AGREEMENT AND PLAN OF MERGER

 

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                                                                     EXHIBIT 2.1

 

                                                                  EXECUTION COPY

 

 

                          AGREEMENT AND PLAN OF MERGER

 

 

                                      between

 

 

                             National-Oilwell, Inc.

 

 

                                       and

 

 

                            Varco International, Inc.

 

 

                                 August 11, 2004

 

 

 

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                                 TABLE OF CONTENTS

 

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ARTICLE I. THE MERGER.............................................................................................1

 

         Section 1.01       The Merger.............................................................................1

         Section 1.02       Effective Time of the Merger...........................................................1

         Section 1.03       Closing   1

         Section 1.04       Effects of the Merger..................................................................2

         Section 1.05       Certificate of Incorporation; and Bylaws...............................................2

 

ARTICLE II. conversion of securities..............................................................................2

 

         Section 2.01       Conversion of Capital Stock............................................................2

         Section 2.02       Exchange of Certificates...............................................................3

         Section 2.03       Associated Rights......................................................................5

 

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................6

 

         Section 3.01       Organization of the Company............................................................6

         Section 3.02       Company Capital Structure..............................................................6

         Section 3.03       Authority; No Conflict; Required Filings and Consents..................................7

         Section 3.04       SEC Filings; Financial Statements......................................................8

         Section 3.05       No Undisclosed Liabilities.............................................................9

         Section 3.06       Absence of Certain Changes or Events...................................................9

          Section 3.07       Taxes..................................................................................9

         Section 3.08       Properties............................................................................11

         Section 3.09       Intellectual Property.................................................................11

         Section 3.10       Agreements, Contracts and Commitments.................................................11

         Section 3.11       Litigation............................................................................12

         Section 3.12       Environmental Matters.................................................................12

         Section 3.13       Employee Benefit Plans................................................................13

         Section 3.14       Compliance With Laws..................................................................14

         Section 3.15       Tax Matters...........................................................................14

         Section 3.16       Registration Statement; Proxy Statement/Prospectus....................................14

         Section 3.17       Labor Matters.........................................................................15

         Section 3.18       Insurance.............................................................................15

         Section 3.19       No Existing Discussions...............................................................15

         Section 3.20       Opinion of Financial Advisor..........................................................15

         Section 3.21       Anti-Takeover Laws....................................................................15

         Section 3.22       Company Rights Plan...................................................................16

         Section 3.23       Sarbanes-Oxley Act....................................................................16

         Section 3.24       Brokers or Finders....................................................................16

 

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................16

 

         Section 4.01       Organization of Parent................................................................17

         Section 4.02       Parent Capital Structure..............................................................17

         Section 4.03       Authority; No Conflict; Required Filings and Consents.................................18

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         Section 4.04       SEC Filings; Financial Statements.....................................................19

         Section 4.05       No Undisclosed Liabilities............................................................19

         Section 4.06       Absence of Certain Changes or Events..................................................19

         Section 4.07       Taxes.................................................................................20

         Section 4.08       Properties............................................................................21

         Section 4.09       Intellectual Property.................................................................21

         Section 4.10       Agreements, Contracts and Commitments.................................................22

         Section 4.11       Litigation............................................................................22

         Section 4.12       Environmental Matters.................................................................23

         Section 4.13       Employee Benefit Plans................................................................23

         Section 4.14       Compliance With Laws..................................................................24

         Section 4.15       Tax Matters...........................................................................24

         Section 4.16       Registration Statement; Proxy Statement/Prospectus....................................24

         Section 4.17       Labor Matters.........................................................................25

         Section 4.18       Insurance.............................................................................25

         Section 4.19       No Existing Discussions...............................................................25

         Section 4.20        Opinion of Financial Advisor..........................................................25

         Section 4.21       Anti-Takeover Laws....................................................................25

         Section 4.22       Rights Plan...........................................................................26

         Section 4.23       Sarbanes-Oxley Act....................................................................26

         Section 4.24       Brokers or Finders....................................................................26

 

ARTICLE V. CONDUCT OF BUSINESS...................................................................................26

 

         Section 5.01       Covenants of the Company..............................................................26

         Section 5.02       Covenants of Parent...................................................................29

         Section 5.03       Cooperation...........................................................................31

 

ARTICLE VI. ADDITIONAL AGREEMENTS................................................................................31

 

         Section 6.01       No Solicitation.......................................................................31

         Section 6.02        Proxy Statement/Prospectus; Registration Statement....................................34

         Section 6.03       Access to Information.................................................................34

         Section 6.04       Stockholders Meetings.................................................................35

         Section 6.05       Appropriate Actions; Consents; Filings................................................35

         Section 6.06       Public Disclosure.....................................................................37

         Section 6.07       Rule 145..............................................................................37

         Section 6.08       Section 16 Matters....................................................................37

         Section 6.09       NYSE Listing..........................................................................38

         Section 6.10       Stock Plans...........................................................................38

          Section 6.11       Indemnification.......................................................................40

         Section 6.12       Letter of the Company's Accountants...................................................41

         Section 6.13       Letter of Parent's Accountants........................................................41

         Section 6.14       Governance Matters....................................................................41

         Section 6.15       State Takeover Statutes...............................................................42

         Section 6.16       Tax-Free Reorganization Treatment.....................................................42

 

ARTICLE VII. CONDITIONS TO MERGER................................................................................42

 

         Section 7.01       Conditions to Each Party's Obligation To Effect the Merger............................42

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         Section 7.02       Additional Conditions to Obligations of the Company...................................43

         Section 7.03       Additional Conditions to Obligations of Parent........................................44

 

ARTICLE VIII. TERMINATION AND AMENDMENT..........................................................................45

 

         Section 8.01       Termination...........................................................................45

         Section 8.02       Effect of Termination.................................................................46

         Section 8.03       Fees and Expenses.....................................................................47

         Section 8.04       Amendment.............................................................................49

         Section 8.05       Extension; Waiver.....................................................................49

 

ARTICLE IX. MISCELLANEOUS........................................................................................49

 

         Section 9.01       Nonsurvival of Representations, Warranties and Agreements.............................49

         Section 9.02       Notices...............................................................................49

         Section 9.03       Definitions...........................................................................50

         Section 9.04       Interpretation........................................................................54

         Section 9.05       Counterparts..........................................................................55

         Section 9.06       Entire Agreement; No Third Party Beneficiaries........................................55

         Section 9.07       Governing Law.........................................................................55

         Section 9.08       Assignment............................................................................55

         Section 9.09       Enforcement; Waiver of Jury Trial.....................................................55

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Schedule 1 - List of Corporate Executive Officers

 

 

Exhibit A........................      Certificate of Merger

Exhibit B........................      Form of Affiliate Agreement

Exhibit C........................      Parent Tax Matters Certificate

Exhibit D........................      Company Tax Matters Certificate

 

 

 

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                          AGREEMENT AND PLAN OF MERGER

 

         AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of August 11,

2004, by and between National-Oilwell, Inc., a Delaware corporation ("Parent"),

and Varco International, Inc., a Delaware corporation (the "Company").

 

         WHEREAS, the respective Boards of Directors of Parent and the Company

have approved the merger of the Company into Parent on the terms and subject to

the conditions set forth in this Agreement, whereby each issued share of common

stock, par value $0.01 per share, of the Company ("Company Common Stock") not

owned by Parent or the Company shall be converted into shares of common stock,

par value $0.01 per share, of Parent ("Parent Common Stock") as set forth in

this Agreement;

 

         WHEREAS, in order to effectuate the foregoing, the Company, upon the

terms and subject to the conditions of this Agreement and in accordance with the

Delaware General Corporation Law (the "DGCL"), will merge with and into Parent,

with Parent surviving the merger (the "Merger"); and

 

         WHEREAS, for Federal income tax purposes, the Company and Parent intend

that the Merger shall qualify as a reorganization within the meaning of Section

368(a) of the Internal Revenue Code of 1986, as amended (the "Code").

 

         NOW, THEREFORE, in consideration of the foregoing and the respective

representations, warranties, covenants and agreements set forth below, the

parties agree as follows:

 

                                   ARTICLE I.

                                    THE MERGER

 

         Section 1.01 The Merger. Upon the terms and subject to the conditions

of this Agreement and in accordance with the applicable provisions of the DGCL,

at the Effective Time, the Company shall merge with and into Parent, the

separate corporate existence of the Company shall cease and Parent shall

continue as the surviving corporation. Parent, as the surviving corporation

after the Merger, is hereinafter sometimes referred to as the "Surviving

Corporation."

 

          Section 1.02 Effective Time of the Merger. As early as practicable on

the Closing Date, the parties shall cause the Merger to be consummated by filing

with the Secretary of State of the State of Delaware a certificate of merger or

other appropriate documents (in any such case, the "Certificate of Merger")

substantially in the form as set forth in Exhibit A to be executed and, as

applicable, acknowledged in accordance with, the provisions of Section 251 of

the DGCL. At or prior to consummation of the Merger, the parties shall make all

other filings, recordings or publications required under the DGCL in connection

with the Merger. The Merger shall become effective at 4:00 p.m., Houston time,

on the date of the filing of the Certificate of Merger with the Delaware

Secretary of State in accordance with the DGCL, or at such other time as the

parties may agree and specify in such filings in accordance with applicable Law

(the time the Merger becomes effective being the "Effective Time").

 

         Section 1.03 Closing. The closing of the Merger (the "Closing") will

take place at 10:00 a.m., Houston time, on a date to be specified by the Company

and Parent, which shall be no later than the second Business Day after

satisfaction of the latest to occur of the conditions set forth

 

 

 

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in Sections 7.01, 7.02(a) and 7.02(b) (other than the delivery of the officers'

certificate referred to therein) and 7.03(a) and 7.03(b) (other than the

delivery of the officers' certificate referred to therein) (provided that the

other closing conditions set forth in Article VII have been met or waived as

provided in Article VII at or prior to the Closing) (the "Closing Date"), at the

corporate offices of the Company at the address indicated in Section 9.02 unless

another date, place or time is agreed to in writing by the Company and Parent.

 

         Section 1.04 Effects of the Merger. At the Effective Time, the effect

of the Merger shall be as provided by applicable Law, including the DGCL.

Without limiting the generality of the foregoing and subject thereto, at the

Effective Time, all the property, rights, privileges, powers and franchises of

the Company and Parent will vest in the Surviving Corporation, and all of the

debts, Liabilities and duties of the Company and Parent will become the debts,

Liabilities and duties of the Surviving Corporation.

 

         Section 1.05 Certificate of Incorporation; and Bylaws. Effective at the

Effective Time, and subject to the terms and conditions of this Agreement the

Parent Amended and Restated Certificate of Incorporation shall, without any

further action of Parent or its stockholders, be amended to (i) change the name

of Parent to "National Oilwell Varco, Inc." and (ii) increase the number of

authorized shares of Parent Common Stock to Five Hundred and Ten Million and One

(510,000,001) shares, and Parent shall file the Certificate of Merger with the

Secretary of State of the State of Delaware in accordance with applicable

provisions of the DGCL. At the Effective time, the Parent Amended and Restated

Certificate of Incorporation, as contemplated by this Section 1.05, shall be the

certificate of incorporation of the Surviving Corporation until thereafter

changed or amended as provided therein or by applicable Law. The by-laws of

Parent, as in effect immediately prior to the Effective Time, shall be the

by-laws of the Surviving Corporation until thereafter changed or amended as

provided therein or by applicable Law.

 

                                   ARTICLE II.

                            CONVERSION OF SECURITIES

 

         Section 2.01 Conversion of Capital Stock. As of the Effective Time, by

virtue of the Merger and without any action on the part of the holder of any

shares of capital stock of the Company or Parent:

 

                  (a) Cancellation of Treasury Stock and Parent-Owned Stock. All

shares of Company Common Stock that are owned by the Company as treasury stock

and any shares of Company Common Stock owned by Parent or any Subsidiary of

Parent shall be canceled and retired and shall cease to exist and no stock of

Parent or other consideration shall be delivered in exchange therefor.

 

                  (b) Exchange Ratio for Company Common Stock. Subject to

Section 2.02, each issued and outstanding share of Company Common Stock (other

than shares to be canceled in accordance with Section 2.01(a)) shall be

converted into 0.8363 of a share (the "Exchange Ratio") of Parent Common Stock.

All such shares of Company Common Stock, when so converted, shall no longer be

outstanding and shall automatically be canceled and retired and shall cease to

exist, and each holder of a certificate representing any such shares shall cease

to have any rights with respect thereto, except the right to receive

certificates representing the shares of Parent Common Stock and any cash in lieu

of fractional shares of Parent Common Stock to be issued or paid in

consideration therefor upon the surrender of such certificate in accordance with

Section 2.02,

 

 

 

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without interest. Notwithstanding the foregoing, if between the date of this

Agreement and the Effective Time the outstanding shares of Parent Common Stock

or Company Common Stock shall have been changed into a different number of

shares or a different class, by reason of any stock dividend, subdivision,

reclassification, recapitalization, split, combination or exchange of shares, or

any similar event shall have occurred, or any Company Rights are exercised, then

the Exchange Ratio contemplated shall be correspondingly adjusted to provide to

Parent and the holders of Company Common Stock the same economic effect as

contemplated by this Agreement prior to such event.

 

         Section 2.02 Exchange of Certificates. The procedures for exchanging

certificates which immediately prior to the Effective Time represented

outstanding shares of Company Common Stock for certificates representing shares

of Parent Common Stock pursuant to the Merger are as follows:

 

                  (a) Exchange Agent. At the Effective Time, Parent shall make

available to a bank or trust company designated by Parent and the Company (the

"Exchange Agent"), in trust for the benefit of the holders of certificates which

immediately prior to the Effective Time represented outstanding shares of

Company Common Stock, for exchange in accordance with this Section 2.02, through

the Exchange Agent, certificates representing the shares of Parent Common Stock

and an estimated amount of cash in lieu of fractional shares (such certificates

representing shares of Parent Common Stock, together with any dividends or

distributions with respect thereto, and cash in lieu of fractional shares being

hereinafter referred to as the "Exchange Fund") issuable pursuant to Section

2.01 upon conversion of outstanding shares of Company Common Stock. The Exchange

Agent shall invest any cash included in the Exchange Fund as directed by Parent.

Any interest and other income resulting from such investments shall be the

property of, and be paid to, Parent.

 

                  (b) Exchange Procedures. As soon as reasonably practicable

after the Effective Time, Parent shall cause the Exchange Agent to mail to each

holder of record of a certificate or certificates which immediately prior to the

Effective Time represented outstanding shares of Company Common Stock (the

"Certificates") whose shares were converted pursuant to Section 2.01 into shares

of Parent Common Stock (i) a letter of transmittal which shall specify that

delivery shall be effected, and risk of loss and title to the Certificates shall

pass, only upon delivery of the Certificates to the Exchange Agent and shall be

in such form and have such other provisions as the Company and Parent may

reasonably specify and (ii) instructions for effecting the surrender of the

Certificates in exchange for certificates representing shares of Parent Common

Stock (plus cash in lieu of fractional shares, if any, of Parent Common Stock as

provided below). Upon surrender of a Certificate to the Exchange Agent or to

such other agent or agents as may be appointed by Parent, together with such

letter of transmittal, duly completed and validly executed in accordance with

the instructions thereto, and such other documents as may reasonably be required

by the Exchange Agent, the holder of such Certificate shall be entitled to

receive in exchange therefor a certificate representing that number of whole

shares of Parent Common Stock into which the holder's shares of Company Common

Stock were converted pursuant to Section 2.01(b) and a check representing cash

in lieu of fractional shares which the holder has the right to receive pursuant

to Section 2.02(e), and the Certificate so surrendered shall immediately be

canceled. In the event of a transfer of ownership of Company Common Stock which

is not registered in the transfer records of the Company, a certificate

representing the proper number of shares of Parent Common Stock determined in

accordance with Section 2.01(b) and a check representing cash in lieu of

fractional shares which the holder is entitled to receive pursuant to Section

2.02(e) may be issued to a transferee if the Certificate

 

 

 

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representing such Company Common Stock is presented to the Exchange Agent,

accompanied by all documents required to evidence and effect such transfer and

by evidence that any applicable stock transfer taxes have been paid. Until

surrendered as contemplated by this Section 2.02, each Certificate shall be

deemed at any time after the Effective Time to represent only the right to

receive upon such surrender, a certificate representing shares of Parent Common

Stock into which the holders of shares of Company Common Stock were converted

pursuant to Section 2.01(b) and a check representing cash in lieu of any

fractional shares of Parent Common Stock as contemplated by Section 2.02(e).

 

                  (c) Treatment of Unexchanged Shares. No dividends or other

distributions declared or made with respect to Parent Common Stock with a record

date after the Effective Time shall be paid to the holder of any unsurrendered

Certificate with respect to the certificates representing shares of Parent

Common Stock represented thereby that the holder would be entitled to upon

surrender of such Certificate and no cash payment in lieu of fractional shares

shall be paid to any such holder pursuant to subsection (e) below, until the

holder of such Certificate shall surrender such Certificate in accordance with

this Section 2.02. Subject to the effect of applicable Laws, following surrender

of any such Certificate, there shall be paid to the holder of the Certificates

representing whole shares of Parent Common Stock issued in exchange therefor,

without interest, (i) at the time of such surrender, the amount of any cash

payable in lieu of a fractional share of Parent Common Stock to which such

holder is entitled pursuant to subsection (e) below and the amount of dividends

or other distributions with a record date after the Effective Time previously

paid with respect to such whole shares of Parent Common Stock, and (ii) at the

appropriate payment date, the amount of dividends or other distributions with a

record date after the Effective Time but prior to surrender and a payment date

subsequent to surrender payable with respect to such whole shares of Parent

Common Stock. For purposes of determining quorums at meetings of stockholders of

Parent and the stockholders of Parent entitled to notice of, and to vote at,

meetings of stockholders, holders of unsurrendered Certificates shall be

considered record holders of the shares of Parent Common Stock represented

thereby.

 

                  (d) No Further Ownership Rights in Company Common Stock. All

shares of Parent Common Stock issued upon the surrender for exchange of

Certificates in accordance with the terms hereof and any cash paid pursuant to

subsection (c) or (e) of this Section 2.02 shall be deemed to have been issued

or paid in full satisfaction of all rights pertaining to the shares of Company

Common Stock represented thereby. Notwithstanding the foregoing, the Surviving

Corporation is obligated to pay any dividends or make any other distributions

with a record date prior to the Effective Time which may have been declared or

made by the Company on shares of Company Common Stock in accordance with the

terms of this Agreement (to the extent permitted under Section 5.01) prior to

the date hereof and which remain unpaid at the Effective Time. From and after

the Effective Time, there shall be no further registration of transfers on the

stock transfer books of the Company of the shares of Company Common Stock which

were outstanding immediately prior to the Effective Time. If, after the

Effective Time, Certificates are presented to the Surviving Corporation or the

Exchange Agent for any reason, they shall be canceled and exchanged as provided

in this Section 2.02.

 

                  (e) No Fractional Shares. No certificate or scrip representing

fractional shares of Parent Common Stock shall be issued in the Merger or upon

the surrender for exchange of Certificates, and such fractional share interests

will not entitle the owner thereof to vote or to any other rights of a

stockholder of Parent. Notwithstanding any other provision of this Agreement,

each holder of shares of Company Common Stock converted pursuant to the Merger

who would otherwise

 

 

 

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have been entitled to receive a fraction of a share of Parent Common Stock

(after taking into account all Certificates delivered by such holder) shall

receive, in lieu thereof, cash (without interest) in an amount equal to such

fractional amount multiplied by the average of the last reported sales prices of

Parent Common Stock, as reported on the New York Stock Exchange ("NYSE"), on

each of the ten trading days immediately preceding the date of the Effective

Time.

 

                  (f) Termination of Exchange Fund. Any portion of the Exchange

Fund which remains undistributed to the holders of Certificates for 180 days

after the Effective Time shall be delivered to Parent or otherwise on the

instruction of the Surviving Corporation, and any holders of Certificates who

have not previously complied with this Section 2.02 shall thereafter look only

to Parent for the certificates representing shares of Parent Common Stock, any

cash in lieu of fractional shares of Parent Common Stock and any dividends or

distributions with respect to Parent Common Stock to which such holders are

entitled pursuant to Sections 2.01 and 2.02. Any portion of the Exchange Fund

which remains undistributed to the holders of Certificates for five years after

the Effective Time (or such earlier date immediately prior to such time as the

Exchange Fund would otherwise escheat or become the property of any public

official or government) shall, to the extent permitted by Law, become the

property of the Surviving Corporation free and clear of any claims or interest

of any holders of Certificates previously entitled thereto.

 

                  (g) No Liability. None of Parent, the Exchange Agent or any

party hereto shall be liable to any former holder of shares of Company Common

Stock for any portion of the Exchange Fund delivered to a public official

pursuant to any applicable abandoned property, escheat or similar Law.

 

                   (h) Withholding Rights. Each of the Exchange Agent and Parent

shall be entitled to deduct and withhold from the consideration otherwise

payable pursuant to this Agreement to any former holder of shares of Company

Common Stock such amounts as it is required to deduct and withhold with respect

to the making of such payment under the Code and the rules and regulations

promulgated thereunder, or any provision of state, local or foreign Tax Law. To

the extent that amounts are so withheld by the Exchange Agent or Parent, such

withheld amounts shall be treated for all purposes of this Agreement as having

been paid to the holder of the shares of Company Common Stock in respect of

which such deduction and withholding was made by the Exchange Agent or Parent.

 

                  (i) Lost Certificates. If any Certificate shall have been

lost, stolen or destroyed, upon the making of an affidavit of that fact by the

person claiming such Certificate to be lost, stolen or destroyed and, if

required by Parent, the posting by such person of a bond in such reasonable

amount as Parent may direct as indemnity against any claim that may be made

against it on account of the alleged loss, theft or destruction of such

Certificate, the Exchange Agent will issue in exchange for such lost, stolen or

destroyed Certificate the certificate representing the shares of Parent Common

Stock and any cash in lieu of fractional shares, and unpaid dividends and

distributions on the certificate deliverable in respect thereof pursuant to this

Agreement.

 

         Section 2.03 Associated Rights. References in this Agreement to Company

Common Stock shall include, unless the context requires otherwise, the

associated Preferred Share Purchase Rights ("Company Rights") issued pursuant to

the Rights Agreement, dated as of November 29, 2000, as amended (the "Rights

Agreement"), between the Company and ChaseMellon Shareholders Services, L.L.C.,

a New Jersey limited liability company, as Rights Agent.

 

 

 

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                                  ARTICLE III.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

         The Company represents and warrants to Parent that the statements

contained in this Article III are true and correct except as set forth herein

and in the disclosure letter delivered by the Company to Parent on or before the

date of this Agreement (the "Company Disclosure Letter"). The Company Disclosure

Letter shall be arranged in paragraphs corresponding to the numbered and

lettered paragraphs contained in this Article III and the disclosure in any

paragraph shall qualify other paragraphs in this Article III only to the extent

that it is reasonably apparent from a reading of such disclosure that it also

qualifies or applies to such other paragraphs.

 

         Section 3.01 Organization of the Company. Each of the Company and its

Subsidiaries is a corporation or unincorporated entity duly organized, validly

existing and in good standing under the Laws of the jurisdiction of its

incorporation or organization, has all requisite corporate or entity power to

own, lease and operate its property and to carry on its business as now being

conducted and as proposed to be conducted, and is duly qualified to do business

and is in good standing as a foreign corporation or organization in each

jurisdiction in which the failure to be so qualified would reasonably be

expected to have a Company Material Adverse Effect. Except as set forth in

Company SEC Reports filed prior to the date hereof, neither the Company nor any

of its Subsidiaries directly or indirectly owns any equity or similar interest

in, or any interest convertible into or exchangeable or exercisable for, any

corporation, partnership, joint venture or other business association or entity,

excluding securities in any publicly traded company held for investment by the

Company or its Subsidiaries and comprising less than five percent (5%) of the

outstanding stock of such company.

 

         Section 3.02 Company Capital Structure.

 

                   (a) The authorized capital stock of the Company consists of

200,000,000 shares of Company Common Stock and 5,000,000 shares of Preferred

Stock, par value $.01 per share ("Company Preferred Stock"), of which 2,000,000

shares have been designated as "Series A Participating Preferred Stock". As of

August 9, 2004, (i) 97,283,455 shares of Company Common Stock were issued and

outstanding, all of which are validly issued, fully paid and nonassessable, (ii)

no shares of Company Preferred Stock were issued and outstanding, and (iii)

3,071,380 shares of Company Common Stock and no shares of Company Preferred

Stock were held in the treasury of the Company or by Subsidiaries of the

Company. The Company Disclosure Letter shows the number of shares of Company

Common Stock reserved for future issuance pursuant to warrants, stock options

and other stock awards, and restricted stock awards granted and outstanding as

of August 9, 2004 under the 2003 Equity Participation Plan, the Amended and

Restated Stock Option Plan for Key Employees of Tuboscope Vetco International

Corporation, the Stock Option Plan for Non-Employee Directors, the 1990 Stock

Option Plan and the 1994 Directors' Stock Option Plan, in each case, as amended

(collectively, the "Company Stock Plans"). Except for the issuance of shares of

Company Common Stock in connection with Company Stock Plans (including the

exercise of warrants, stock options or other stock awards thereunder), or

pursuant to the Varco International, Inc. Employee Stock Purchase Plan (the

"Company Stock Purchase Plan"), or except as set forth in the Company Disclosure

Letter, no change in such capitalization has occurred between August 9, 2004 and

the date of this Agreement. All shares of Company Common Stock subject to

issuance as specified above are duly authorized and, upon issuance on the terms

and conditions specified in the instruments pursuant to which they are issuable,

shall be validly issued, fully paid and nonassessable. There are no obligations,

contingent or otherwise, of the Company or any of its Subsidiaries to

repurchase, redeem

 

 

 

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or otherwise acquire any shares of Company Common Stock or the capital stock of

any Subsidiary or to provide funds to or make any material investment (in the

form of a loan, capital contribution or otherwise) in any such Subsidiary or any

other entity other than guarantees of obligations of Subsidiaries entered into

in the ordinary course of business. The Company has not repurchased any

outstanding shares of Company Common Stock since July 3, 2004. All of the

outstanding shares of capital stock of each of the Company's Subsidiaries are

duly authorized, validly issued, fully paid and nonassessable and all such

shares (other than directors' qualifying shares in the case of foreign

Subsidiaries) are owned by the Company or another Subsidiary of the Company free

and clear of all Liens, agreements or limitations on the Company's voting

rights.

 

                  (b) As of the date hereof, except as set forth in this Section

3.02 or as reserved for future grants of securities under the Company Stock

Plans and Company Stock Purchase Plan, and except for Company Rights issued and

issuable pursuant to the Rights Agreement and 2,000,000 shares of Series A

Participating Preferred Stock of the Company reserved for issuance upon the

exercise of Company Rights, there are no equity securities of any class of the

Company or any security exchangeable into or exercisable for such equity

securities, issued, reserved for issuance or outstanding. As of the date hereof,

except as set forth in this Section 3.02, there are no options, warrants, equity

securities, calls, rights, commitments or agreements of any character to which

the Company or any of its Subsidiaries is a party or by which it is bound

obligating the Company or any of its Subsidiaries to issue, deliver or sell, or

cause to be issued, delivered or sold, additional shares of capital stock of the

Company or any of its Subsidiaries or obligating the Company or any of its

Subsidiaries to grant, extend, accelerate the vesting of or enter into any such

option, warrant, equity security, call, right, commitment or agreement. To the

best knowledge of the Company, there are no voting trusts, proxies or other

voting agreements or understandings with respect to the shares of capital stock

of the Company.

 

         Section 3.03 Authority; No Conflict; Required Filings and Consents.

 

                  (a) The Company has all requisite corporate power and

authority to enter into this Agreement and to consummate the transactions

contemplated by this Agreement. The execution and delivery of this Agreement and

the consummation of the transactions contemplated by this Agreement by the

Company have been duly authorized by all necessary corporate action on the part

of the Company, subject only to the approval of this Agreement and the Merger by

the Company's stockholders under the DGCL. This Agreement has been duly executed

and delivered by the Company and constitutes the valid and binding obligation of

the Company, enforceable in accordance with its terms, subject to bankruptcy,

insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of

general applicability relating to or affecting creditors' rights and to general

equity principles (the "Bankruptcy and Equity Exception"). On or prior to the

date hereof, the Board of Directors of the Company has unanimously adopted

resolutions that have (i) approved and declared advisable this Agreement and the

Merger, (ii) directed that this Agreement and the Merger be submitted to the

Company's stockholders for adoption at a meeting of such stockholders and (iii)

recommended that the stockholders of the Company adopt this Agreement and the

Merger (with respect to subclause (iii), the "Company Recommendation"), and such

resolutions, as of the date of this Agreement, have not been subsequently

rescinded, modified or withdrawn in any way. The Company stockholder vote

required for the adoption of this Agreement and the Merger shall be a majority

of the shares of Company Common Stock outstanding on the record date for the

Company Stockholders' Meeting (the "Company Stockholder Approval").

 

 

 

                                       7

<PAGE>

 

                  (b) The execution and delivery of this Agreement by the

Company does not, and the consummation of the transactions contemplated hereby

will not, (i) conflict with, or result in any violation or breach of, any

provision of the certificate of incorporation or by-laws of the Company, (ii)

except as set forth in the Company Disclosure Letter, result in any violation or

breach of, or constitute (with or without notice or lapse of time, or both) a

default (or give rise to a right of termination, cancellation or acceleration of

any obligation, give rise to any obligation to make an offer to purchase any

debt instrument or give rise to any loss of any material benefit) under, or

require a consent or waiver under, any of the terms, conditions or provisions of

any note, bond, mortgage, indenture, lease, contract or other agreement,

instrument or obligation to which the Company or any of its Subsidiaries is a

party or by which any of them or any of their properties or assets may be bound,

or (iii) conflict with or violate any permit, concession, franchise, license,

judgment, order, decree, Law or ordinance applicable to the Company or any of

its Subsidiaries or any of its or their properties or assets, except in the case

of (ii) and (iii) for any such conflicts, violations, defaults, terminations,

cancellations or accelerations which are not, individually or in the aggregate,

reasonably likely to have a Company Material Adverse Effect.

 

                  (c) No consent, approval, order or authorization of, or

registration, declaration or filing with, any court, administrative agency or

commission or other governmental authority or instrumentality ("Governmental

Entity") is required by or with respect to the Company or any of its

Subsidiaries in connection with the execution and delivery of this Agreement or

the consummation of the transactions contemplated hereby, except for (i) the

filing of the pre-merger notification report under the Hart-Scott-Rodino

Antitrust Improvements Act of 1976, as amended ("HSR Act"), (ii) the filing of

the Certificate of Merger with the Delaware Secretary of State, (iii) the filing

of the Joint Proxy Statement with the Securities and Exchange Commission (the

"SEC") in accordance with the Securities Exchange Act of 1934, as amended (the

"Exchange Act"), (iv) such consents, approvals, orders, authorizations,

registrations, declarations and filings as may be required under applicable

state securities Laws and the Laws of any foreign country and the European

Union, and (v) such other consents, authorizations, filings, approvals and

registrations which, if not obtained or made, would not be reasonably likely to

have a Company Material Adverse Effect.

 

         Section 3.04 SEC Filings; Financial Statements.

 

                  (a) The Company has filed and made available to Parent all

forms, reports and documents required to be filed by the Company with the SEC

since January 1, 2001 other than registration statements on Form S-8

(collectively, the "Company SEC Reports"). Company SEC Reports (i) at the time

filed, complied in all material respects with the applicable requirements of the

Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,

as the case may be, and (ii) did not at the time they were filed (or if amended

or superseded by a filing prior to the date of this Agreement, then on the date

of such filing) contain any untrue statement of a material fact or omit to state

a material fact required to be stated in such Company SEC Reports or necessary

in order to make the statements in such Company SEC Reports, in the light of the

circumstances under which they were made, not misleading. None of the Company's

Subsidiaries is required to file any forms, reports or other documents with the

SEC.

 

                  (b) Each of the consolidated financial statements (including,

in each case, any related notes) contained in Company SEC Reports complied as to

form in all material respects with the applicable published rules and

regulations of the SEC with respect thereto, was prepared in accordance with

generally accepted accounting principles applied on a consistent basis

throughout the periods involved (except as may be indicated in the notes to such

financial statements or, in the

 

 

 

                                       8

<PAGE>

 

case of unaudited statements, as permitted by Form 10-Q of the SEC) and fairly

presented the consolidated financial position of the Company and its

Subsidiaries as of the dates and the consolidated results of their operations

and cash flows for the periods indicated, except that the unaudited interim

financial statements were or are subject to normal and recurring year-end

adjustments which were not or are not expected to be material in amount. The

audited balance sheet of the Company as of December 31, 2003 is referred to

herein as the "Company Balance Sheet." For each period covered by the Company

SEC Reports, the books and records of the Company and its Subsidiaries have

been, and are being, maintained, in all material respects, in accordance with

generally accepted accounting principles, consistently applied, and all other

legal and accounting requirements.

 

         Section 3.05 No Undisclosed Liabilities. Except as disclosed in Company

SEC Reports filed prior to the date hereof, and except for normal or recurring

Liabilities incurred since December 31, 2003 in the ordinary course of business

consistent with past practices, the Company and its Subsidiaries do not have any

Liabilities, either accrued, contingent or otherwise (whether or not required to

be reflected in financial statements in accordance with generally accepted

accounting principles), and whether due or to become due, which individually or

in the aggregate are reasonably likely to have a Company Material Adverse

Effect.

 

         Section 3.06 Absence of Certain Changes or Events. Except as disclosed

in Company SEC Reports filed prior to the date hereof, since the date of the

Company Balance Sheet, the Company and its Subsidiaries have conducted their

businesses only in the ordinary course and in a manner consistent with past

practice. Since the date of the Company Balance Sheet, there has not been (i)

any material adverse change in the financial condition, results of operations,

business or properties of the Company and its Subsidiaries, taken as a whole, or

any development or combination of developments of which the management of the

Company is aware that, individually or in the aggregate, has had, or is

reasonably likely to have, a Company Material Adverse Effect; (ii) any damage,

destruction or loss (whether or not covered by insurance) with respect to the

Company or any of its Subsidiaries having a Company Material Adverse Effect;

(iii) except as disclosed in Company SEC Reports filed prior to the date hereof,

any material change by the Company in its accounting methods, principles or

practices to which Parent has not previously consented in writing; (iv) except

as disclosed in Company SEC Reports filed prior to the date hereof, any

revaluation by the Company of any of its assets having a Company Material

Adverse Effect; or (v) except as disclosed in Company SEC Reports filed prior to

the date hereof, any material elections with respect to Taxes by the Company or

any Subsidiary of the Company or settlement or compromise by the Company or any

Subsidiary of the Company of any material Tax Liability or refund.

 

         Section 3.07 Taxes.

 

                  (a) The Company and each of its Subsidiaries have timely filed

with the appropriate Tax authorities all Tax Returns required to be filed by

them (taking into account extensions), except for any such returns which are not

reasonably likely, individually or in the aggregate, to have a Company Material

Adverse Effect. All such Tax Returns are complete and correct in all respects,

except for any such omissions or errors which are not reasonably likely,

individually or in the aggregate, to have a Company Material Adverse Effect.

 

                  (b) The Company and each of its Subsidiaries have paid (or the

Company has paid on its Subsidiaries' behalf) all Taxes shown as due on all Tax

Returns described in Section 3.07(a) herein or otherwise due by the Company and

each of its Subsidiaries, except to the extent that

 

 

 

                                       9

<PAGE>

 

such taxes otherwise due are not reasonable likely, individually or in the

aggregate, to have a Company Material Adverse Effect. The Company's most recent

consolidated financial statements reflect an adequate reserve for all Taxes

(excluding any reserve for deferred Taxes established to reflect differences

between book and Tax income) payable by the Company and its Subsidiaries for all

taxable periods and portions thereof through the date of such financial

statements, except to the extent that any such Taxes are not reasonably likely,

individually or in the aggregate, to have a Company Material Adverse Effect.

 

                  (c) Neither the Internal Revenue Service (the "IRS") nor any

other Tax authority has asserted any claim for Taxes, or to the knowledge of the

executive officers of the Company, is threatening to assert any claims for

Taxes, which claims, individually or in the aggregate, are reasonably likely to

have a Company Material Adverse Effect. No deficiencies for any Taxes (other

than those which are not reasonably likely, individually or in the aggregate, to

have a Company Material Adverse Effect) have been proposed, asserted or assessed

against the Company or any of its Subsidiaries that have not been fully paid or

adequately provided for in the appropriate financial statements of the Company

and its Subsidiaries, no requests for waivers of the time to assess any Taxes

are pending, and, except as disclosed in the Company Disclosure Letter, none of

the Company or any of its Subsidiaries has waived any statute of limitations in

respect of Taxes or agreed to any extension of time with respect to a Tax

assessment or deficiency.

 

                  (d) The Company and each of its Subsidiaries have withheld or

collected and paid over to the appropriate governmental authorities (or are

properly holding for such payment) all Taxes required by Law to be withheld or

collected.

 

                  (e) There are no Liens for Taxes upon the assets of the

Company or any of its Subsidiaries (other than Liens for current Taxes that are

not yet due and payable or Liens for Taxes that are being contested in good

faith by appropriate proceedings and for which adequate reserves have been

provided in the Company's most recent consolidated financial statements), except

for Liens which are not reasonably likely, individually or in the aggregate, to

have a Company Material Adverse Effect.

 

                  (f) Neither the Company nor any of its Subsidiaries has

liability for the Taxes of any person other than the Company and its

Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar

provision of state, local or foreign law), (ii) as a transferee or successor,

(iii) by contract, or (iv) otherwise, except, in each case, where such

liabilities are not reasonably likely, individually or in the aggregate, to have

a Company Material Adverse Effect.

 

                  (g) Neither the Company nor any of its Subsidiaries is a party

to, is bound by or has any obligation under any Tax sharing, Tax allocation or

Tax indemnity agreement or similar arrangements, other than with respect to any

such agreement or arrangement among the Company and any of its Subsidiaries.

 

                  (h) Neither the Company nor any of its Subsidiaries has

distributed the stock of any corporation in a transaction satisfying the

requirements of Section 355 of the Code since April 16, 1997, and neither the

stock of the Company nor the stock of any of its Subsidiaries has been

distributed in a transaction satisfying the requirements of Section 355 of the

Code since April 16, 1997.

 

 

 

                                        10

<PAGE>

 

         Section 3.08 Properties.

 

                  (a) The Company has provided to Parent a true and complete

list of all real property leased by the Company or its Subsidiaries pursuant to

material leases (collectively "Company Material Leases"). The Company is not in

default under any such Company Material Leases, except where the existence of

such defaults, individually or in the aggregate, is not reasonably likely to

have a Company Material Adverse Effect.

 

                  (b) The Company has provided to Parent a true and complete

list of all real property that the Company or any of its Subsidiaries owns. With

respect to each such item of real property, except for such matters that,

individually or in the aggregate, are not reasonably likely to have a Company

Material Adverse Effect: (a) the Company or the identified Subsidiary has good

and clear record and marketable title to such property, free and clear of any

security interest, easement, covenant or other restriction, except for security

interests, easements, covenants and other restrictions which do not materially

impair the current uses or occupancy of such property; and (b) the improvements

constructed on such property are in good condition, and all mechanical and

utility systems servicing such improvements are in good condition, free in each

case of material defects.

 

         Section 3.09 Intellectual Property. The Company owns, or is licensed or

otherwise possesses legally enforceable rights to use, all patents, trademarks,

trade names, service marks, copyrights, and any applications for such

trademarks, trade names, service marks and copyrights, know-how, computer

software programs or applications, databases and tangible or intangible

proprietary information or material (collectively, the "Company Intellectual

Property") that are necessary to conduct the business of the Company as

currently conducted, subject to such exceptions that would not be reasonably

likely to have a Company Material Adverse Effect. Subject to such exceptions

that would not be reasonably likely, individually or in the aggregate, to have a

Company Material Adverse Effect, (i) none of the Company Intellectual Property

is the subject of any pending or threatened action, suit, claim, investigation,

arbitration or other proceeding, (ii) no person, entity or Governmental Entity

has given written notice to the Company or its Subsidiaries claiming (A) that

any of the Company Intellectual Property is invalid, (B) that the use of any the

Company Intellectual Property is infringing or has infringed any domestic or

foreign patent, trademark, service mark, trade name, or copyright, or (C) that

the Company or its Subsidiaries has misappropriated or improperly used or

disclosed any trade secret, confidential information or know-how, and (iii) the

Company has no knowledge of any third party rights or conduct that infringes or

conflicts with the Company Intellectual Property.

 

         Section 3.10 Agreements, Contracts and Commitments.

 

                  (a) Except as set forth in Section 3.10(a) of the Company

Disclosure Letter, as of the date hereof, there is no contract, agreement or

understanding that is material to the business, properties, assets, financial

condition or results of operations of the Company and its Subsidiaries, taken as

a whole, that is required to be filed as an exhibit to any Company SEC Report

filed with the SEC subsequent to December 31, 2003 that is not filed as required

by the Securities Act or the Exchange Act, as the case may be (any such

contract, agreement or understanding whether or not entered into as of the date

hereof, a "Company Material Contract"). Except as would not individually or in

the aggregate have a Company Material Adverse Effect, each Company Material

Contract is a valid and binding obligation of the Company or one of its

Subsidiaries and is in full force and effect and enforceable against the Company

or one of its Subsidiaries and, to the

 

 

 

                                       11

<PAGE>

 

knowledge of the Company, the other party or parties thereto, in each case in

accordance with its terms, other than any Company Material Contract which is by

its terms no longer in force or effect and except as enforceability may be

limited by bankruptcy, insolvency, moratorium or other similar laws affecting or

relating to the enforcement of creditors' rights generally and is subject to

general principles of equity. The Company is not in violation or breach of or in

default under any Company Material Contract, nor to the Company's knowledge is

any other party to any such Company Material Contract, except to the extent any

such violation, breach or default would not individually or in the aggregate

have a Company Material Adverse Effect.

 

                  (b) Except as set forth in Section 3.10(b) of the Company

Disclosure Letter and for documents filed or listed as exhibits to the Company

SEC Reports filed with the SEC subsequent to December 31, 2003 and prior to the

date hereof, as of the date hereof, neither the Company nor any of its

Subsidiaries is a party to or bound by any (a) contract, agreement or

arrangement (including any lease of real property) (i) materially restricting

the ability of the Company or any of its Subsidiaries (or after the Merger,

Parent or any of its Subsidiaries) to compete in or conduct any line of business

or to engage in business in any significant geographic area, (ii) relating to

indebtedness for borrowed money providing for payment or repayment in excess of

$20.0 million, (iii) relating to any material joint venture, partnership,

strategic alliance or similar arrangement, (iv) requiring the Company or any of

its Subsidiaries to register for resale under the Securities Act any securities

of the Company or any of its Subsidiaries, (v) relating to the disposition or

acquisition of material assets not in the ordinary course of business, or (vi)

providing for performance guarantees or contingent payments by the Company or

any of its Subsidiaries, in each case involving more than $15.0 million over the

term of the relevant contract, or (b) financial derivatives master agreements,

confirmation, or futures account opening agreements and/or brokerage statements

evidencing financial hedging or other trading activities.

 

         Section 3.11 Litigation. There is no action, suit or proceeding, claim,

arbitration or investigation against the Company or any of its Subsidiaries

pending or as to which the Company or any of its Subsidiaries has received any

written notice of assertion, which, individually or in the aggregate, is

reasonably likely to have a Company Material Adverse Effect or a material

adverse effect on the ability of the Company to consummate the transactions

contemplated by this Agreement.

 

         Section 3.12 Environmental Matters. Except for such matters that,

individually or in the aggregate, are not reasonably likely to have a Company

Material Adverse Effect: (i) the Company and its Subsidiaries comply, and within

all applicable statute of limitation periods have complied, with all applicable

Environmental Laws; (ii) neither the Company nor its Subsidiaries are subject to

liability for any Hazardous Substance disposal or contamination on any third

party property; (iii) neither the Company nor any of its Subsidiaries are

subject to liability for any release of, or any exposure of any person or

property to, any Hazardous Substance; (iv) neither the Company nor any of its

Subsidiaries has received any notice, demand, letter, claim or request for

information alleging that the Company or any of its Subsidiaries may be in

violation of or liable under any Environmental Law; (v) neither the Company nor

any of its Subsidiaries is subject to any orders, decrees or injunctions issued

by, or other arrangements with, any Governmental Entity or is subject to any

indemnity or other agreement with any third party relating to liability under

any Environmental Law or relating to Hazardous Substances; (vi) there are no

circumstances or conditions involving the Company or any of its Subsidiaries

that could reasonably be expected to cause the Company or any of its

Subsidiaries to become subject to any claims, liability, investigations or

costs, or to restrictions on the ownership, use or transfer of any property of

the

 

 

 

                                       12

<PAGE>

 

Company or any of its Subsidiaries, pursuant to any Environmental Law; and (vii)

the Company and its Subsidiaries have all of the Environmental Permits necessary

for the conduct and operation of the business as now being conducted, and all

such permits are in good standing.

 

         Section 3.13 Employee Benefit Plans.

 

                  (a) The Company has listed in Section 3.13 of the Company

Disclosure Letter all employee benefit plans (as defined in Section 3(3) of the

Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all

bonus, stock option, stock purchase, incentive, deferred compensation,

supplemental retirement, severance and other similar employee benefit plans,

programs and agreements, and all unexpired employment and severance agreements,

written or otherwise, for the benefit of, or relating to, any current or former

employee of the Company or any Subsidiary of the Company or any trade or

business (whether or not incorporated) which is a member of a group that

includes, or which is under common control with, the Company or any Subsidiary

of the Company, within the meaning of Section 414(b), (c), (m) or (o) of the

Code, and all other employee benefit plans under which the Company or any

Subsidiary of the Company has or may have any liability or obligation,

including, without limitation, any foreign plans (together, the "Company

Employee Plans").

 

                  (b) With respect to each Company Employee Plan, the Company

has made available to Parent (if applicable), a true and correct copy of (i) the

most recent annual report (Form 5500) filed with the IRS, (ii) such Company

Employee Plan (or, if unwritten, a written description of the material terms

thereof), (iii) each trust agreement and group annuity contract, if any,

relating to such Company Employee Plan, (iv) the most recent actuarial report or

valuation relating to such Company Employee Plan, and (v) the most recent

summary plan description (and any summaries of material modifications) relating

to such Company Employee Plan.

 

                  (c) With respect to the Company Employee Plans, individually

and in the aggregate, no event has occurred, and, to the knowledge of the

Company, there exists no condition or set of circumstances, in connection with

which the Company or any Subsidiary of the Company could be subject to any

liability that is reasonably likely to have a Company Material Adverse Effect

under ERISA, the Code or any other applicable Law.

 

                  (d) With respect to the Company Employee Plans, individually

and in the aggregate, there are no funded benefit obligations for which

contributions have not been made or properly accrued and there are no unfunded

benefit obligations which have not been accounted for by reserves, or otherwise

properly reflected in accordance with generally accepted accounting principles,

on the financial statements of the Company, which obligations are reasonably

likely to have a Company Material Adverse Effect.

 

                  (e) Except as disclosed in Company SEC Reports filed prior to

the date of this Agreement, or except as set forth in the Company Disclosure

Letter or as provided for in this Agreement, neither the Company nor any of its

Subsidiaries is a party to any oral or written (i) agreement with any officer or

other employee of the Company or any of its Subsidiaries, the benefits of which

are contingent, or the terms of which are materially altered, upon the

occurrence of a transaction involving the Company of the nature contemplated by

this Agreement, (ii) agreement with any officer or employee of the Company or

any Subsidiary of the Company providing any term of employment or compensation

guarantee extending for a period longer than one year from the date hereof and

for the payment of compensation in excess of $100,000 per annum, or (iii)

agreement or

 

 

 

                                       13

<PAGE>

 

plan, including any stock option plan, stock appreciation right plan, restricted

stock plan or stock purchase plan or incentive plan, any of the benefits of

which will be increased, or the vesting of the benefits of which will be

accelerated, by the occurrence of any of the transactions contemplated by this

Agreement or the value of any of the benefits of which will be calculated on the

basis of any of the transactions contemplated by this Agreement.

 

                  (f) Section 3.13(f) of the Company Disclosure Letter contains

a true and complete schedule of all benefits and awards provided to officers,

directors or employees of the Company or any of its Subsidiaries, including

stock options and restricted stock awards, that are not disclosed in the Company

SEC Reports and that will increase in value (other than as a result of changes

in the trading value of the Parent Common Stock or the Company Common Stock), or

accelerate in vesting or time of payment, as a result of the Merger or any of

the other transactions contemplated in this Agreement.

 

                  (g) Except as set forth in Section 3.13(g) of the Company

Disclosure Letter, or otherwise in the ordinary course of business consistent

with past practice (and not in connection with, or in anticipation of or

otherwise related to, the Merger and the transactions contemplated hereby),

since January 1, 2004, neither the Company nor any Subsidiary has entered into

any new, or modified or amended any existing employment agreement or Company

Employee Plan.

 

                  (h) The assumption and conversion of Company Stock Options

pursuant to Section 6.10(a) will not require the consent of any holder of any

option or award granted under any Company Stock Plan.

 

         Section 3.14 Compliance With Laws. The Company and each of its

Subsidiaries has complied with, is not in violation of, and has not received any

notices of violation with respect to, any federal, state or local Law with

respect to the conduct of its business, or the ownership or operation of its

business, except for failures to comply or violations which, individually or in

the aggregate, have not had and are not reasonably likely to have a Company

Material Adverse Effect.

 

         Section 3.15 Tax Matters. Neither the Company nor any of its Affiliates

has taken or agreed to take any action which would prevent the Merger from

qualifying as a reorganization under Section 368(a) of the Code.

 

         Section 3.16 Registration Statement; Proxy Statement/Prospectus. The

information to be supplied in writing by the Company for inclusion in the

registration statement on Form S-4 pursuant to which shares of Parent Common

Stock issued in the Merger will be registered under the Securities Act (the

"Registration Statement"), shall not at the time the Registration Statement is

declared effective by the SEC contain any untrue statement of a material fact or

omit to state any material fact required to be stated in the Registration

Statement or necessary in order to make the statements in the Registration

Statement, in light of the circumstances under which they were made, not

misleading. The information supplied in writing by the Company for inclusion in

the joint proxy statement/prospectus to be sent to the Company's stockholders

and Parent's stockholders in connection with the meeting of the Company's

stockholders to consider this Agreement and the Merger (the "Company

Stockholders' Meeting") and in connection with the meeting of Parent's

stockholders (the "Parent Stockholders' Meeting") to consider this Agreement and

the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy

Statement is first mailed to the Company's stockholders and Parent's

stockholders, at the time of the Company Stockholders'

 

 

                                       14

<PAGE>

 

Meeting and the Parent Stockholders' Meeting and at the Effective Time, contain

any statement which, at such time and in light of the circumstances under which

it shall be made, is false or misleading with respect to any material fact, or

omit to state any material fact necessary in order to make the statements made

in the Joint Proxy Statement not false or misleading; or omit to state any

material fact necessary to correct any statement in any earlier communication

with respect to the solicitation of proxies for the Company Stockholders'

Meeting or the Parent Stockholders' Meeting which has become false or

misleading. If at any time prior to the Effective Time any event relating to the

Company or any of its Affiliates, officers or directors should be discovered by

the Company which should be set forth in an amendment to the Registration

Statement or a supplement to the Joint Proxy Statement, the Company shall

promptly inform Parent.

 

         Section 3.17 Labor Matters. Neither the Company nor any of its

Subsidiaries is a party to or otherwise bound by any collective bargaining

agreement, contract or other agreement or understanding with a labor union or

labor organization, nor is any such contract or agreement presently being

negotiated, nor is there, nor has there been in the last five years, a

representation question respecting any of the employees of the Company or its

Subsidiaries, and, to the best knowledge of the executive officers of the

Company, there are no campaigns being conducted to solicit cards from employees

of the Company or its Subsidiaries to authorize representation by any labor

organization, nor is the Company or its Subsidiaries a party to, or bound by,

any consent decree with, or citation by, any governmental agency relating to

employees or employment practices. Nor, as of the date hereof, is the Company or

any of its Subsidiaries the subject of any material proceeding asserting that

the Company or any of its Subsidiaries has committed an unfair labor practice or

is seeking to compel it to bargain with any labor union or labor organization

nor, as of the date of this Agreement, is there pending or, to the knowledge of

the executive officers of the Company, threatened, any material labor strike,

dispute, walkout, work stoppage, slow-down or lockout involving the Company or

any of its Subsidiaries.

 

         Section 3.18 Insurance. All material fire and casualty, general

liability, business interruption, product liability, and sprinkler and water

damage insurance policies maintained by the Company or any of its Subsidiaries

are with reputable insurance carriers and are in character and amount at least

equivalent to that carried by persons engaged in similar businesses and subject

to the same or similar perils or hazards, except for any such failures to

maintain insurance policies that, individually or in the aggregate, are not

reasonably likely to have a Company Material Adverse Effect.

 

          Section 3.19 No Existing Discussions. As of the date hereof, the

Company is not engaged, directly or indirectly, in any discussions or

negotiations with any other party with respect to an Acquisition Proposal.

 

         Section 3.20 Opinion of Financial Advisor. The financial advisor of the

Company, Citigroup Global Markets Inc., has delivered to the Company an opinion,

dated the date of this Agreement, to the effect that the Exchange Ratio is fair

to the holders of Company Common Stock from a financial point of view.

 

         Section 3.21 Anti-Takeover Laws. The restrictions contained in Section

203 of the DGCL with respect to a "business combination" (as defined in DGCL

Section 203) have been rendered inapplicable to the authorization, execution,

delivery and performance of the Agreement by the Company or the consummation of

the Merger by the Company. No other "fair price," "moratorium," "control share

acquisition" or other similar anti-takeover statute or regulation is

 

 

 

                                        15

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applicable to the Company or (solely by reason of the Company's participation

therein) the Merger or the other transactions contemplated by this Agreement.

 

         Section 3.22 Company Rights Plan. The Company has taken all action

necessary to (i) render the Company Rights issued pursuant to the terms of the

Rights Agreement inapplicable to, or not exercisable as a result of, the Merger,

the execution and delivery of this Agreement or the transactions contemplated by

this Agreement and (ii) amend the definition of "Acquiring Person" in Section

1.1 of the Rights Agreement to delete "(i)" in the first sentence thereof, to

delete the entirety of clause (ii) of the first sentence thereof and to delete

the second sentence thereof.

 

          Section 3.23 Sarbanes-Oxley Act. The Company and each of its officers

and directors are in compliance with, and have complied, in all material

respects with (A) the applicable provisions of the Sarbanes-Oxley Act of 2002

and the related rules and regulations promulgated under such Act (the

"Sarbanes-Oxley Act") and the Exchange Act and (B) the applicable listing and

corporate governance rules and regulations of The New York Stock Exchange. The

Company has established and maintains disclosure controls and procedures (as

such term is defined in Rule 13a-15(e) under the Exchange Act); such disclosure

controls and procedures are designed to provide that information relating to the

Company, including its consolidated Subsidiaries, required to be disclosed by

the Company in the reports that it files or submits under the Exchange Act is

accumulated and communicated to the Company's principal executive officer and

its principal financial officer to allow timely decisions regarding required

disclosure, and such disclosure controls and procedures are effective to ensure

that information required to be disclosed by the Company in the reports that it

files or submits under the Exchange Act is recorded, processed, summarized and

reported within the time periods specified in SEC rules and forms. The Company's

principal executive officer and its principal financial officer have disclosed,

based on their most recent evaluation, to the Company's auditors and the audit

committee of the Board of Directors of the Company (x) all significant

deficiencies and material weaknesses in the design or operation of internal

controls over financial reporting which are reasonably likely to adversely

affect the Company's ability to record, process, summarize and report financial

data and have identified for the Company's auditors any material weaknesses in

internal controls and (y) any fraud, whether or not material, that involves

management or other employees who have a significant role in the Company's

internal controls.

 

         Section 3.24 Brokers or Finders. The Company represents, as to itself,

its Subsidiaries and its Affiliates, that no agent, broker, investment banker,

financial advisor or other firm or person is or will be entitled to any broker's

or finder's fee or any other commission or similar fee in connection with any of

the transactions contemplated by this Agreement, except Citigroup Global Markets

Inc. whose fees and expenses will be paid by the Company in accordance with the

Company's agreements with such firm.

 

                                    ARTICLE IV.

                    REPRESENTATIONS AND WARRANTIES OF PARENT

 

         Parent represents and warrants to the Company that the statements

contained in this Article IV are true and correct except as set forth herein and

in the disclosure letter delivered by Parent to the Company on or before the

date of this Agreement (the "Parent Disclosure Letter"). The Parent Disclosure

Letter shall be arranged in paragraphs corresponding to the numbered and

lettered paragraphs contained in this Article IV and the disclosure in any

paragraph shall qualify other paragraphs in this Article IV only to the extent

that it is reasonably apparent from a reading of such disclosure that it also

qualifies or applies to such other paragraphs.

 

 

 

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         Section 4.01 Organization of Parent. Each of Parent and its

Subsidiaries is a corporation or unincorporated entity duly organized, validly

existing and in good standing under the Laws of the jurisdiction of its

incorporation or organization, has all requisite corporate or entity power to

own, lease and operate its property and to carry on its business as now being

conducted and as proposed to be conducted, and is duly qualified to do business

and is in good standing as a foreign corporation or organization in each

jurisdiction in which the failure to be so qualified would reasonably be

expected to have a Parent Material Adverse Effect. Except as set forth in the

Parent SEC Reports filed prior to the date hereof, neither Parent nor any of its

Subsidiaries directly or indirectly owns any equity or similar interest in, or

any interest convertible into or exchangeable or exercisable for, any

corporation, partnership, joint venture or other business association or entity,

excluding securities in any publicly traded company held for investment by

Parent or its Subsidiaries and comprising less than five percent (5%) of the

outstanding stock of such company.

 

         Section 4.02 Parent Capital Structure.

 

                  (a) The authorized capital stock of Parent consists of

150,000,000 shares of Parent Common Stock, 10,000,000 shares of Preferred Stock,

$.01 par value ("Parent Preferred Stock") and one share of Special Voting Stock.

As of August 9, 2004, (i) 85,891,223 shares of Parent Common Stock were issued

and outstanding, all of which are validly issued, fully paid and nonassessable,

(ii) no shares of Parent Preferred Stock were issued and outstanding, (iii) no

shares of Special Voting Stock were issued and outstanding and (iv) no shares of

Parent Common Stock and no shares of Parent Preferred Stock were held in the

treasury of Parent or by Subsidiaries of Parent. The Parent Disclosure Letter

shows the number of shares of Parent Common Stock reserved for future issuance

pursuant to warrants, stock options and other stock awards, and restricted stock

awards granted and outstanding as of August 9, 2004 under Parent's Stock Award

and Long Term Incentive Plan, the Dreco Stock Option Plan and the IRI Stock

Option Plan (collectively, the "Parent Stock Plans"). Except for the issuance of

shares of Parent Common Stock in connection with the Parent Stock Plans

(including the exercise of warrants, stock options or other stock awards

thereunder), or except as set forth in the Parent Disclosure Letter, no change

in such capitalization has occurred between August 9, 2004 and the date of this

Agreement. All shares of Parent Common Stock subject to issuance as specified

above are duly authorized and, upon issuance on the terms and conditions

specified in the instruments pursuant to which they are issuable, shall be

validly issued, fully paid and nonassessable. There are no obligations,

contingent or otherwise, of Parent or any of its Subsidiaries to repurchase,

redeem or otherwise acquire any shares of Parent Common Stock or the capital

stock of any Subsidiary or to provide funds to or make any material investment

(in the form of a loan, capital contribution or otherwise) in any such

Subsidiary or any other entity other than guarantees of obligations of

Subsidiaries entered into in the ordinary course of business. Parent has not

repurchased any outstanding shares of Parent Common Stock since July 3, 2004.

All of the outstanding shares of capital stock of each of Parent's Subsidiaries

are duly authorized, validly issued, fully paid and nonassessable and all such

shares (other than directors' qualifying shares in the case of foreign

Subsidiaries) are owned by Parent or another Subsidiary of Parent free and clear

of all Liens, agreements or limitations on Parent's voting rights.

 

                  (b) As of the date hereof, except as set forth in this Section

4.02 or as reserved for future grants of securities under the Parent Stock

Plans, there are no equity securities of any class of Parent or any security

exchangeable into or exercisable for such equity securities, issued, reserved

for issuance or outstanding. As of the date hereof, except as set forth in this

Section 4.02, there are no options, warrants, equity securities, calls, rights,

commitments or agreements of any character to which Parent or any of its

Subsidiaries is a party or by which it is bound obligating

 

 

 

                                       17

<PAGE>

 

Parent or any of its Subsidiaries to issue, deliver or sell, or cause to be

issued, delivered or sold, additional shares of capital stock of Parent or any

of its Subsidiaries or obligating Parent or any of its Subsidiaries to grant,

extend, accelerate the vesting of or enter into any such option, warrant, equity

security, call, right, commitment or agreement. To the best knowledge of Parent,

there are no voting trusts, proxies or other voting agreements or understandings

with respect to the shares of capital stock of Parent.

 

         Section 4.03 Authority; No Conflict; Required Filings and Consents.

 

                  (a) Parent has all requisite corporate power and authority to

enter into this Agreement and to consummate the transactions contemplated by

this Agreement. The execution and delivery of this Agreement and the

consummation of the transactions contemplated by this Agreement by Parent have

been duly authorized by all necessary corporate action on the part of Parent,

subject only to the approval of this Agreement and the Merger by Parent's

stockholders under the DGCL. This Agreement has been duly executed and delivered

by Parent and constitutes the valid and binding obligation of Parent,

enforceable in accordance with its terms, subject to the Bankruptcy and Equity

Exception. On or prior to the date hereof, the Board of Directors of Parent has

unanimously adopted resolutions that have (i) approved and declared advisable

this Agreement and the Merger, (ii) directed that this Agreement and the Merger

be submitted to Parent's stockholders for adoption at a meeting of such

stockholders and (iii) recommended that the stockholders of Parent adopt this

Agreement and the Merger (with respect to subclause (iii), the "Parent

Recommendation"), and such resolutions, as of the date of this Agreement, have

not been subsequently rescinded, modified or withdrawn in any way. The Parent

stockholder vote required for the adoption of this Agreement and the Merger

shall be a majority of the shares of Parent Common Stock outstanding on the

record date for the Parent Stockholders' Meeting (the "Parent Stockholder

Approval").

 

                  (b) The execution and delivery of this Agreement by Parent

does not, and the consummation of the transactions contemplated hereby will not,

(i) conflict with, or result in any violation or breach of, any provision of the

certificate of incorporation or by-laws of Parent, (ii) except as set forth in

the Parent Disclosure Letter, result in any violation or breach of, or

constitute (with or without notice or lapse of time, or both) a default (or give

rise to a right of termination, cancellation or acceleration of any obligation,

give rise to any obligation to make an offer to purchase any debt instrument or

give rise to any loss of any material benefit) under, or require a consent or

waiver under, any of the terms, conditions or provisions of any note, bond,

mortgage, indenture, lease, contract or other agreement, instrument or

obligation to which Parent or any of its Subsidiaries is a party or by which any

of them or any of their properties or assets may be bound, or (iii) conflict

with or violate any permit, concession, franchise, license, judgment, order,

decree, Law or ordinance applicable to Parent or any of its Subsidiaries or any

of its or their properties or assets, except in the case of (ii) and (iii) for

any such conflicts, violations, defaults, terminations, cancellations or

accelerations which are not, individually or in the aggregate, reasonably likely

to have a Parent Material Adverse Effect.

 

                  (c) No consent, approval, order or authorization of, or

registration, declaration or filing with, any Governmental Entity is required by

or with respect to Parent or any of its Subsidiaries in connection with the

execution and delivery of this Agreement or the consummation of the transactions

contemplated hereby, except for (i) the filing of the pre-merger notification

report under the HSR Act, (ii) the filing of the Registration Statement with the

SEC in accordance with the Securities Act, (iii) the filing of the Certificate

of Merger with the Delaware Secretary of State, (iv) the filing of the Joint

Proxy Statement with the SEC in accordance with the

 

 

 

                                       18

<PAGE>

 

Exchange Act, (v) such consents, approvals, orders, authorizations,

registrations, declarations and filings as may be required under applicable

state securities Laws and the Laws of any foreign country and the European

Union, and (vi) such other consents, authorizations, filings, approvals and

registrations which, if not obtained or made, would not be reasonably likely to

have a Parent Material Adverse Effect.

 

         Section 4.04 SEC Filings; Financial Statements.

 

                  (a) Parent has filed and made available to the Company all

forms, reports and documents required to be filed by Parent with the SEC since

January 1, 2001 other than registration statements on Form S-8 (collectively,

the "Parent SEC Reports"). The Parent SEC Reports (i) at the time filed,

complied in all material respects with the applicable requirements of the

Securities Act and the Exchange Act, as the case may be, and (ii) did not at the

time they were filed (or if amended or superseded by a filing prior to the date

of this Agreement, then on the date of such filing) contain any untrue statement

of a material fact or omit to state a material fact required to be stated in

such Parent SEC Reports or necessary in order to make the statements in such

Parent SEC Reports, in the light of the circumstances under which they were

made, not misleading. None of Parent's Subsidiaries is required to file any

forms, reports or other documents with the SEC.

 

                  (b) Each of the consolidated financial statements (including,

in each case, any related notes) contained in the Parent SEC Reports complied as

to form in all material respects with the applicable published rules and

regulations of the SEC with respect thereto, was prepared in accordance with

generally accepted accounting principles applied on a consistent basis

throughout the periods involved (except as may be indicated in the notes to such

financial statements or, in the case of unaudited statements, as permitted by

Form 10-Q of the SEC) and fairly presented the consolidated financial position

of Parent and its Subsidiaries as of the dates and the consolidated results of

their operations and cash flows for the periods indicated, except that the

unaudited interim financial statements were or are subject to normal and

recurring year-end adjustments which were not or are not expected to be material

in amount. The audited balance sheet of Parent as of December 31, 2003 is

referred to herein as the "Parent Balance Sheet." For each period covered by the

Parent SEC Reports, the books and records of Parent and its Subsidiaries have

been, and are being, maintained, in all material respects, in accordance with

generally accepted accounting principles, consistently applied, and all other

legal and accounting requirements.

 

         Section 4.05 No Undisclosed Liabilities. Except as disclosed in the

Parent SEC Reports filed prior to the date hereof, and except for normal or

recurring Liabilities incurred since December 31, 2003 in the ordinary course of

business consistent with past practices, Parent and its Subsidiaries do not have

any Liabilities, either accrued, contingent or otherwise (whether or not

required to be reflected in financial statements in accordance with generally

accepted accounting principles), and whether due or to become due, which

individually or in the aggregate are reasonably likely to have a Parent Material

Adverse Effect.

 

         Section 4.06 Absence of Certain Changes or Events(i) . Except as

disclosed in the Parent SEC Reports filed prior to the date hereof, since the

date of the Parent Balance Sheet, Parent and its Subsidiaries have conducted

their businesses only in the ordinary course and in a manner consistent with

past practice. Since the date of the Parent Balance Sheet, there has not been

(i) any material adverse change in the financial condition, results of

operations, business or properties of Parent and its Subsidiaries, taken as a

whole, or any development or combination of developments of which the management

of Parent is aware that, individually or in the aggregate, has had, or is

 

 

                                       19

<PAGE>

 

reasonably likely to have, a Parent Material Adverse Effect; (ii) any damage,

destruction or loss (whether or not covered by insurance) with respect to Parent

or any of its Subsidiaries having a Parent Material Adverse Effect; (iii) except

as disclosed in the Parent SEC Reports filed prior to the date hereof, any

material change by Parent in its accounting methods, principles or practices to

which the Company has not previously consented in writing; (iv) except as

disclosed in the Parent SEC Reports filed prior to the date hereof, any

revaluation by Parent of any of its assets having a Parent Material Adverse

Effect; or (v) except as disclosed in the Parent SEC Reports filed prior to the

date hereof, any material elections with respect to Taxes by Parent or any

Subsidiary of Parent or settlement or compromise by Parent or any Subsidiary of

Parent of any material Tax Liability or refund.

 

         Section 4.07 Taxes.

 

                  (a) Parent and each of its Subsidiaries have timely filed with

the appropriate Tax authorities all Tax Returns required to be filed by them

(taking into account extensions), except for any such returns which are not

reasonably likely, individually or in the aggregate, to have a Parent Material

Adverse Effect. All such Tax Returns are complete and correct in all respects,

except for any such omissions or errors which are not reasonably likely,

individually or in the aggregate, to have a Parent Material Adverse Effect.

 

                  (b) Parent and each of its Subsidiaries have paid (or Parent

has paid on its Subsidiaries' behalf) all Taxes shown as due on all Tax Returns

described in Section 4.07(a) herein or otherwise due by Parent and each of its

Subsidiaries, except to the extent that such taxes otherwise due are not

reasonable likely, individually or in the aggregate, to have a Parent Material

Adverse Effect. Parent's most recent consolidated financial statements reflect

an adequate reserve for all Taxes (excluding any reserve for deferred Taxes

established to reflect differences between book and Tax income) payable by

Parent and its Subsidiaries for all taxable periods and portions thereof through

the date of such financial statements, except to the extent that any such Taxes

are not reasonably likely, individually or in the aggregate, to have a Parent

Material Adverse Effect.

 

                  (c) Neither the IRS nor any other Tax authority has asserted

any claim for Taxes, or to the knowledge of the executive officers of Parent, is

threatening to assert any claims for Taxes, which claims, individually or in the

aggregate, are reasonably likely to have a Parent Material Adverse Effect. No

deficiencies for any Taxes (other than those which are not reasonably likely,

individually or in the aggregate, to have a Parent Material Adverse Effect) have

been proposed, asserted or assessed against Parent or any of its Subsidiaries

that have not been fully paid or adequately provided for in the appropriate

financial statements of Parent and its Subsidiaries, no requests for waivers of

the time to assess any Taxes are pending, and, except as disclosed in the Parent

Disclosure Letter, none of Parent or any of its Subsidiaries has waived any

statute of limitat