxy Statement for the 1999 Annual Meeting of
Stockholders, filed on May 12, 1999.
(3) Filed as an Exhibit to our Annual Report on Form 10-K filed on March
1, 2001.
(4) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
November 7, 1997.
(5) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
August 11, 2000.
(6) Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on
March 16, 2000.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>h95422ex10-1.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - MERRILL A MILLER JR
<TEXT>
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated effective as of
January 1, 2002, by and among National-Oilwell L.P., a Delaware limited
partnership (the "Company"), National-Oilwell, Inc., a Delaware
corporation ("NOI"), and Merrill A. Miller, Jr. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of NOI (the "Board") has previously
determined that it is in the best interests of NOI and its stockholders to
retain the Executive and to induce the employment of the Executive for the long
term benefit of NOI, its shareholders and its affiliated companies, including
the Company;
WHEREAS, the Board does not contemplate the termination of the Executive
during the term hereof and the Board and the Executive expect that the Executive
will be retained for at least the three year period contemplated herein; and
WHEREAS, to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT.
(a) The Company hereby agrees that the Company or an affiliated company
will continue the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company or an affiliated company subject to the
terms and conditions of this Agreement, during the Employment Period (as defined
below). As used in this Agreement, the term "affiliated companies" shall include
any company controlled by, controlling or under common control with the Company.
(b) The "Employment Period" shall mean the period commencing on the date
hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Employment Period shall be automatically extended so as to
terminate three year(s) after such Renewal Date, unless at least sixty (60) days
prior to the Renewal Date the Company shall give notice to the Executive that
the Contract Period shall not be so extended.
2. TERMS OF EMPLOYMENT.
(a) Position and Duties.
Page 1
<PAGE>
(i) During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements, authority, duties and
responsibilities) shall be President and Chief Executive Officer and (B)
the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the date hereof or any office
or location less than fifty (50) miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote the Executive's full time, skill and attention to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the date hereof shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall receive
an annual base salary equal to the current base salary being received by
the Executive ("Annual Base Salary"), which shall be paid in accordance
with the Company's standard payroll practice. During the Employment
Period, the Annual Base Salary shall be reviewed no more than twelve (12)
months after the last salary increase awarded to the Executive prior to
the date hereof and thereafter at least annually; provided, however, that
a salary increase shall not necessarily be awarded as a result of such
review. Any increase in Annual Base Salary may not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any increase without the express
written consent of the Executive. The term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible for an annual bonus
(the "Annual Bonus") for each fiscal year ending during the Employment
Period on the same basis as other executive officers under the then
current National Oilwell Incentive Plan (or such other name as may be
adopted for the plan or its successor). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to defer the receipt of such Annual Bonus
pursuant to a Company sponsored deferred compensation plan in effect.
Page 2
<PAGE>
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
stock option, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities,
in each case, less favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect
on the date hereof.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs)
to the extent applicable generally to the Executive's peer executives of
the Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than such plans,
practices, policies and programs in effect for the Executive on the date
hereof.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive on the date hereof.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company in effect on the date
hereof.
(vii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies in effect for the Executive on the date hereof.
3. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that a Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance with Section
11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective thirty (30) days after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that within the thirty
(30) day period after such receipt, the Executive shall not
Page 3
<PAGE>
have returned to full-time performance of the Executive's duties. For purposes
of this Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for one hundred eighty
(180) calendar days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act, or failure to act, on the part of
the Executive shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or of a senior officer of the Company or based
upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in
the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board,
the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in reasonable detail.
(c) Good Reason. The Executive may terminate the Executive's employment
during the Employment Period for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 2(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial
Page 4
<PAGE>
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 2(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 2(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the date
hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 9(c) of
this Agreement.
(vi) notice by the Company to the Executive that the Company is not
extending or renewing this Agreement.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the Employment Period by
the Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 11(b) of the Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by the Company for Cause,
or by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be;
Page 5
<PAGE>
(ii) if the Executive's employment is terminated by the Company other than
for Cause, death or Disability, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination; and
(iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Good Reason; Other than For Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or Disability, or the Executive shall terminate employment
for Good Reason:
(i) The Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the highest Annual Bonus received
by the Executive over the preceding three year period and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
which has been earned but deferred (and annualized for any fiscal
year consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the most
recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual Bonus")
and (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and the
denominator of which is 365, and (3) any compensation previously
deferred by the Executive under a plan sponsored by the Company
(together with any accrued interest or earnings thereon), and any
accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum of (i) the then current
Annual Base Salary of the Executive and (ii) the Highest Annual
Bonus, and
(C) an amount equal to the total of the employer matching
contributions credited to the Executive under the Company's 401(k)
Savings Plan (the "401(k) Plan"), any other excess or supplemental
retirement plan in which the Executive participates or any other
deferred compensation plan during the twelve (12) month period
immediately preceding the month of the Executive's Date of
Termination multiplied by three, such amount to be grossed up so
that the amount the Executive actually receives after payment of any
federal or state taxes payable thereon equals the amount first
described above.
Page 6
<PAGE>
Provided that, notwithstanding anything contained herein to the contrary,
for that portion of the Accrued Obligations consisting of compensation
previously deferred by the Executive under a plan sponsored by the Company
(together with any accrued interest or earnings thereon), the Executive shall
have the option, at Executive's sole discretion, to receive any payments due
from such plan in accordance with the terms of the plan or in cash within thirty
(30) days after the Date of Termination as provided in this Section 4(a)(i), so
long as the election to receive cash under this Section is permitted under all
applicable regulations governing payouts from the plan and does not have an
adverse effect on the plan or the remaining participants in the plan.
(ii) For a period of three years from the Executive's Date of Termination
(the "Remaining Contract Term") or such longer period as may be provided
by the terms of the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or the Executive's
family equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section
2(b)(iv) of this Agreement if the Executive's employment had not been
terminated; provided, however, that with respect to any of such plans,
programs, practices or policies requiring an employee contribution, the
Executive shall continue to pay the monthly employee contribution for
same, and provided further, that if the Executive becomes reemployed by
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility (for
purpose of determining eligibility of the Executive for retiree benefits
pursuant to such plans, programs, and arrangements, the Executive shall be
considered to have remained employed until three years after the Date of
Termination and to have retired on the last day of such period);
(iii) The Company shall, at its sole expense as incurred, provide the
Executive with outplacement services, the scope and provider of which
shall be selected by the Executive in his sole discretion;
(iv) With respect to all options to purchase Common Stock held by the
Executive pursuant to a Company stock option plan on or prior to the Date
of Termination, irrespective of whether such options are then exercisable,
the Executive shall have the right, during the sixty (60) day period after
the Date of Termination, to elect to surrender all or part of such options
in exchange for a cash payment by the Company to the Executive in an
amount equal to the number of shares of Common Stock subject to the
Executive's option multiplied by the difference between (x) and (y) where
(x) equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in any
transaction reported on the New York Stock Exchange during the sixty (60)
day period prior to and including the Executive's Date of Termination.
Such cash payments shall be made within thirty (30) days after the date of
the Executive's election; provided, however, that if the Executive's Date
of Termination is within six months after the date of grant of a
particular option held by the Executive and the Executive is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, any cash
payments related thereto shall be made on the date which is six
Page 7
<PAGE>
months and one day after the date of grant of such option to the extent
necessary to prevent the imposition of the disgorgement provisions under
Section 16(b).
Any options outstanding as of the Date of Termination and not then
exercisable shall become fully exercisable as of the Executive's Date of
Termination, and to the extent the Executive does not elect to surrender
same for a cash payment as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; any restrictions imposed by NOI or the Company that are
applicable to any shares of Common Stock granted to the Executive by the
Company shall lapse, as of the date of the Executive's Date of
Termination;
(v) All country club memberships, luncheon clubs and other memberships
which the Company was providing for the Executive's use at the time Notice
of Termination is given shall, to the extent possible, be transferred and
assigned to the Executive at no cost to the Executive (other than income
taxes owed), the cost of transfer, if any, to be borne by the Company;
(vi) The Company shall either transfer to the Executive ownership and
title to the Executive's company car at no cost to the Executive (other
than income taxes owed) or, if the Executive receives a monthly car
allowance in lieu of a Company car, pay the Executive a lump sum in cash
within 30 days after the Executive's Date of Termination equal to the
Executive's annual car allowance multiplied by three;
(vii) All benefits under the Company's 401(k) Savings Plan and any other
similar plans, including any restricted stock held by the Executive, not
already vested shall be 100% vested, to the extent such vesting is
permitted under the Code (as defined below);
(viii) To the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits");
and
(ix) The foregoing payments are intended to compensate the Executive for a
breach of the Company's obligations and place Executive in substantially
the same position had the employment of the Executive not been so
terminated as a result of a breach by the Company.
(b) Death. If Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiaries, as applicable, in a lump sum in cash within
thirty (30) days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the
Page 8
<PAGE>
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of the Executive's peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, in effect
on the date hereof or, if more favorable, those in effect on the date of the
Executive's death.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
thirty (30) days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, without limitation, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable benefits generally provided by the Company and its
affiliated companies to the Executive's disabled peer executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's employment is
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within thirty
(30) days after the Date of Termination subject to such other options or
restrictions as provided by law.
5. OTHER RIGHTS.
Except as provided herein, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Except as
provided herein, amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement. It is expressly
agreed by the Executive that he or she shall have no right
Page 9
<PAGE>
to receive, and hereby waives any entitlement to, any severance pay or similar
benefit under any other plan, policy, practice or program of the Company. In
addition, if the Executive has an employment or similar agreement with the
Company at the Date of Termination, he or she agrees that he or she shall have
the right to receive all of the benefits provided under this Agreement or such
other agreement, whichever one, in its entirety, the Executive chooses, but not
both agreements, and when the Executive has made such election, the other
agreement shall be superseded in its entirety and shall be of no further force
and effect. The Executive also agrees that to the extent he or she may be
eligible for any severance pay or similar benefit under any laws providing for
severance or termination benefits, such other severance pay or similar benefit
shall be coordinated with the benefits owed hereunder, such that the Executive
shall not receive duplicate benefits.
6. FULL SETTLEMENT.
(a) No Rights of Offset. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains other
employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expense which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company or the Executive of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereto
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Although this Agreement is not being entered into in connection with
or contingent upon a change of control of the Company, anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 7(a), if it shall be
Page 10
<PAGE>
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination shall be made by Ernst & Young,
L.L.P., 1221 McKinney, Suite 2400, Houston, Texas 77010 or, as provided below,
such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15) business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group affecting a change of control of the Company, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event
the IRS seeks higher payment. Such notification shall be given as soon as
practicable, but no later than ten business days after the Executive is informed
in writing of such claim, and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
Page 11
<PAGE>
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to such
claims; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such costs and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c), the Company
shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such
contest to determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the
case may be, any other issues raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 7(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
Page 12
<PAGE>
8. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies, provided that it
shall not apply to information which is or shall become part of the public
domain (other than by acts by the Executive or representatives of the Executive
in violation of this Agreement), information that is developed by the Executive
independently of such information, or knowledge or data or information that is
disclosed to the Executive by a third party under no obligation of
confidentiality to the Company. After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 8 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
10. POST EMPLOYMENT NON-COMPETITION OBLIGATIONS.
(a) As part of the consideration for the compensation and benefits to be
paid to Executive hereunder, and as an additional incentive for the Company and
NOI to enter into this Agreement, the Company, NOI and Executive agree to the
non-competition provisions of this Section 10. Executive agrees that during the
period of Executive's non-competition obligations hereunder, Executive will not,
directly or indirectly for Executive or for others, in any geographic area or
market where the Company, NOI or any of their subsidiaries or affiliated
companies are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
Page 13
<PAGE>
(i) engage in any business competitive with any line of business
conducted by the Company, NOI, or any of their subsidiaries or
affiliates;
(ii) render advice or services to, or otherwise assist, any other person,
association, or entity who is engaged, directly or indirectly, in
any business competitive with any line of business conducted by the
Company, NOI, or any of their subsidiaries or affiliates;
(iii) induce any officer or manager of the Company or NOI, or any of their
subsidiaries or affiliates to terminate his or her employment with
the Company, NOI, or any of their subsidiaries or affiliates, or
hire or assist in the hiring of any such officer or manager by
person, association, or entity not affiliated with the Company, NOI
or any of their subsidiaries or affiliates.
These non-competition obligations shall apply during Executive's employment and
for a period ending on the third (3rd) anniversary date of the Date of
Termination. After termination of Executive's employment these non-competition
obligations shall apply only to businesses having annual revenues in excess of
$20 million competitive with any line of business conducted by the Company, NOI,
or any of their subsidiaries having annual revenues in excess of $20 million for
the last fiscal year prior to the time of termination. If the Company, NOI, or
any of their subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the intention to
permanently refrain from such aspect of its business, then this post-employment
non-competition covenant shall not apply to such former aspect of that business.
(b) Executive understands that the foregoing restrictions may limit his
ability to engage in certain businesses anywhere in the world during the period
provided for above, but acknowledges that Executive will receive sufficiently
high remuneration and other benefits under this Agreement to justify such
restriction. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Section 10 by Executive, and the Company, NOI, or
any of their subsidiaries or affiliates shall be entitled to specific
performance and injunctive relief as remedies for such breach or any threatened
breach after notification by the Company of any breach and Executive's failure
to cure same. Such remedies shall not be deemed the exclusive remedies for a
breach of this Section 10, but shall be in addition to all remedies available at
law or in equity to the Company, NOI, or any of their subsidiaries or
affiliates, including, without limitation, the recovery of damages from
Executive and his agents involved in such breach.
(c) The Executive, the Company and NOI each expressly acknowledge and
agree that the restrictions contained in this Agreement, including this Section
10, are deemed by each to reasonable and necessary to protect the business
interests of NOI and the Company and their subsidiaries and affiliates. However,
in the event that any of the restrictions contained in this Agreement, and
specifically this Section 10, are found by a court of competent jurisdiction to
be unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, it is the parties express intention for the restrictions herein
set forth to be modified by such court so as to be reasonable and enforceable
and, as so modified by the court, to be fully enforced.
Page 14
<PAGE>
11. MISCELLANEOUS.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORD-ANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: If to Company:
Merrill A. Miller, Jr. National-Oilwell, L.P.
3702 Arnold P.O. Box 4888
Houston, Texas 77005 Houston, Texas 77210-4888
Attn: Chief Financial Officer
With copy to:
National-Oilwell, Inc.
10000 Richmond Ave., Suite 400
Houston, Texas 77042
Attn: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(vi) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
Page 15
<PAGE>
(f) The Company and the Executive are parties to an employment agreement
dated as of February 5, 1996 (the "Prior Employment Agreement"). Upon full
execution and delivery of this Agreement, the parties agree that the Prior
Employment Agreement shall be cancelled and of no further force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Executive National-Oilwell, L.P.
by its general partner
NOW Oilfield Services, Inc.
_________________________
Merrill A. Miller, Jr.
By: __________________________
Name:_________________________
Title:________________________
National-Oilwell, Inc.
By: __________________________
Name:_________________________
Title:________________________
Page 16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>h95422ex10-2.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - DWIGHT W RETTIG
<TEXT>
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated effective as of
January 1, 2002, by and among National-Oilwell L.P., a Delaware limited
partnership (the "Company"), National-Oilwell, Inc., a Delaware corporation
("NOI"), and Dwight W. Rettig (the "Executive").
WITNESSETH:
WHEREAS, the Board of Directors of NOI (the "Board") has previously
determined that it is in the best interests of NOI and its stockholders to
retain the Executive and to induce the employment of the Executive for the long
term benefit of NOI, its shareholders and its affiliated companies, including
the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the one year period contemplated herein;
and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT.
(a) The Company hereby agrees that the Company or an affiliated company
will continue the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company or an affiliated company subject to the
terms and conditions of this Agreement, during the Employment Period (as defined
below). As used in this Agreement, the term "affiliated companies" shall include
any company controlled by, controlling or under common control with the Company.
(b) The "Employment Period" shall mean the period commencing on the date
hereof and ending on the first (1st) anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Employment Period shall be automatically extended so as to
terminate one year after such Renewal Date, unless at least sixty (60) days
prior to the Renewal Date the Company shall give notice to the Executive that
the Contract Period shall not be so extended.
2. TERMS OF EMPLOYMENT.
Page 1
<PAGE>
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be substantially similar
to that in effect as of the date hereof and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the date hereof or any office or
location less than fifty (50) miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote the Executive's full time, skill and
attention to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance
of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the date hereof, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the date hereof shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary equal to the current base salary being
received by the Executive ("Annual Base Salary"), which shall be paid
in accordance with the Company's standard payroll practice. During the
Employment Period, the Annual Base Salary shall be reviewed no more
than twelve (12) months after the last salary increase awarded to the
Executive prior to the date hereof and thereafter at least annually;
provided, however, that a salary increase shall not necessarily be
awarded as a result of such review. Any increase in Annual Base Salary
may not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any
increase without the express written consent of the Executive. The term
Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible for an annual bonus
(the "Annual Bonus") for each fiscal year ending during the Employment
Period on the same basis as other executive officers under the then
current National Oilwell Incentive Plan (or such other name as may be
adopted for the plan or its successor). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to
Page 2
<PAGE>
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, stock option, savings and retirement plans, practices,
policies and programs applicable generally to the Executive's peer
executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if any,
that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and
its affiliated companies for the Executive under such plans, practices,
policies and programs as in effect on the date hereof.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to the Executive's peer
executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate,
than such plans, practices, policies and programs in effect for the
Executive on the date hereof.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive on the date hereof.
(vi) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to fringe benefits (including, without limitation,
financial planning services, payment of club dues, a car allowance or
use of an automobile and payment of related expenses, as appropriate)
in accordance with the most favorable plans, practices, programs and
policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies in effect for the Executive on the date hereof.
3. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that a Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in
Page 3
<PAGE>
accordance with Section 11(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective thirty (30) days after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that within the
thirty (30) day period after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for one hundred eighty
(180) calendar days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company. For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or of a senior
officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the
Company.
(c) Good Reason. The Executive may terminate the Executive's employment
during the Employment Period for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
Page 4
<PAGE>
(ii) any failure by the Company to comply with any of the provisions of
Section 2(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 2(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
date hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 9(c)
of this Agreement, or
(vi) notice by the Company to the Executive that the Company is not
extending or renewing this Agreement.
(d) Notice of Termination. Any termination during the Employment Period by
the Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 11(b) of the Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the case
may be;
(ii) if the Executive's employment is terminated by the Company other
than for Cause, death or Disability, the Date of Termination shall be
the date on which the Company notifies the Executive of such
termination; and
Page 5
<PAGE>
(iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Good Reason; Other than For Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or Disability, or the Executive shall terminate employment
for Good Reason:
(i) The Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (I) the highest Annual
Bonus received by the Executive over the preceding three year
period and (II) the Annual Bonus paid or payable, including
any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to the sum of (i) the then current Annual
Base Salary of the Executive and (ii) the Highest Annual
Bonus, and
(C) an amount equal to the total of the employer matching
contributions credited to the Executive under the Company's
401(k) Savings Plan (the "401(k) Plan"), any other excess or
supplemental retirement plan in which the Executive
participates or any other deferred compensation plan during
the twelve (12) month period immediately preceding the month
of the Executive's Date of Termination, such amount to be
grossed up so that the amount the Executive actually receives
after payment of any federal or state taxes payable thereon
equals the amount first described above.
Provided that, notwithstanding anything contained herein to the
contrary, for that portion of the Accrued Obligations consisting of compensation
previously deferred by the Executive under a plan sponsored by the Company
(together with any accrued interest or earnings thereon), the Executive shall
have the option, at Executive's sole discretion, to receive any payments due
from such plan in accordance with the terms of the plan or in cash within thirty
(30) days after
Page 6
<PAGE>
the Date of Termination as provided in this Section 4(a)(i), so long as the
election to receive cash under this Section is permitted under all applicable
regulations governing payouts from the plan and does not have an adverse effect
on the plan or the remaining participants in the plan.
(ii) For a period of one year from the Executive's Date of Termination
(the "Remaining Contract Term") or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies
described in Section 2(b)(iv) of this Agreement if the Executive's
employment had not been terminated; provided, however, that with
respect to any of such plans, programs, practices or policies requiring
an employee contribution, the Executive shall continue to pay the
monthly employee contribution for same, and provided further, that if
the Executive becomes reemployed by another employer and is eligible to
receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility (for purpose of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, programs, and arrangements, the Executive shall be considered to
have remained employed until one year after the Date of Termination and
to have retired on the last day of such period);
(iii) The Company shall, at its sole expense as incurred, provide the
Executive with outplacement services, the scope and provider of which
shall be selected by the Executive in his sole discretion;
(iv) All options to purchase Common Stock held by the Executive
pursuant to a stock option plan on or prior to the Date of Termination
shall be governed by the terms of the option agreement or plan between
the Executive, NOI, and/or the Company;
(v) All benefits under the Company's 401(k) Savings Plan and any other
similar plans, including any restricted stock held by the Executive,
not already vested shall be 100% vested, to the extent such vesting is
permitted under the Code (as defined below);
(vi) To the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other
amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(vii) The foregoing payments are intended to compensate the Executive
for a breach of the Company's obligations and place Executive in
substantially the same position had the employment of the Executive not
been so terminated as a result of a breach by the Company.
(b) Death. If Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the
Page 7
<PAGE>
Executive's legal representatives under this Agreement, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive's estate or beneficiaries, as
applicable, in a lump sum in cash within thirty (30) days after the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 4(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of the Executive's
peer executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, in effect
on the date hereof or, if more favorable, those in effect on the date of the
Executive's death.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
thirty (30) days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, without limitation, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable benefits generally provided by the Company and its
affiliated companies to the Executive's disabled peer executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's employment is
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within thirty
(30) days after the Date of Termination subject to such other options or
restrictions as provided by law.
5. OTHER RIGHTS.
Except as provided herein, nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Except as
provided herein, amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in
Page 8
<PAGE>
accordance with such plan, policy, practice or program or contract or agreement.
It is expressly agreed by the Executive that he or she shall have no right to
receive, and hereby waives any entitlement to, any severance pay or similar
benefit under any other plan, policy, practice or program of the Company. In
addition, if the Executive has an employment or similar agreement with the
Company at the Date of Termination, he or she agrees that he or she shall have
the right to receive all of the benefits provided under this Agreement or such
other agreement, whichever one, in its entirety, the Executive chooses, but not
both agreements, and when the Executive has made such election, the other
agreement shall be superseded in its entirety and shall be of no further force
and effect. The Executive also agrees that to the extent he or she may be
eligible for any severance pay or similar benefit under any laws providing for
severance or termination benefits, such other severance pay or similar benefit
shall be coordinated with the benefits owed hereunder, such that the Executive
shall not receive duplicate benefits.
6. FULL SETTLEMENT.
(a) No Rights of Offset. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains other
employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expense which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company or the Executive of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereto
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Although this Agreement is not being entered into in connection with
or contingent upon a change of control of the Company, anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after
Page 9
<PAGE>
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 7(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination shall be made by Ernst & Young,
L.L.P., 1221 McKinney, Suite 2400, Houston, Texas 77010 or, as provided below,
such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15) business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group affecting a change of control of the Company, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment (or an additional Gross-Up Payment) in the event
the IRS seeks higher payment. Such notification shall be given as soon as
practicable, but no later than ten business days after the Executive is informed
in writing of such claim, and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which he
Page 10
<PAGE>
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company;
(iii) cooperate with the Company in good faith in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claims; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such costs and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to determination
before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issues raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 7(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or
Page 11
<PAGE>
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
8. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies, provided that it
shall not apply to information which is or shall become part of the public
domain (other than by acts by the Executive or representatives of the Executive
in violation of this Agreement), information that is developed by the Executive
independently of such information, or knowledge or data or information that is
disclosed to the Executive by a third party under no obligation of
confidentiality to the Company. After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 8 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
10. POST EMPLOYMENT NON-COMPETITION OBLIGATIONS.
(a) As part of the consideration for the compensation and benefits to be
paid to Executive hereunder, and as an additional incentive for the Company and
NOI to enter into this Agreement,
Page 12
<PAGE>
the Company, NOI and Executive agree to the non-competition provisions of this
Section 10. Executive agrees that during the period of Executive's
non-competition obligations hereunder, Executive will not, directly or
indirectly for Executive or for others, in any geographic area or market where
the Company, NOI or any of their subsidiaries or affiliated companies are
conducting any business as of the date of termination of the employment
relationship or have during the previous twelve months conducted any business:
(i) engage in any business competitive with any line of business
conducted by the Company, NOI, or any of their subsidiaries or
affiliates;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or
indirectly, in any business competitive with any line of
business conducted by the Company, NOI, or any of their
subsidiaries or affiliates;
(iii) induce any officer or manager of the Company or NOI, or any of
their subsidiaries or affiliates to terminate his or her
employment with the Company, NOI, or any of their subsidiaries
or affiliates, or hire or assist in the hiring of any such
officer or manager by person, association, or entity not
affiliated with the Company, NOI or any of their subsidiaries
or affiliates.
These non-competition obligations shall apply during Executive's employment and
for a period ending on the first (1st ) anniversary date of the Date of
Termination. After termination of Executive's employment these non-competition
obligations shall apply only to businesses having annual revenues in excess of
$10 million competitive with any line of business conducted by the Company, NOI,
or any of their subsidiaries having annual revenues in excess of $10 million for
the last fiscal year prior to the time of termination. If the Company, NOI, or
any of their subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the intention to
permanently refrain from such aspect of its business, then this post-employment
non-competition covenant shall not apply to such former aspect of that business.
(b) Executive understands that the foregoing restrictions may limit his
ability to engage in certain businesses anywhere in the world during the period
provided for above, but acknowledges that Executive will receive sufficiently
high remuneration and other benefits under this Agreement to justify such
restriction. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Section 10 by Executive, and the Company, NOI, or
any of their subsidiaries or affiliates shall be entitled to specific
performance and injunctive relief as remedies for such breach or any threatened
breach after notification by the Company of any breach and Executive's failure
to cure same. Such remedies shall not be deemed the exclusive remedies for a
breach of this Section 10, but shall be in addition to all remedies available at
law or in equity to the Company, NOI, or any of their subsidiaries or
affiliates, including, without limitation, the recovery of damages from
Executive and his agents involved in such breach.
Page 13
<PAGE>
(c) The Executive, the Company and NOI each expressly acknowledge and agree
that the restrictions contained in this Agreement, including this Section 10,
are deemed by each to reasonable and necessary to protect the business interests
of NOI and the Company and their subsidiaries and affiliates. However, in the
event that any of the restrictions contained in this Agreement, and specifically
this Section 10, are found by a court of competent jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, it is the parties express intention for the restrictions herein
set forth to be modified by such court so as to be reasonable and enforceable
and, as so modified by the court, to be fully enforced.
11. MISCELLANEOUS.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORD-ANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: If to Company:
Dwight W. Rettig National-Oilwell, L.P.
1100 Bering Drive, Apt. 513 P.O. Box 4888
Houston, Texas 77057 Houston, Texas 77210-4888
Attn: President
With copy to:
National-Oilwell, Inc.
10000 Richmond Ave., Suite 400
Houston, Texas 77042
Attn: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
Page 14
<PAGE>
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(vi) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Executive National-Oilwell, L.P.
by its general partner
NOW Oilfield Services, Inc.
- -------------------------
Dwight W. Rettig
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
National-Oilwell, Inc.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Page 15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>h95422ex10-3.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - GARY W STRATULATE
<TEXT>
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between IRI
International Corporation, a Delaware corporation having offices at 1000
Louisiana, Suite 5900, Houston, Texas 77002 ("Employer"), and Gary W.
Stratulate, ("Employee"), to be effective as of the Closing Date (as defined in
that certain Agreement of Merger of even date herewith among Employer, Arrow
Acquisition Corp. and National-Oilwell, Inc.
Employer is desirous of continuing to employ Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement and
of terminating any prior employment agreement or arrangement, and Employee is
desirous of continuing in the employ of Employer pursuant to such terms and
conditions and for such consideration set forth in this Agreement and of
terminating any prior existing employment agreement or arrangement.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
1. EMPLOYMENT AND DUTIES:
1.1. Employer agrees to continue to employ Employee, and Employee
agrees to be employed by Employer throughout the Term (as defined below) of this
Agreement, subject to the terms and conditions of this Agreement.
1.2 Employee shall serve as President & Chief Operating Officer of the
Employer and shall report to Chief Executive Officer of Employer. Employee
agrees to serve in the assigned position and to perform diligently and to the
best of Employee's abilities the duties and services appertaining to such
position as determined by Employer, as well as such additional or different
duties and services appropriate to such position which Employee from time to
time may be reasonably directed to perform by Employer; provided, that the
Employee shall not be forced to relocate anywhere other than the metropolitan
areas of Houston, Texas or any other city where Employee is located as of the
date of this Agreement. Employer will provide Employee with those resources
reasonably required for the performance of his duties hereunder. Employee shall
at all times comply with and be subject to such generally applicable policies
and procedures as Employer may establish from time to time.
1.3. Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or any of its subsidiaries or affiliates or requires any
significant portion of Employee's business time; provided, however, that
Employee may have other
<PAGE>
business, personal, and civic interests which, from time to time, require
portions of his time but which (i) do not and will not interfere with the
performance of his duties hereunder and (ii) are not and will not be competitive
with the Relevant Business (as defined herein). Such other interests may include
service on boards and governing bodies of charitable, cultural, educational, and
other non-profit organizations, and on the boards of other enterprises that do
not engage in any business in competition with the Relevant Business.
1.4. Employee acknowledges and agrees that Employee owes a fiduciary
duty of loyalty, fidelity and allegiance to act at all times in the best
interests of Employer any of its subsidiaries or affiliates and to do no act
which would injure the business, interests, or reputation of Employer or any of
its subsidiaries or affiliates. In keeping with these duties, Employee shall
make full disclosure to Employer of all business opportunities pertaining to
Employer's business and shall not appropriate for Employee's own benefit
business opportunities concerning the subject matter of the fiduciary
relationship.
2. COMPENSATION AND BENEFITS:
2.1. Employee's initial base salary under this Agreement shall be
($255,895.00) per annum, and shall be paid in installments in accordance with
Employer's standard payroll practice. Employee's base salary may be increased
from time to time by Employer and, after any such change, Employee's new level
of base salary shall be Employee's base salary for purposes of this Agreement
until the effective date of any subsequent change.
2.2. Employer and Employee may enter into separate written stock option
agreements pursuant to which Employee may be granted options to purchase shares
of common stock of Employer subject to the terms and conditions of any such
agreement. The number of shares and terms of the restrictions placed upon
exercising the options shall be as specified in any such agreement. Employee
acknowledges that his participation in any Employer stock option plans shall be
subject to the Board of Directors approval of his participation
2.3. Employer's current management incentive program (or such other
name as it is adopted) and the Board of Directors approval of his participation
shall govern employee's participation, if any, in any bonus plans.
2.4. While employed by Employer, Employee shall be allowed to
participate, on the same basis generally as other employees of Employer, in all
general employee benefit plans and programs, including improvements or
modifications of the same, which on the effective date or thereafter are made
available by Employer to all or substantially all of Employer's employees. Such
benefits, plans, and programs may include, without limitation, medical, health,
and dental care, life insurance, disability protection, and pension plans.
Nothing in this Agreement is to be construed or interpreted to provide greater
rights, participation, coverage, or benefits under such benefit plans or
programs than provided to similarly situated employees pursuant to the terms and
conditions of such benefit plans and programs.
<PAGE>
2.5. Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of Employer, none of the benefits or arrangements described in this
Article 2 shall be secured or funded in any way, and each shall instead
constitute an unfunded and unsecured promise to pay money in the future
exclusively from the general assets of Employer and its subsidiaries and
affiliates.
2.6 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION
PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION:
3.1. The term of this Agreement shall be for one (1) year from the date
hereof, and shall be automatically extended for successive terms of one year
commencing on the first anniversary of the effective date of this Agreement, and
on each anniversary date thereafter, unless Employer or Employee gives written
notice to the other, not less than ninety (90) days prior to the next succeeding
anniversary date, that employment will not be renewed or continued hereunder
following such anniversary date.
3.2. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors that "cause" exists for the termination of the
employment relationship. As used in this Section 3.2(i), the
term "cause" shall mean (a) Employee has engaged in gross
negligence, incompetence or willful misconduct in the
performance of, or Employee's refusal to perform, the duties
and services required of Employee pursuant to this Agreement;
(b) Employee has committed any fraudulent or dishonest acts
involving Employer or has been convicted of a crime involving
moral turpitude; or (c) Employee's breach of any material
provision of this Agreement or corporate code or policy. A
decision as to whether "cause" exists for termination of the
employment relationship with Employee shall be made by
Employer's Board of Directors. Employee, if he so requests,
after reasonable notice that cause exists, shall be entitled
to be heard before the Employer's Board of Directors. If
Employee disagrees with the decision reached by the Employer's
Board
<PAGE>
of Directors, any dispute will be limited to whether the
Employer's Board of Directors reached its decision in good
faith;
(ii) for any other reason whatsoever, including termination without
cause, in the sole discretion of Employer's Chief Executive
Officer or Employer's Board of Directors;
(iii) upon Employee's death; or
(iv) upon Employee becoming incapacitated by accident, sickness, or
other circumstance which in the reasonable opinion of a
qualified doctor approved by the Executive Committee or
Employer's Board of Directors renders him mentally or
physically incapable of performing the duties and services
required of Employee, and which will continue in the
reasonable opinion of such doctor for a period of not less
than 180 days.
The termination of Employee's employment shall constitute a "Termination for
Cause" if made pursuant to Section 3.2(i); the effect of such termination is
specified in Section 3.4. The termination of Employee's employment shall
constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the
effect of such termination is specified in Section 3.5. The effect of the
employment relationship being terminated pursuant to Section 3.2(iii) as a
result of Employee's death is specified in Section 3.7. The effect of the
employment relationship being terminated pursuant to Section 3.2(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.8.
3.3. Notwithstanding any other provisions of this Agreement, Employee
shall have the right to terminate the employment relationship under this
Agreement at any time for any of the following reasons:
(i) a material breach by Employer of any material provision of
this Agreement, including, without limitation, a material
reduction in Employee's title, position, duties,
responsibilities, and authority to such an extent that
Employee is relegated to a position substantially inferior to
that which he shall hold with Employer at the commencement of
this Agreement, or elimination of Employee's job and him not
being offered employment by Employer or a successor to all or
a portion of Employer's business or assets, with (a)
comparable responsibilities, (b) the same or greater base
salary, (c) comparable value for his participation in any
stock option plans and (d) comparable severance benefits, and
then only if any such breach remains uncorrected for 30 days
following written notice of such breach by Employee to
Employer's Board of Directors
(ii) (x) Employer completes a merger or consolidation, a sale of
all or substantially all of its assets of Employer, or the
sale of all of its outstanding common stock, in
<PAGE>
each case in which all of the stockholders of Employer receive
in such transaction cash and/or securities that are publicly
traded, and (y) Employee's employment is terminated after such
transaction by virtue of an Involuntary Termination within
ninety (90) days after the completion of such transaction;
(iii) any corporation, person or group within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act"), becomes the beneficial owner
(within the meaning of Rule 13d-3 under the Act) of voting
securities of Employer representing more than fifty percent of
the total votes eligible to be cast at any election of
directors of Employer and Employee's employment is terminated
after such event by virtue of Involuntary Termination within
ninety (90) days after the occurrence of such event;
(iv) the dissolution of Employer; or
(v) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee shall constitute an
"Involuntary Termination" if made pursuant to Section 3.3(i), 3.3(ii), 3.3(iii)
or 3.3(iv); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee shall constitute a "Voluntary
Termination" if made pursuant to Sections 3.3(v); the effect of such termination
is specified in Section 3.4.
3.4. Upon a "Voluntary Termination" of the employment relationship by
Employee or a termination of the employment relationship for "Cause" by
Employer, all future compensation to which Employee is entitled and future
benefits for which Employee is eligible shall cease and terminate as of the date
of termination. Employee shall be entitled to pro rata salary through the date
of such termination, but Employee shall not be entitled to any bonuses not yet
paid at the date of such termination.
3.5. Upon an Involuntary Termination of the employment relationship by
either Employer or Employee pursuant to Sections 3.2(ii), 3.3(i), 3.3(iii) or
3.3(iii), Employee shall be entitled, in consideration of Employee's continuing
obligations hereunder after such termination (including, without limitation,
Employee's non-competition obligations), to receive a lump sum payment equal to
150% of Employee's base salary for the year in which termination occurs.
Employee's rights under this Section 3.5 are Employee's sole and exclusive
rights against Employer or its subsidiaries or affiliates, and Employer's and
its subsidiaries' and affiliates' sole and exclusive liability to Employee under
this Agreement, in contract, tort, or otherwise, for any Involuntary Termination
of the employment relationship, provided however, Employee's rights and
obligations with respect to Employee stock options, if any, are governed the
controlling option agreement.
3.6. Employee covenants not to sue or lodge any claim, demand or cause
of action
<PAGE>
against Employer based on Involuntary Termination for any monies other than
those specified in Section 3.5. If Employee breaches this covenant, Employer and
its subsidiaries' and affiliates' shall be entitled to recover from Employee all
sums expended by Employer and its subsidiaries and affiliates (including costs
and attorneys fees) in connection with such suit, claim, demand or cause of
action. Employer and its subsidiaries and affiliates shall not be entitled to
offset any of the amounts specified in the immediately preceding sentence
against amounts otherwise owing by Employer and its subsidiaries and affiliates
to Employee prior to a final determination under the terms of the arbitration
provisions of this Agreement that Employee has breached the covenant contained
in this Section 3.6.
3.7. Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses not yet paid to Employee at the date of such termination.
3.8. Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his pro rata salary for a
period of six months following the date of such termination, but Employee shall
not be entitled to any individual bonuses not yet paid to Employee at the date
of such termination.
3.9. In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
reduced and offset by any amounts to which Employee may otherwise be entitled
under any and all severance plans or policies of Employer or its subsidiaries or
affiliates or any successor to all or a portion of the business or assets of
Employer; provided, however, that no sums received by Employee pursuant to
Employer's pension and retirement and thrift plan shall be considered a payment
requiring offset under this Section.
3.10. Termination of the employment relationship shall not terminate
those obligations imposed by this Agreement which are continuing in nature,
including, without limitation, Employee's obligations of confidentiality,
non-competition and Employee's continuing obligations with respect to business
opportunities that had been entrusted to Employee by Employer during the
employment relationship.
3.11. This Agreement governs the rights and obligations of Employer and
Employee with respect to Employee's salary and other perquisites of employment.
Except as otherwise provided in this Agreement, Employee's rights and
obligations with respect to any Employee stock options and other incentive
awards shall be governed by the applicable plans, awards, or other governing
documents.
4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
4.1. Employee shall at all times comply with United States laws
applicable to
<PAGE>
Employee's actions on behalf of Employer and its subsidiaries and affiliates,
including specifically, without limitation, the United States Foreign Corrupt
Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter
be amended, and/or its successor statutes. If Employee pleads guilty to or nolo
contendre or admits civil or criminal liability under the FCPA or other
applicable United States law, or if a court finds that Employee has personal
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee committed an action resulting in Employer
or any of its subsidiaries or affiliates having civil or criminal liability or
responsibility under the FCPA or other applicable United States law, such action
or finding shall constitute "cause" for termination under this Agreement unless
Employer's Board of Directors determines that the actions found to be in
violation of the FCPA or other applicable United States law were taken in good
faith and in compliance with all applicable policies of Employer. Moreover, to
the extent that Employer or its subsidiaries or affiliates is found or held
responsible for any civil or criminal fines or sanctions of any type under the
FCPA or other applicable United States law or suffers other damages as a result
of Employee's actions, Employee shall be responsible for, and shall reimburse
and pay to that entity an amount of money equal to, such civil or criminal
fines, sanctions or damages. The rights afforded Employer or its subsidiaries
and affiliates under this provision are in addition to any and all rights and
remedies otherwise afforded by the law.
5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
5.1. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's or
any of its subsidiaries' or affiliates' businesses, products or services
(including, without limitation, all such information relating to corporate
opportunities, research, financial and sales data, pricing and trading terms,
evaluations, opinions, interpretations, acquisition prospects, the identity of
customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects, or
marketing and merchandising techniques, prospective names, and marks) shall be
disclosed to Employer and are and shall be the sole and exclusive property of
Employer. Upon termination of Employee's employment, for any reason, Employee
promptly shall deliver the same, and all copies thereof, to Employer.
5.2. Employee will not, at any time during or after his employment by
Employer, make any unauthorized disclosure of any confidential business
information or trade secrets of Employer or its subsidiaries or affiliates, or
make any use thereof, except in the carrying out of his employment
responsibilities hereunder. Employer's subsidiaries and affiliates shall be
third party beneficiaries of Employee's obligations under this Section. As a
result of Employee's employment by Employer, Employee may also from time to time
have access to, or knowledge of, confidential business information or trade
secrets of third parties, such as customers, suppliers, partners, joint
ventures, and the like, of Employer and its subsidiaries and affiliates.
<PAGE>
Employee also agrees to preserve and protect the confidentiality of such third
party confidential information and trade secrets to the same extent, and on the
same basis, as Employer's or any of their subsidiaries' or affiliates'
confidential business information and trade secrets.
5.3. If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, E-mail, voice mail, electronic databases,
drawings, maps, architectural renditions, models, manuals, brochures, or the
like) relating to Employer's or any of its subsidiaries' or affiliates'
businesses, products, or services, whether such work is created solely by
Employee or jointly with others (whether during business hours or otherwise and
whether on Employer's or any of its subsidiaries' or affiliates' premises or
otherwise), Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his employment; or, if the work is not
prepared by Employee within the scope of his employment but is specially ordered
by Employer or any of its subsidiaries or affiliates as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation, or as an instructional
text, then the work shall be considered to be work made for hire and Employer or
any of its subsidiaries or affiliates shall be the author of the work. If such
work is neither prepared by Employee within the scope of his employment nor a
work specially ordered that is deemed to be a work made for hire, then Employee
hereby agrees to assign, and by these presents does assign, to Employer all of
Employee's worldwide right, title, and interest in and to such work and all
rights of copyright therein.
5.4. Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer or any of its subsidiaries or
affiliates and their nominees, at any time, in the protection of Employer's or
any of its subsidiaries' or affiliates' worldwide right, title, and interest in
and to information, ideas, concepts, improvements, discoveries, and inventions,
and its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Employer or any of its subsidiaries or
affiliates or their nominees and the execution of all lawful oaths and
applications for applications for patents and registration of copyright in the
United States and foreign countries.
6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
6.1. As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, and as an additional incentive for Employer to
enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 6. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any county within the State of Texas,
and to the extent allowed by law, in any geographic area or market where
Employer or any of its subsidiaries or affiliated companies are engaged in the
Relevant Business as of the date of termination of the employment relationship
or have during the previous twelve months engaged in the Relevant Business:
<PAGE>
(i) engage in the business of the design, manufacture, sale,
repair and distribution of products used in oil and gas
drilling and production and any other business engaged in by
the Employer immediately prior to the date of this Agreement
(the "Relevant Business");
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or
indirectly, in the Relevant Business; and
(iii) induce any employee of Employer or any of its subsidiaries or
affiliates to terminate his or her employment with Employer or
any of its subsidiaries or affiliates, or hire or assist in
the hiring of any such employee by any person, association, or
entity not affiliated with Employer or any of its subsidiaries
or affiliates; provided, however, that this clause (iii) shall
not apply to responses to general advertising not directed
toward employees of Employer or any of its subsidiaries or
affiliates.
These non-competition obligations shall apply during Employee's employment and
for a period of one (1) year after termination of employment. After termination
of employment these non-competition obligations shall apply only to businesses
having annual revenues in excess of $20 million dollars competitive with any
line of business conducted by Employer or any of its subsidiaries having annual
revenues in excess of $20 million dollars for the last fiscal year prior to the
time of termination. If Employer or any of its subsidiaries or affiliates
abandons a particular aspect of its business, that is, ceases such aspect of its
business with the intention to permanently refrain from such aspect of its
business, then this post-employment non-competition covenant shall not apply to
such former aspect of that business.
6.2. Employee understands that the foregoing restrictions may limit his
ability to engage in certain businesses during the period provided for above,
but acknowledges that Employee will receive sufficiently high remuneration and
other benefits (e.g., the right to receive compensation under Section 3.6 for
the remainder of the Term upon Involuntary Termination) under this Agreement to
justify such restriction. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article 6 by Employee, and Employer or
any of its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Article 6 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 6, but shall be in
addition to all remedies available at law or in equity to Employer or any of its
subsidiaries or affiliates, including, without limitation, the recovery of
damages from Employee and his agents involved in such breach.
6.3. It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the proprietary
<PAGE>
information of Employer and its subsidiaries and affiliates. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
7. EMPLOYEE CONFIDENTIALITY COMMITMENT:
7.1 In the course of employment, Employer will provide Employee with a
great deal of proprietary, confidential, and restricted information, including
Trade Secrets (as herein defined), not known to those outside of Employer
(collectively, "Confidential Information"). "Trade Secrets" are any information,
including a formula, pattern, compilation, program, device, method, technique,
or process, that derives independent economic value, actual or potential, from
not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use is the subject of efforts that are
reasonable under circumstances to maintain its secrecy.
7.2 Employee shall not disclose or make use of Employer's Confidential
Information to anyone not employed by either Employer without written
authorization. Employee shall be bound by Employer's rules governing company
trade secret usage and will not use Employer's Trade Secrets outside the scope
of Employee's employment. Employee further shall not disclose or use Employer's
Confidential Information for any purpose for a period of one (1) year after
employment with Employer is terminated.
7.3 Employee will not disclose any Confidential Information to persons
(including other employees of Employer unless such persons have executed a
declaration similar to this one); provided, however, that Employee may make such
disclosure if required by law. Employee will hold Confidential Information in
trust, and consistently exercise all reasonable precautions to ensure that it is
not disclosed to any unauthorized persons, or used in any unauthorized manner,
published, or otherwise disseminated, either during or subsequent to, employment
with Employer, and will immediately report to Employer any breach or violation
of the commitments made in this declaration, whether the breach or violation is
intentional or inadvertent.
7.4 Employee acknowledges that the Confidential Information,
particularly regarding Trade Secrets, is material to the successful and
profitable operation of Employer, and if such Confidential Information is
improperly divulged, it will constitute an irreparable injury to Employer.
Therefore, Employee consents to the imposition of whatever injunctive or other
relief Employer deems necessary or appropriate in order to protect the
Confidential Information.
7.5 In the event Employee has any question as to whether information is
to be covered by the terms of this Section, Employee shall treat such
information as Confidential Information, and as such, falling under the terms
and obligations of this Section.
<PAGE>
8. MISCELLANEOUS:
8.1. For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Employer.
8.2. Employer and Employee shall refrain, both during the employment
relationship and after the employment relationship terminates, from publishing
any oral or written statements about each other or any of Employer's
subsidiaries' or affiliates' directors, officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employee's or Employer's or any of its
subsidiaries' or affiliates' business affairs, officers, employees, agents, or
representatives; or that constitute an intrusion into the seclusion or private
lives of Employee or Employer's or any of its subsidiaries' or affiliates'
directors, officers, employees, agents, or representatives; or that give rise to
unreasonable publicity about the private lives of Employee or Employer's or any
of its subsidiaries' or affiliates' officers, employees, agents, or
representatives; or that place Employee or Employer or any of its subsidiaries
or affiliates or their respective officers, employees, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of Employee or Employer or any of its
subsidiaries or affiliates or their respective officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined.
8.3. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer to:
IRI International Corporation
1000 Louisiana, Suite 5900
Houston, Texas 77002
Attn: Hushang Ansary, Chairman and Chief Executive Officer
Fax: (713) 659-3137
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, NY 10022
Attn: Mr. William F. Henze II
Fax: (212) 755-7306
<PAGE>
If to Employee, to the address reflected in Employer's records as his residence.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4. This Agreement shall be governed in all respects by the laws of
the State of Texas, excluding any conflict-of-law rule or principle that might
refer the construction of the Agreement to the laws of another State or country.
8.5. No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6. It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.7. Any and all claims, demands, cause of action, disputes,
controversies and other matters in question arising out of or relating to this
Agreement, any provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement, involving Employer, its
subsidiaries and affiliates and Employee (all of which are referred to herein as
"Claims"), even though some or all of such Claims allegedly are
extra-contractual in nature, whether such Claims sound in contract, tort or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, including equitable
relief and specific performance, shall be resolved and decided by binding
arbitration pursuant to the Federal Arbitration Act in accordance with the
Commercial Arbitration Rules then in effect with the American Arbitration
Association. In the arbitration proceeding the Employee shall select one
arbitrator, the Employer shall select one arbitrator and the two arbitrators so
selected shall select a third arbitrator. Should one party fail to select an
arbitrator within five days after notice of the appointment of an arbitrator by
the other party or should the two arbitrators selected by the Employee and the
Employer fail to select an arbitrator within ten days after the date of the
appointment of the last of such two arbitrators, any person sitting as a Judge
of the United States District Court of any District in Texas, upon application
of
<PAGE>
the Employee or the Employer, shall appoint an arbitrator to fill such space
with the same force and effect as though such arbitrator had been appointed in
accordance with the immediately preceding sentence of this Section 8.7. The
decision of a majority of the arbitrators shall be binding on the Employee, the
Employer and its subsidiaries and affiliates. The arbitration proceeding shall
be conducted in Houston, Texas. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction. This agreement to arbitrate shall be enforceable in either federal
or state court. The enforcement of this agreement to arbitrate and all
procedural aspects of this Agreement to arbitrate, including but not limited to,
the construction and interpretation of this agreement to arbitrate, the scope of
the arbitrable issues, allegations of waiver, delay or defenses to
arbitrability, and the rules governing the conduct of the arbitration, shall be
governed by and construed pursuant to the Federal Arbitration Act.
In deciding the substance of any such Claim, the Arbitrators shall
apply the substantive laws of the State of Texas; provided, however, that the
Arbitrators shall have no authority to award treble, exemplary or punitive type
damages under any circumstances regardless of whether such damages may be
available under Texas law, the parties hereby waiving their right, if any, to
recover treble, exemplary or punitive type damages in connection with any such
Claims.
8.8. This Agreement shall be binding upon and inure to the benefit of
Employer, its subsidiaries and affiliates, and any other person, association, or
entity which may hereafter acquire or succeed to all or a portion of the
business or assets of Employer by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Employee's rights and obligations
under this Agreement are personal and such rights, benefits, and obligations of
Employee shall not be voluntarily or involuntarily assigned, alienated, or
transferred, whether by operation of law or otherwise, by Employee without the
prior written consent of Employer.
8.9. Except as provided in (1) written company policies promulgated by
Employer dealing with issues such as securities trading, business ethics,
governmental affairs and political contributions, consulting fees, commissions
and other payments, compliance with law, investments and outside business
interests as officers and employees, reporting responsibilities, administrative
compliance, and the like, (2) the written benefits, plans, and programs
referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements
contemporaneously or hereafter executed by Employer and Employee, this Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect to such subject
matters and replaces and merges previous agreements and discussions pertaining
to the employment relationship between Employer and Employee. Specifically, but
not by way of limitation, any other employment agreement or arrangement in
existence as of the date hereof between Employer and Employee is hereby canceled
and Employee hereby irrevocably waives and renounces all of Employee's rights
and claims under any such agreement or arrangement.
<PAGE>
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
EMPLOYEE IRI International Corporation
By: By:
------------------------ ---------------------------
Title:
------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>6
<FILENAME>h95422ex21-1.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<Table>
<S> <C>
National-Oilwell, L.P. Delaware
NOW International, Inc. Delaware
National-Oilwell Canada Ltd. Canada
Technical Sales & Maintenance Ltd. Canada
National Oilwell (U.K.) Limited UK
Hitec Drilling & Marine Systems, Ltd. UK
National Oilwell de Venezuela C.A. Venezuela
National-Oilwell Pte. Ltd. Singapore
National-Oilwell Pty. Ltd. Australia
Russell Sub-Surface Systems, Ltd. UK
National Oilwell - Netherlands B.V. Holland
NOW International Denmark ApS Denmark
P.T. National Oilwell Indonesia Indonesia
Dreco Energy Services, Ltd. Canada
Dreco DHT, Inc. Delaware
Vector Oil Tool Ltd. Canada
Hitec Systems and Controls, Inc. Canada
National Oilwell DHT, L.P. Delaware
Bowen Downhole, Inc. Delaware
National Oilwell Holdings Norway AS Norway
National Oilwell Norway AS Norway
Hitec AS Norway
Maritime Industry Services AS Norway
Bowen Tools, Ltd. Canada
</Table>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>h95422ex23-1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of National-Oilwell, Inc. and in the related Prospectuses of our
report dated February 8, 2002, with respect to the consolidated financial
statements of National-Oilwell, Inc. included in this Annual Report on Form 10-K
for the year ended December 31, 2001.
<Table>
<Caption>
Form Description
- ---- -----------
<S> <C>
S-8 Stock Award and Long Term Incentive Plan, Value Appreciation and
Incentive Plan A and Value Appreciation and Incentive Plan B (No.
333-15859)
S-8 National-Oilwell Retirement and Thrift Plan (No. 333-36359)
S-8 Post Effective Amendment No. 3 to the Registration Statement on Form
S-4 filed on Form S-8 pertaining to the Dreco Energy Services Ltd.
Amended and Restated 1989 Employee Incentive Stock Option Plan, as
amended, and Employment and Compensation Arrangements Pursuant to
Private Stock Option Agreements (No. 333-21191)
S-8 Post Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 pertaining to the IRI International Corporation Equity
Incentive Plan (No. 333-36644)
</Table>
/s/ ERNST & YOUNG LLP
Houston, Texas
March 27, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>8
<FILENAME>h95422ex23-2.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos. 333-15859, 333-36359, 333-21191, 333-36644) of National Oilwell,
Inc. of our report dated March 8, 2000, with respect to the consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows of IRI International Corporation and Subsidiaries for the year ended
December 31, 1999, which report is filed with this Annual Report of
National-Oilwell, Inc. on Form 10-K for the year ended December 31, 2001.
/s/ KPMG LLP
Houston, Texas
March 27, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----