Filed Pursuant to Rule 424(b)(5)
Registration No. 333-83852
PROSPECTUS
3,601,329 SHARES
OIL STATES INTERNATIONAL, INC.
COMMON STOCK
---------------------
This prospectus relates to the shares of our common stock issuable upon
exchange or redemption of the exchangeable shares of 892489 Alberta Inc., one of
our wholly owned Canadian subsidiaries that we call PTI HoldCo in this
prospectus. The exchangeable shares were issued to the former shareholders of
PTI Group Inc. who are residents of Canada and who elected to receive
exchangeable shares in connection with our acquisition of PTI Group. Each
exchangeable share may be exchanged for one share of our common stock, plus all
payable and unpaid dividends, if any, on an exchangeable share and on a share of
our common stock. Because the shares of our common stock offered by this
prospectus will be issued only in exchange for, or upon the redemption of, the
exchangeable shares, we will not receive any cash proceeds from this offering.
We are paying all expenses of registration incurred in connection with this
offering.
Our common stock is listed on the New York Stock Exchange, or NYSE, under
the trading symbol "OIS." On April 11, 2002, the last reported sale price of our
common stock on the NYSE was $10.50 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN OUR COMMON STOCK.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy and accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
---------------------
The date of this prospectus is April 12, 2002
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 1
Where You Can Find More Information......................... 1
Oil States International, Inc. ............................. 3
Risk Factors................................................ 7
Use of Proceeds............................................. 13
Description of Capital Stock................................ 13
Plan of Distribution........................................ 18
Income Tax Considerations................................... 18
Experts..................................................... 23
Legal Matters............................................... 23
i
ABOUT THIS PROSPECTUS
This prospectus constitutes part of the registration statement on Form S-3
filed with the SEC under the Securities Act of 1933 utilizing a "shelf"
registration or continuous offering process. It omits some of the information
contained in the registration statement, and reference is made to the
registration statement for further information with respect to us and the
securities we are offering. Any statement contained in this prospectus
concerning the provisions of any document filed as an exhibit to the
registration statement or otherwise filed with the SEC is not necessarily
complete, and in each instance reference is made to the copy of the document
filed.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We will not issue these
securities in any jurisdiction where such issuance is not permitted. You should
assume that the information in this prospectus is accurate only as of the date
on the cover page or earlier dates as specified herein. Our business, financial
condition, results of operations and prospects may have changed since those
dates.
This prospectus provides you with a general description of the common stock
that will be issued pursuant to this prospectus. The registration statement
filed with the SEC includes exhibits that provide more details about the matters
discussed in this prospectus. You should read this prospectus and the related
exhibits filed with the SEC, together with the additional information described
under "Where You Can Find More Information."
Concurrently with the completion of our initial public offering in February
2001, Oil States International, Inc. combined with HWC Energy Services, Inc.
("HWC"), Sooner Inc. ("Sooner") and PTI Group, Inc. ("PTI") in a transaction
that we refer to as the "Combination." Prior to our initial public offering and
the Combination, SCF-III, L.P. owned a majority interest in Oil States, HWC and
PTI, and SCF-IV, L.P. owned a majority interest in Sooner. SCF-III, L.P. and
SCF-IV, L.P. are private equity funds that focus on investments in the energy
industry. We refer to SCF-III, L.P. and SCF-IV, L.P. collectively as "SCF."
Unless we have indicated otherwise, or the context otherwise requires,
references to "Oil States," "we," "us" and "our" or similar terms are to Oil
States International, Inc. and its subsidiaries following the Combination.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC (File No. 1-16337). You may read and copy any documents that are filed
at the SEC Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549.
You may also obtain copies of these documents at prescribed rates from the
Public Reference Section of the SEC at its Washington address.
Please call the SEC at 1-800-SEC-0330 for further information.
Our filings are also available to the public through:
- the SEC web site at http://www.sec.gov; and
- The New York Stock Exchange
20 Broad Street
New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with it, which information incorporated by reference is considered to be part of
this prospectus, and later information that we file with the SEC will
automatically update and supersede that information as well as the information
included in this prospectus. We incorporate by reference the documents listed
below and any future filings made with the SEC
1
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
filed prior to the termination of this offering:
- Our annual report on Form 10-K for the year ended December 31, 2001; and
- The description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on February 6, 2001 and any
amendment to such registration statement or any other report that we may
file in the future for the purpose of updating such description.
We will provide without charge a copy of these filings, other than any
exhibits (unless the exhibits are specifically incorporated by reference into
this prospectus). You may request your copy by writing us at the following
address or telephoning the following number:
Oil States International, Inc.
Three Allen Center
333 Clay Street, Suite 3460
Houston, Texas 77002
Attention: Cindy B. Taylor
(713) 652-0582
2
OIL STATES INTERNATIONAL, INC.
We are a leading provider of specialty products and services to oil and gas
drilling and production companies throughout the world. We focus our business
and operations in a substantial number of the world's most active and fastest
growing oil and gas producing regions, including the Gulf of Mexico, Canada,
West Africa, the Middle East, South America and Southeast Asia. Our customers
include many of the major and independent oil and gas companies and other
oilfield service companies. We operate in three principal business segments,
offshore products, tubular services and well site services, and have established
a leadership position in each.
OFFSHORE PRODUCTS
OVERVIEW
Through our offshore products segment, we design and manufacture
cost-effective, technologically advanced products for the offshore energy
industry. Our products are used in both shallow and deepwater producing regions
and include flex-element technology, advanced connector systems, blow-out
preventor stack integration and repair services, offshore equipment and
installation services and subsea pipeline products. We have facilities in
Arlington, Houston and Lampasas, Texas; Houma, Louisiana; Scotland; Brazil;
England and Singapore.
PRODUCTS AND SERVICES
Our offshore products segment provides a broad range of products and
services for use in offshore drilling and development activities. In addition,
this segment provides onshore oil and gas, defense and general industrial
products and services. Our offshore products segment is dependent on continuing
innovation and creative applications of existing technologies.
We design and build manufacturing and testing systems for many of our new
products and services. These testing and manufacturing facilities enable us to
provide reliable, technologically advanced products and services. Our Aberdeen
facility provides a wide range of structural testing including full-scale
product simulations.
We design, manufacture, fabricate, inspect, assemble, repair, test and
market subsea equipment and offshore vessel and rig equipment. Our products are
components of equipment used on marine vessels, floating rigs and jack-ups, and
for the drilling and production of oil and gas wells on offshore fixed platforms
and mobile production units including floating platforms and FPSO vessels. Our
products and services include:
- flexible bearings and connector products;
- subsea pipeline products;
- marine winches, mooring systems and rig equipment;
- blowout preventor stack assembly, integration, testing and repair
services; and
- fixed platform products and services.
REGIONS OF OPERATIONS
Our offshore products segment provides products and services to customers
in the major offshore oil and gas producing regions of the world, including the
Gulf of Mexico, West Africa, the North Sea, Brazil and Southeast Asia.
3
TUBULAR SERVICES
OVERVIEW
Through our tubular services segment, we distribute oil country tubular
goods, or OCTG, and are a provider of associated OTCG finishing and logistics
services to the oil and gas industry. Oil country tubular goods consist of
casing, production tubing and line pipe. Through our tubular services segment,
we:
- distribute premium tubing and casing;
- provide threading, remediation, logistical and inventory services; and
- offer e-commerce pricing, ordering and tracking capabilities.
We serve a customer base, ranging from major oil companies to small
independents. Through our key relationships with more than 20 manufacturers of
oilfield specialty pipe, we deliver tubular products and ancillary services to
oil and gas companies, drilling contractors and consultants around the world.
The OCTG distribution market is highly fragmented and competitive, and is
predominately focused in the United States. Despite being a leading distributor
of OCTG, we estimate that our U.S. market share is approximately 15%.
PRODUCTS AND SERVICES
Tubular Products and Services. We distribute various types of OCTG
produced by both domestic and foreign manufacturers to major and independent oil
and gas exploration and production companies and other OCTG distributors. We do
not manufacture any of the tubular goods that we distribute. As a result, gross
margins in this segment are generally lower than those reported by our other
segments. We operate our tubular services segment from a total of 11 facilities
and have offices located near areas of oil and gas exploration and development
activity predominately in the United States, and to a lesser extent, in Scotland
and Nigeria. Our business in Scotland and Nigeria is expected to change and
likely to decline as a result of the completion of a contract with a major
customer in these areas. We currently have an interim inventory management
contract that extends to June 30, 2002 in Scotland. There can be no assurance
that this interim contract will be extended beyond this date. We had an interim
inventory management contract in Nigeria that expired on March 31, 2002 and was
not renewed. See Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our Annual Report on Form 10-K for the year
ended December 31, 2001, which is incorporated by reference herein.
In this business, inventory management is critical to our success. We
maintain on-the-ground inventory in more than 75 yards located in the United
States, giving us the flexibility to fill our customers' orders from our own
stock or directly from the manufacturer. We have a proprietary inventory
management system, designed specifically for the OCTG industry, that enables us
to track our product shipments down to the individual pipe stem.
A-Z Terminal. Our A-Z Terminal pipe maintenance and storage facility in
Crosby, Texas is equipped to provide a full range of tubular services, giving us
strong customer service capabilities. The A-Z Terminal is set on 109 acres and
is an ISO 9002-certified facility. A-Z Terminal has more than 1,400 pipe racks
and two double-ended thread lines. We have exclusive use of a permanent
third-party inspection center within the facility. The facility also includes
indoor chrome storage capability and patented pipe cleaning machines.
We offer services at our A-Z Terminal facility typically outsourced by
other distributors, including the following: threading, inspection, cleaning,
cutting, logistics, rig returns, installation of float equipment and
non-destructive testing.
REGIONS OF OPERATIONS
Our tubular services segment provides tubular products and services to
customers in the United States, the Gulf of Mexico, Canada, Nigeria, Venezuela,
Ecuador, Colombia, Guatemala and the United Kingdom. However, the majority of
our sales are made in the United States, both for land and offshore
applications.
4
WELL SITE SERVICES
OVERVIEW
Our well site services segment provides a broad range of products and
services that are used to establish and maintain the flow of oil and gas from a
well throughout its lifecycle. Our services include workover services, drilling
services, rental equipment, remote site accommodations, catering and logistics
services and modular building construction services. We use our fleet of
workover and drilling rigs, rental equipment, remote site accommodation
facilities and related equipment to service well sites for oil and natural gas
companies. Our products and services are used in both onshore and offshore
applications through the exploration, development, production and abandonment
phases of a well's life. Additionally, our remote site accommodations, catering
and logistics services are employed in a variety of mining and related natural
resource applications as well as forest fire fighting.
PRODUCTS AND SERVICES
Workover Services. We provide our workover products and services primarily
to customers in the U.S., Venezuela, the Middle East and West Africa for both
onshore and offshore applications. Workover products and services are used in
operations on a producing well to restore or increase production. Workover
services are typically used during the development, production and abandonment
stages of the well. Our hydraulic workover units are used for workover
operations and snubbing operations in pressure situations.
Drilling Services. Our drilling services business is located in Odessa,
Texas and Wooster, Ohio and provides drilling services for shallow to medium
depths ranging from 2,000 to 9,000 feet. Drilling services are typically used
during the exploration and development stages of a field. We have a total of 12
semi-automatic drilling rigs with hydraulic pipe handling booms and lift
capacities ranging from 200,000 to 300,000 pounds. Nine of these drilling rigs
are located in Odessa, Texas and three are located in Wooster, Ohio. As of April
11, 2002, 11 rigs were working or under contract.
Rental Services. Our rental services business provides a wide range of
products for use in the offshore and onshore oil and gas industry, including:
- wireline and coiled tubing pressure control equipment;
- pipe recovery systems; and
- surface-based pressure control equipment used in production operations.
Our rental services are used during the exploration, development, production and
abandonment stages. We provide rental services at 15 U.S. distribution points in
Texas, Louisiana, Oklahoma, Mississippi and New Mexico.
Remote Site Accommodations, Catering and Logistics and Modular Building
Construction. We are a leading provider of fully integrated products and
services required to support a workforce at a remote location, including
workforce accommodations, food services, remote site management services and
modular building construction. We provide complete design, manufacture,
installation, operation and redeployment logistics services for oil and gas
drilling, oil sands mining, diamond mining, pipeline construction, offshore
construction, disaster relief services or any other industry that requires
remote site logistics projects. Our remote site products and services operations
are primarily focused in Canada and the Gulf of Mexico. During the peak of our
operating season, we typically provide logistics services in over 200 separate
locations throughout the world to remote sites with populations ranging from 20
to 2,000 persons.
Remote Site Accommodations, Catering and Logistics Services. We sell and
lease portable living quarters, galleys, diners and offices and provide portable
generators, water sewage systems and catering services as part of our remote
site logistics services. We provide various client-specific building
configurations to customers for use in both onshore and offshore applications.
We provide our integrated remote site logistics services to customers under
long-term and short-term contractual arrangements.
5
Modular Building Construction. We design, construct and install a variety
of portable modular buildings, including housing, kitchens, recreational units
and offices for the Canadian and Gulf of Mexico markets. Our designers work
closely with our clients to build structures that best serve their needs.
The foregoing information about us and our business segments is only a
general summary and is not intended to be comprehensive. For additional
information about us and our business segments you should refer to the
information described under the caption "Where You Can Find More Information."
Our principal executive offices are located at Three Allen Center, 333 Clay
Street, Suite 3460, Houston, Texas 77002. Our telephone number at that address
is (713) 652-0582.
6
RISK FACTORS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
We include the following cautionary statement to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
for any forward-looking statement made by us, or on our behalf. The factors
identified in this cautionary statement are important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made by
us, or on our behalf. Such statements are "forward-looking statements." You can
typically identify forward-looking statements by the use of forward-looking
words such as "may," "will," "could," "project," "believe," "anticipate,"
"expect," "estimate," "potential," "plan," "forecast," and other similar words.
All statements other than statements of historical facts contained in this
prospectus, including statements regarding our future financial position,
budgets, projected costs and plans and objectives of management for future
operations, are forward-looking statements. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, we caution that, while we believe such assumptions or
bases to be reasonable and make them in good faith, assumed facts or bases
almost always vary from actual results. The differences between assumed facts or
bases and actual results can be material, depending upon the circumstances.
Where, in any forward-looking statement, Oil States, or our management,
expresses an expectation or belief as to the future results, such expectation or
belief is expressed in good faith and believed to have a reasonable basis.
However, there can be no assurance that the statement of expectation or belief
will result, or be achieved or accomplished. Taking this into account, the
following are identified as important risk factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, Oil States.
RISK RELATED TO THE EXCHANGEABLE SHARES
THE EXCHANGE OF YOUR EXCHANGEABLE SHARES IS GENERALLY TAXABLE.
Based on the tax laws as of the date of this prospectus, the exchange or
redemption of exchangeable shares is generally a taxable event in Canada and may
be a taxable event in the United States. Your tax consequences depend on a
number of factors, which are discussed in more detail under the caption "Income
Tax Considerations."
RISKS RELATED TO OIL STATES' BUSINESS GENERALLY
DECREASED OIL AND GAS INDUSTRY EXPENDITURE LEVELS WILL ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
We depend upon the oil and gas industry and its willingness to make
expenditures to explore for, develop and produce oil and gas. If these
expenditures decline, our business will suffer. The industry's willingness to
explore, develop and produce depends largely upon the prevailing view of future
product prices. Many factors affect the supply and demand for oil and gas and
therefore influence product prices, including:
- the level of production;
- the levels of oil and gas inventories;
- the expected cost of developing new reserves;
- the cost of producing oil and gas;
- the level of drilling activity;
- worldwide economic activity;
- national government political requirements, including the ability of the
Organization of Petroleum Exporting Companies (OPEC) to set and maintain
production levels and prices for oil;
7
- the cost of developing alternate energy sources;
- environmental regulation; and
- tax policies.
If demand for drilling services, cash flows of drilling contractors or drilling
rig utilization rates decrease significantly, then demand for our products and
services will decrease.
EXTENDED PERIODS OF LOW OIL PRICES MAY DECREASE DEEPWATER EXPLORATION AND
PRODUCTION ACTIVITY AND ADVERSELY AFFECT OUR BUSINESS.
Our offshore products segment depends on exploration and production
expenditures in deepwater areas. Because deepwater projects are more capital
intensive and take longer to generate first production than shallow water and
onshore projects, the economic analyses conducted by exploration and production
companies typically assume lower prices for production from such projects to
determine economic viability over the long term. If oil prices remain near or
below those levels used to determine economic viability for an extended period
of time, deepwater activity and our business will be adversely affected.
BECAUSE THE OIL AND GAS INDUSTRY IS CYCLICAL, OUR OPERATING RESULTS MAY
FLUCTUATE.
Oil prices have been volatile over the last three years, ranging from less
than $11 per barrel to over $37 per barrel. Spot gas prices have also been
volatile, ranging from less than $1.25 per MMBtu to above $10.00 per MMBtu.
These price changes have caused oil and gas companies and drilling contractors
to change their strategies and expenditure levels. Oil States, Sooner, HWC and
PTI have experienced in the past, and we may experience in the future,
significant fluctuations in operating results based on these changes.
WE MIGHT BE UNABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN OUR
INDUSTRY.
We sell our products and services in competitive markets. In some of our
business segments, we compete with the oil and gas industry's largest oilfield
services providers. These companies have greater financial resources than we do.
In addition, our business, particularly our tubular services business, may face
competition from Internet business-to-business service providers. We expect the
number of these providers to increase in the future. Our business will be
adversely affected to the extent that these providers are successful in reducing
purchases of our products and services.
Our operations may be adversely affected if our current competitors or new
market entrants introduce new products or services with better prices, features,
performance or other competitive characteristics than our products and services.
Competitive pressures or other factors also may result in significant price
competition that could have a material adverse effect on our results of
operations and financial condition.
DISRUPTIONS IN THE POLITICAL AND ECONOMIC CONDITIONS OF THE FOREIGN COUNTRIES
IN WHICH WE OPERATE COULD ADVERSELY AFFECT OUR BUSINESS.
We have operations in various international areas, including parts of West
Africa and South America. Our operations in these areas increase our exposure to
risks of war, local economic conditions, political disruption, civil disturbance
and governmental policies that may:
- disrupt our operations;
- restrict the movement of funds or limit repatriation of profits;
- lead to U.S. government or international sanctions; and
- limit access to markets for periods of time.
Some areas, including West Africa and parts of South America, have experienced
political disruption in the past. Disruptions may occur in the future in our
foreign operations, and losses caused by these disruptions may occur that will
not be covered by insurance.
8
WE ARE SUSCEPTIBLE TO SEASONAL EARNINGS VOLATILITY DUE TO ADVERSE WEATHER
CONDITIONS IN OUR REGIONS OF OPERATIONS.
Our operations are directly affected by seasonal differences in weather in
the areas in which we operate, most notably in Canada and the Gulf of Mexico.
Our Canadian remote site logistics operations are significantly focused on the
winter months when the winter freeze in remote regions permits exploration and
production activity to occur. The spring thaw in these frontier regions
restricts operations in the spring months and, as a result, adversely affects
our operations and sales of products and services in the second and third
quarters. Our operations in the Gulf of Mexico are also affected by weather
patterns. Weather conditions in the Gulf Coast region generally result in higher
drilling activity in the spring, summer and fall months with the lowest activity
in the winter months. In addition, summer and fall drilling activity can be
restricted due to hurricanes and other storms prevalent in the Gulf of Mexico
and along the Gulf Coast. As a result, full year results are not likely to be a
direct multiple of any particular quarter or combination of quarters.
WE MIGHT BE UNABLE TO EMPLOY A SUFFICIENT NUMBER OF TECHNICAL PERSONNEL.
Many of the products that we sell, especially in our offshore products
segment, are complex and highly engineered and often must perform in harsh
conditions. We believe that our success depends upon our ability to employ and
retain technical personnel with the ability to design, utilize and enhance these
products. In addition, our ability to expand our operations depends in part on
our ability to increase our skilled labor force. The demand for skilled workers
is high, and the supply is limited. A significant increase in the wages paid by
competing employers could result in a reduction of our skilled labor force,
increases in the wage rates that we must pay or both. If either of these events
were to occur, our cost structure could increase and our growth potential could
be impaired.
IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS, OUR BUSINESS
AND REVENUES MAY BE ADVERSELY AFFECTED.
The market for our offshore products is characterized by continual
technological developments to provide better performance in increasingly greater
depths and harsher conditions. If we are not able to design, develop and produce
commercially competitive products in a timely manner in response to changes in
technology, our business and revenues will be adversely affected.
THE LEVEL AND PRICING OF TUBULAR GOODS IMPORTED INTO THE UNITED STATES COULD
DECREASE DEMAND FOR OUR TUBULAR GOODS INVENTORY AND ADVERSELY IMPACT OUR
RESULTS OF OPERATIONS.
U.S. law currently restricts imports of low-cost tubular goods from a
number of foreign countries into the U.S. tubular goods market, resulting in
higher prices for tubular goods. If these restrictions were to be lifted or if
the level of imported low-cost tubular goods were to otherwise increase, our
tubular services segment could be adversely affected to the extent that we then
have higher-cost tubular goods in inventory. If prices were to decrease
significantly, we might not be able to profitably sell our inventory of tubular
goods. In addition, significant price decreases could result in a longer holding
period for some of our inventory, which could also have a material adverse
effect on our tubular services segment.
IF WE WERE TO LOSE A SIGNIFICANT SUPPLIER OF OUR TUBULAR GOODS, WE COULD BE
ADVERSELY AFFECTED.
During 2001, we purchased from a single supplier approximately 40% of the
tubular goods we distributed and from three suppliers approximately 62% of such
tubular goods. We do not have contracts with any of these suppliers. If we were
to lose any of these suppliers or if production at one or more of the suppliers
were interrupted, our tubular services segment and our overall business,
financial condition and results of operations could be adversely affected. If
the extent of the loss or interruption were sufficiently large, the impact on us
would be material.
9
WE ARE SUBJECT TO EXTENSIVE AND COSTLY ENVIRONMENTAL LAWS AND REGULATIONS THAT
MAY REQUIRE US TO TAKE ACTIONS THAT WILL ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
Our hydraulic well control and drilling operations and our offshore
products business are significantly affected by stringent and complex foreign,
federal, state and local laws and regulations governing the discharge of
substances into the environment or otherwise relating to environmental
protection. We could be exposed to liability for cleanup costs, natural resource
damages and other damages as a result of our conduct that was lawful at the time
it occurred or the conduct of, or conditions caused by, prior operators or other
third parties. Environmental laws and regulations have changed in the past, and
they are likely to change in the future. If existing regulatory requirements or
enforcement policies change, we may be required to make significant
unanticipated capital and operating expenditures.
Any failure by us to comply with applicable environmental laws and
regulations may result in governmental authorities taking actions against our
business that could adversely impact our operations and financial condition,
including the:
- issuance of administrative, civil and criminal penalties;
- denial or revocation of permits or other authorizations;
- reduction or cessation in operations; and
- performance of site investigatory, remedial or other corrective actions.
WE MAY NOT HAVE ADEQUATE INSURANCE FOR POTENTIAL LIABILITIES.
Our operations are subject to many hazards. We face the following risks
under our insurance coverage:
- we may not be able to continue to obtain insurance on commercially
reasonable terms;
- we may be faced with types of liabilities that will not be covered by our
insurance, such as damages from environmental contamination;
- the dollar amount of any liabilities may exceed our policy limits; and
- we do not maintain full coverage against the risk of interruption of our
business.
Even a partially uninsured claim, if successful and of significant size, could
have a material adverse effect on our results of operations or consolidated
financial position.
WE ARE SUBJECT TO LITIGATION RISKS THAT MAY NOT BE COVERED BY INSURANCE.
In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses, and
we are subject to various self-retentions and deductibles under our insurance.
It is possible, however, that an unexpected judgment could be rendered against
us in cases in which we could be uninsured and beyond the amounts that we
currently have reserved or anticipate incurring for such matters.
RISKS RELATED TO OIL STATES' OPERATIONS
WE HAVE INCURRED LOSSES IN THE PAST. WE MAY INCUR LOSSES IN THE FUTURE.
We incurred a loss from continuing operations in 1999. We cannot assure you
that we will be profitable in the future.
LOSS OF KEY MEMBERS OF OUR MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS.
We depend on the continued employment and performance of Douglas E. Swanson
and other key members of management. If any of our key managers resign or become
unable to continue in their present roles and are not adequately replaced, our
business operations could be materially adversely affected. We do not maintain
any "key man" life insurance for any of our officers.
10
IF WE HAVE TO WRITE OFF A SIGNIFICANT AMOUNT OF GOODWILL, OUR EARNINGS WILL BE
NEGATIVELY AFFECTED.
Our consolidated balance sheet as of December 31, 2001 included goodwill
representing 33% of our total assets. We have recorded goodwill because we paid
more for some of our businesses than the fair market value of the tangible and
separately measurable intangible net assets of those businesses. Generally
accepted accounting principles previously required us to amortize goodwill over
the periods we benefit from the acquired assets. Current accounting standards,
which were effective January 1, 2002 (See Note 3 to Consolidated and Combined
Financial Statements included in our Annual Report on Form 10-K for the year
ended December 31, 2001, which is incorporated by reference herein), require a
periodic review of goodwill for impairment in value and a non-cash charge
against earnings with a corresponding decrease in stockholders' equity if
circumstances indicate that the carrying amount will not be recoverable.
WE MIGHT BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a variety of intellectual property rights that we use in our
offshore products and well site services segments, particularly our patents
relating to our FlexJoint(TM) technology. We may not be able to successfully
preserve these intellectual property rights in the future and these rights could
be invalidated, circumvented or challenged. Technological developments may also
reduce the value of our intellectual property. In addition, the laws of some
foreign countries in which our products and services may be sold do not protect
intellectual property rights to the same extent as the laws of the United
States. The failure of our company to protect our proprietary information and
any successful intellectual property challenges or infringement proceedings
against us could adversely affect our competitive position.
BECAUSE WE ARE A NEWLY COMBINED COMPANY WITH A SHORT COMBINED OPERATING
HISTORY, NEITHER OUR HISTORICAL NOR OUR PRO FORMA FINANCIAL AND OPERATING DATA
MAY BE REPRESENTATIVE OF OUR FUTURE RESULTS.
We are a newly combined company with a short period of combined operating
history. Our short combined operating history may make it difficult to forecast
our future operating results. The pro forma and combined financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2001,
which is incorporated by reference herein, reflect the separate historical
results of operations, financial position and cash flows of Oil States, Sooner,
HWC and PTI prior to the Combination. The consolidated financial statements
reflect activity after the Combination.
L.E. SIMMONS, THROUGH SCF, CONTROLS THE OUTCOME OF STOCKHOLDER VOTING AND MAY
EXERCISE THIS VOTING POWER IN A MANNER ADVERSE TO OUR STOCKHOLDERS.
SCF holds approximately 63.1% of the outstanding common stock of our
company. L.E. Simmons, the chairman of our board of directors, is the sole owner
of L.E. Simmons & Associates, Incorporated, the ultimate general partner of SCF.
Accordingly, Mr. Simmons, through his ownership of the ultimate general partner
of SCF, is in a position to control the outcome of matters requiring a
stockholder vote, including the election of directors, adoption of amendments to
our certificate of incorporation or bylaws or approval of transactions involving
a change of control. The interests of Mr. Simmons may differ from those of our
stockholders, and SCF may vote its common stock in a manner that may adversely
affect our stockholders.
SCF'S OWNERSHIP INTEREST AND PROVISIONS CONTAINED IN OUR CERTIFICATE OF
INCORPORATION AND BYLAWS COULD DISCOURAGE A TAKEOVER ATTEMPT, WHICH MAY REDUCE
OR ELIMINATE THE LIKELIHOOD OF A CHANGE OF CONTROL TRANSACTION AND, THEREFORE,
THE ABILITY OF OUR STOCKHOLDERS TO SELL THEIR SHARES FOR A PREMIUM.
In addition to SCF's controlling position, provisions contained in our
certificate of incorporation and bylaws, such as a classified board, limitations
on the removal of directors, on stockholder proposals at meetings of
stockholders and on stockholder action by written consent and the inability of
stockholders to call special meetings, could make it more difficult for a third
party to acquire control of our company. Our certificate of incorporation also
authorizes our board of directors to issue preferred stock without stockholder
approval. If
11
our board of directors elects to issue preferred stock, it could increase the
difficulty for a third party to acquire us, which may reduce or eliminate our
stockholders' ability to sell their shares of common stock at a premium. (See
"Description of Capital Stock").
TWO OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS OR OFFICERS OF SCF. THE RESOLUTION OF THESE CONFLICTS OF INTEREST
MAY NOT BE IN OUR OR OUR STOCKHOLDERS' BEST INTERESTS.
Two of our directors, L.E. Simmons and Andrew L. Waite, are also current
directors or officers of L.E. Simmons & Associates, Incorporated, the ultimate
general partner of SCF. This may create conflicts of interest because these
directors have responsibilities to SCF and its owners. Their duties as directors
or officers of L.E. Simmons & Associates, Incorporated may conflict with their
duties as directors of our company regarding business dealings between SCF and
us and other matters. The resolution of these conflicts may not always be in our
or our stockholders' best interest.
WE HAVE RENOUNCED ANY INTEREST IN SPECIFIED BUSINESS OPPORTUNITIES, AND SCF
AND ITS DIRECTOR NOMINEES ON OUR BOARD OF DIRECTORS GENERALLY HAVE NO
OBLIGATION TO OFFER US THOSE OPPORTUNITIES.
SCF has investments in other oilfield service companies that compete with
us, and SCF and its affiliates, other than our company, may invest in other such
companies in the future. We refer to SCF, its other affiliates and its portfolio
companies as the SCF group. Our certificate of incorporation provides that, so
long as SCF and its affiliates continue to own at least 20% of our common stock,
we renounce any interest in specified business opportunities. Our certificate of
incorporation also provides that if an opportunity in the oilfield services
industry is presented to a person who is a member of the SCF group, including
any of those individuals who also serves as SCF's director nominee of our
company:
- no member of the SCF group or any of those individuals has any obligation
to communicate or offer the opportunity to us; and
- such entity or individual may pursue the opportunity as that entity or
individual sees fit,
unless:
- it was presented to an SCF director nominee solely in that person's
capacity as a director of our company and no other member of the SCF
group independently received notice of or otherwise identified such
opportunity; or
- the opportunity was identified solely through the disclosure of
information by or on behalf of our company.
These provisions of our certificate of incorporation may be amended only by an
affirmative vote of holders of at least 80% of our outstanding common stock. As
a result of these charter provisions, our future competitive position and growth
potential could be adversely affected.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD DEPRESS
OUR STOCK PRICE
Sales by SCF and other stockholders of a substantial number of shares of
our common stock in the public markets, or the perception that such sales might
occur, could have a material adverse effect on the price of our common stock or
could impair our ability to obtain capital through an offering of equity
securities.
12
USE OF PROCEEDS
Because the shares of common stock will be issued in exchange for or upon
the redemption of the exchangeable shares, we will not receive any cash proceeds
upon the issuance of the common stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $.01 per share, and 25,000,000 shares of preferred stock, par
value $.01 per share, of which one share has been designated as "special
preferred voting stock." At April 11, 2002, we had 48,332,207 shares of common
stock, including up to 3,601,329 shares of our common stock issuable upon
exchange of the exchangeable shares, and one share of special preferred voting
stock issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Because holders of common stock do not
have cumulative voting rights, the holders of a majority of the shares of common
stock can elect all of the members of the board of directors standing for
election, subject to the rights, powers and preferences of any outstanding
series of preferred stock. Subject to the rights and preferences of any
preferred stock that we may issue in the future, the holders of common stock are
entitled to receive:
- dividends as may be declared by our board of directors; and
- all of our assets available for distribution to our common stockholders
in liquidation, pro rata, based on the number of shares held.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.
As of April 11, 2002, there were 52 holders of record of our common stock.
PREFERRED STOCK
Subject to the provisions of our certificate of incorporation and legal
limitations, our board of directors has the authority, without further vote or
action by the stockholders:
- to issue up to 25,000,000 shares of preferred stock in one or more
series; and
- to fix the rights, preferences, privileges and restrictions of our
preferred stock, including provisions related to dividends, conversion,
voting, redemption, liquidation and the number of shares constituting the
series or the designation of that series, which may be superior to those
of the common stock.
Other than the share of special preferred voting stock issued in connection with
the Combination as described below in "Special Preferred Voting Stock," as of
April 11, 2002, there are no shares of preferred stock outstanding, and we have
no present plans to issue any other preferred stock.
The issuance of shares of preferred stock by our board of directors as
described above may adversely affect the rights of the holders of our common
stock. For example, preferred stock may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of common stock. The issuance of
shares of preferred stock may discourage third-party bids for our common stock
or may otherwise adversely affect the market price of the common stock. In
addition, the preferred stock may enable our board of directors to make more
difficult or to discourage attempts to obtain control of our company through a
hostile tender offer, proxy contest, merger or otherwise, or to make changes in
our management.
13
EXCHANGEABLE SHARES
In the Combination, the outstanding common shares of PTI held by Canadian
residents were exchanged for exchangeable shares issued by PTI HoldCo. The
exchangeable shares may generally be exchanged at any time after the first
anniversary of the closing of the Combination at the option of the holders for
our common stock on a share-for-share basis subject to adjustment in the case of
alterations to our common stock, plus the amount of any declared but unpaid
dividends on our common stock. As of April 11, 2002, there are 3,601,329
exchangeable shares outstanding, which are exchangeable for a total of 3,601,329
shares of our common stock. The following is a summary of the principal terms
and rights of the exchangeable shares which affect us and the holders of our
common stock.
Holders of exchangeable shares are entitled to:
- receive dividends equal to the dividends paid by us on shares of our
common stock;
- provide directions to the holder of our special preferred voting stock as
to the manner in which the special preferred voting stock should be voted
on any matter on which holders of our common stock are entitled to vote.
See "-- Special Preferred Voting Stock" below.
Subject to applicable law, exchangeable shares will be exchanged for shares of
our common stock on a share-for-share basis, plus an amount equal to all
declared and unpaid dividends on such exchangeable shares, whenever:
- the holders of exchangeable shares request us or PTI HoldCo to exchange
or redeem their exchangeable shares;
- PTI HoldCo is liquidated, dissolved or wound-up;
- PTI HoldCo becomes insolvent or bankrupt, has a receiver appointed or a
similar event occurs;
- we become involved in voluntary or involuntary liquidation, dissolution
or winding-up proceedings;
- PTI HoldCo elects to redeem all of the exchangeable shares, provided the
request is made after the fifth anniversary of the closing of the
offering;
- PTI HoldCo elects to redeem all of the exchangeable shares, provided the
request is made after either the third anniversary of the closing of the
offering and the number of outstanding exchangeable shares is less than
10% of the number outstanding upon the closing of the Combination or the
fourth anniversary of the closing of the offering and the number of
outstanding exchangeable shares is less than 20% of the number
outstanding upon the closing of the Combination;
- a change of control transaction occurs and the board of directors of PTI
HoldCo determines in good faith and in its sole discretion that it is not
reasonable to substantially replicate the terms and conditions of the
exchangeable shares in connection with the change of control transaction
and that redemption of all of the outstanding exchangeable shares is
commercially or legally necessary to enable the completion of the change
of control transaction;
- the holders of exchangeable shares fail to pass a resolution regarding
any matter on which they are entitled to vote as shareholders of PTI
HoldCo and which has been proposed by the board of directors of PTI
HoldCo, other than any resolution to amend the exchangeable share
provisions, the support agreement or the voting and exchange trust
agreement; or
- the holders of the exchangeable shares fail to take any action required
to approve or disapprove any change to their rights if the approval or
disapproval of such change would be required to maintain the economic or
legal equivalence of the exchangeable shares and our common stock.
Whenever a holder of exchangeable shares has the right to require PTI HoldCo to
redeem the holder's exchangeable shares or whenever PTI HoldCo has the right or
is required to redeem the outstanding exchangeable shares, the exchangeable
shares to be redeemed will be subject to the overriding right of our company or
3045843 Nova Scotia Company, one of our wholly owned Canadian subsidiaries, to
purchase such
14
exchangeable shares. The consideration to be paid by us or 3045843 Nova Scotia
Company, as the case may be, will be identical to the consideration to be paid
by PTI HoldCo upon any such redemption. We expect to exercise the overriding
right to purchase the exchangeable shares whenever it arises.
Unless we take action to ensure that the holders of exchangeable shares
receive an equivalent economic benefit, and subject to applicable law, we may
not:
- issue or distribute assets, debt instruments or shares of, or securities
convertible into, our common stock to the holders of the then outstanding
shares of our common stock;
- effect a forward or reverse stock split or similar transaction;
- effect a merger, reorganization, consolidation or other transaction
involving or affecting our common stock; or
- reclassify or otherwise change our common stock.
In the event of any proposed tender offer, share exchange offer, issuer
bid, take-over bid or similar transaction affecting our common stock, we must
use reasonable efforts to take all actions necessary or desirable to enable
holders of exchangeable shares to participate in the transaction to the same
extent and on an economically equivalent basis as the holders of our common
stock. We have also agreed to take various actions to protect the rights of the
holders of the exchangeable shares to receive the same dividends as are paid on
our common stock and to exchange shares of our common stock for exchangeable
shares.
SPECIAL PREFERRED VOTING STOCK
In connection with the acquisition of PTI, our board of directors
authorized a class of preferred stock, referred to as "special preferred voting
stock," consisting of one share. The special preferred voting stock was issued
to Computershare Trust Company of Canada, which holds the share as trustee for
the benefit of the holders of the exchangeable shares described above. Except as
otherwise required by law or our certificate of incorporation:
- the special preferred voting stock is entitled to the number of votes
attached to the number of shares of our common stock issuable upon the
exchange of all the outstanding exchangeable shares;
- each holder of exchangeable shares is able to direct the trustee to vote
that number of votes that are attached to the number of shares of OSI
common stock issuable upon the exchange of the exchangeable shares held
by that holder;
- the special preferred voting stock may be voted in the election of
directors and on all other matters submitted to a vote of our common
stockholders; and
- the holder of the special preferred voting stock is not entitled to
receive dividends.
In the event of any liquidation, dissolution or winding up of our company,
the holder of the special preferred voting stock will not be entitled to any of
our assets available for distribution to stockholders. We may redeem the special
preferred voting stock for a nominal amount when:
- the special preferred voting stock has no votes attached to it because
there are no exchangeable shares outstanding that are not owned by us or
our subsidiaries; and
- there are no shares of stock, debt, options or other agreements that
could give rise to the issuance of any additional exchangeable shares to
any person other than us or any of our subsidiaries.
ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain several provisions that
could delay or make more difficult the acquisition of us through a hostile
tender offer, open market purchases, proxy contest, merger or other takeover
attempt that a stockholder might consider in his or her best interest, including
those attempts that might result in a premium over the market price of our
common stock.
15
WRITTEN CONSENT OF STOCKHOLDERS
Our certificate of incorporation provides that, on and after the date when
SCF ceases to own a majority of the shares of our outstanding securities
entitled to vote in the election of directors, any action by our stockholders
must be taken at an annual or special meeting of stockholders, and stockholders
cannot act by written consent. Until that date, any action required or permitted
to be taken by our stockholders may be taken at a duly called meeting of
stockholders or by the written consent of stockholders owning the minimum number
of shares required to approve the action.
SPECIAL MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any series of preferred stock, our
bylaws provide that special meetings of the stockholders may only be called by
the chairman of the board of directors or by the resolution of a majority of our
board of directors.
ADVANCE NOTICE PROCEDURE FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS
Our bylaws provide that adequate notice must be given to nominate
candidates for election as directors or to make proposals for consideration at
annual meetings of stockholders. Notice of a stockholder's intent to nominate a
director must be delivered to or mailed and received at our principal executive
offices as follows:
- for an election to be held at the annual meeting of stockholders, not
later than 120 calendar days prior to the anniversary date of the
immediately preceding annual meeting of stockholders unless the date of
the annual meeting is more than 30 or less than 60 calendar days after
such anniversary date, in which case such notice must be received not
later than the later of (1) 120 calendar days prior to the annual meeting
or (2) 10 calendar days following the public announcement of the annual
meeting; and
- for an election to be held at a special meeting of stockholders, not
later than the later of (1) 120 calendar days prior to the special
meeting or (2) 10 calendar days following the public announcement of the
special meeting.
Notice of a stockholder's intent to raise business at an annual meeting
must be received at our principal executive offices not later than 120 calendar
days prior to the anniversary date of the preceding annual meeting of
stockholders.
These procedures may operate to limit the ability of stockholders to bring
business before a stockholders meeting, including the nomination of directors
and the consideration of any transaction that could result in a change in
control and that may result in a premium to our stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation divides our directors into three classes
serving staggered three-year terms. As a result, stockholders will elect
approximately one-third of the board of directors each year. This provision,
when coupled with the provision of our restated certificate of incorporation
authorizing only the board of directors to fill vacant or newly created
directorships or increase the size of the board of directors and the provision
providing that directors may only be removed for cause, may deter a stockholder
from gaining control of our board of directors by removing incumbent directors
or increasing the number of directorships and simultaneously filling the
vacancies or newly created directorships with its own nominees.
RENOUNCEMENT OF BUSINESS OPPORTUNITIES
Our certificate of incorporation provides that, as long as SCF and its
affiliates other than our company continue to own at least 20% of our common
stock, we renounce any interest or expectancy in any business opportunity or
other matter in which any member of the SCF group participates or desires or
seeks to participate and that involves any aspect of the energy equipment or
services business or industry except as described below. No member of the SCF
group, including any officer, director, employee or other agent of SCF or any
affiliate of SCF who serves as a director of our company (an "SCF director
nominee"), has any
16
obligation to communicate or offer any renounced opportunity to us and may
pursue the opportunity as that entity or individual sees fit, unless:
- it was presented to an SCF director nominee solely in that person's
capacity as a director of our company and no other member of the SCF
group independently received notice of or otherwise identified such
opportunity; or
- the opportunity was identified solely through the disclosure of
information by or on behalf of our company.
The "SCF group" includes SCF, any affiliate of SCF (other than our company), any
SCF director nominee and portfolio companies in which SCF has an investment
(other than our company).
Thus, for example, SCF and its affiliates, including SCF director nominees,
may pursue opportunities in the oilfield services industry for their own account
or present such opportunities to SCF's other portfolio companies. Our
certificate of incorporation provides that SCF and its affiliates have no
obligation to offer such opportunities to us, even if the failure to provide
such opportunity would have a competitive impact on us.
These provisions of our certificate of incorporation may be amended only by
an affirmative vote of holders of at least 80% of our outstanding common stock.
AMENDMENT OF THE BYLAWS
Our board of directors may amend or repeal the bylaws and adopt new bylaws.
The holders of common stock may amend or repeal the bylaws and adopt new bylaws
by a majority vote.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our directors will not be personally liable to our company or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by Delaware law, for liability:
- for any breach of the duty of loyalty to our company or our stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for unlawful payment of a dividend or unlawful stock purchases or
redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
As a result, neither we nor our stockholders have the right, through
stockholders' derivative suits on our behalf, to recover monetary damages
against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above.
DELAWARE TAKEOVER STATUTE
Under the terms of our certificate of incorporation and as permitted under
Delaware law, we have elected not to be subject to Delaware's anti-takeover law
in order to give our significant stockholders, including SCF, greater
flexibility in transferring their shares of our common stock. This law provides
that specified persons who, together with affiliates and associates, own, or
within three years did own, 15% or more of the outstanding voting stock of a
corporation could not engage in specified business combinations with the
corporation for a period of three years after the date on which the person
became an interested stockholder. The law defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
interested stockholder, including mergers, asset sales and other transactions in
which the interested stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders. With the approval of our
stockholders, we may amend our certificate of incorporation in the future to
become governed by the anti-takeover law. This provision would then have an
anti-takeover effect for transactions not approved in advance by our board of
directors, including discouraging takeover attempts that might result in a
premium over the market price for the shares of our common stock. By opting out
of the Delaware anti-takeover law, a transferee of SCF could pursue a takeover
transaction that was not approved by our board of directors.
17
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Mellon Investor
Services LLC, and its telephone number is (800) 635-9270.
PLAN OF DISTRIBUTION
We will distribute up to 3,601,329 shares of common stock covered by this
prospectus only upon exchange or redemption of the exchangeable shares of PTI
HoldCo. No broker, dealer or underwriter has been engaged in connection with the
exchange or redemption. Each exchangeable share of PTI HoldCo may be exchanged
or redeemed for one share of common stock. We will pay any other expenses
incurred in connection with the distribution described in this prospectus.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Donahue LLP, our Canadian counsel, the following is an
accurate summary of the principal Canadian federal income tax considerations
under the Canadian Income Tax Act generally applicable to you if you hold
exchangeable shares or acquire common stock on the redemption, retraction or
exchange of exchangeable shares and if, for purposes of the Income Tax Act
(Canada) (the "Tax Act") and any applicable income tax treaty or convention, you
are or are deemed to be resident in Canada at all relevant times, you deal with
us at arm's length, you are not affiliated with us and you hold your
exchangeable shares and will hold the common stock as capital property. This
discussion does not apply to you if you are a "financial institution," as
defined in the Tax Act, and are therefore subject to the mark-to-market rules of
the Tax Act. This summary also does not apply to you if Oil States is or will be
a "foreign affiliate" of you for purposes of the Tax Act.
The exchangeable shares and common stock will generally be considered to be
capital property to you unless the shares are held by you in the course of
carrying on a business or the shares are acquired in a transaction considered to
be an adventure in the nature of trade. If the exchangeable shares might not
otherwise qualify as capital property, you may be entitled to obtain this
qualification by making the irrevocable election provided under subsection 39(4)
of the Tax Act. If you do not hold your exchangeable shares or will not hold
common stock as capital property, you should consult your own tax advisors for
information and advice having regard to your particular circumstances.
This summary is based on the current provisions of the Tax Act and the
regulations thereto, the current provisions of the Convention Between the United
States of America and Canada with Respect to Taxes on Income and on Capital,
signed September 26, 1980, as amended, and our Canadian counsel's understanding
of the current published administrative practices of the Canada Customs and
Revenue Agency (the "CCRA"). This summary takes into account all specific
proposals to amend the Tax Act and regulations that have been publicly announced
by or on behalf of the Minister of Finance (Canada) prior to the date hereof and
assumes that all of these proposed amendments will be enacted in their present
form. No assurances can be given that any proposed amendments will be enacted in
the form proposed, or at all. This summary is not exhaustive of all possible
Canadian federal income tax considerations and, except for the foregoing, does
not take into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations described
below. No advance income tax ruling has been sought or obtained from the CCRA to
confirm the tax consequences of any of the transactions relating to the
exchangeable shares or the acquisition of the common stock on the redemption,
retraction or exchange of exchangeable shares.
For purposes of the Tax Act, all amounts relating to the acquisition,
holding or disposition of common stock, including dividends, adjusted cost base
amounts and proceeds of disposition, must be converted into
18
Canadian dollars based on the prevailing United States dollar exchange rate
generally at the time these amounts arise.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO YOU. THEREFORE,
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR
CIRCUMSTANCES.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
On a redemption (including a retraction) of your exchangeable shares by PTI
HoldCo, you will be deemed to have received a dividend equal to the amount, if
any, by which the redemption proceeds exceed the paid-up capital (for purposes
of the Tax Act) of the exchangeable shares so redeemed. For these purposes, the
redemption proceeds will be the fair market value of the common stock received
from PTI HoldCo on the redemption plus the amount, if any, of all payable and
unpaid dividends on the exchangeable shares paid on the redemption. The amount
of any such deemed dividend will be subject to the tax treatment described below
under "Dividends on Exchangeable Shares."
On a redemption (including a retraction) of your exchangeable shares, you
will also be considered to have disposed of your exchangeable shares, but the
amount of the deemed dividend will be excluded in computing your proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition. If you are a corporation, in some circumstances the amount
of any such deemed dividend may be treated as proceeds of disposition and not as
a dividend. The taxation of capital gains and capital losses is described below.
On an exchange of your exchangeable shares with our indirect wholly-owned
subsidiary, 3045843 Nova Scotia Company (hereinafter referred to as "OSI ULC"),
or with us for the common stock, you will generally realize a capital gain (or a
capital loss) equal to the amount by which the proceeds of disposition of your
exchangeable shares, net of any reasonable costs of disposition, exceed (or are
less than) the adjusted cost base to you of the exchangeable shares immediately
before the exchange. For these purposes, the proceeds of disposition will be the
fair market value at the time of the exchange of the common stock which you
receive plus any other amounts received from us as part of the exchange, other
than any amount paid in satisfaction of declared and unpaid dividends owed to
you by PTI HoldCo. The taxation of capital gains and capital losses is described
below.
BECAUSE OF THE EXISTENCE OF CERTAIN CALL RIGHTS HELD BY OSI ULC WHICH GIVE
OSI ULC THE OVERRIDING RIGHT TO PURCHASE YOUR EXCHANGEABLE SHARES UPON A
REDEMPTION (INCLUDING A RETRACTION) BY EXCHANGING A SHARE OF COMMON STOCK FOR
EACH EXCHANGEABLE SHARE AS WELL AS CERTAIN RIGHTS OF HOLDERS OF EXCHANGEABLE
SHARES TO FORCE THE EXCHANGE OF EXCHANGEABLE SHARES WITH OIL STATES FOR COMMON
STOCK UPON THE OCCURRENCE OF THE LIQUIDATION, DISSOLUTION OR WINDING-UP OF PTI
HOLDCO OR OIL STATES, YOU CANNOT CONTROL WHETHER YOU WILL RECEIVE COMMON STOCK
BY WAY OF A REDEMPTION (INCLUDING A RETRACTION) OF YOUR EXCHANGEABLE SHARES BY
PTI HOLDCO OR BY WAY OF PURCHASE OF THE EXCHANGEABLE SHARES BY OIL STATES OR OSI
ULC. AS DESCRIBED ABOVE, THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF A
REDEMPTION (INCLUDING A RETRACTION) DIFFER FROM THOSE OF A PURCHASE.
DISPOSITION OF EXCHANGEABLE SHARES OTHER THAN ON REDEMPTION OR EXCHANGE
A disposition or deemed disposition of your exchangeable shares, other than
on the redemption or exchange of your exchangeable shares, will generally result
in a capital gain (or capital loss) to the extent that the proceeds of
disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base to you immediately before the disposition. The
taxation of capital gains and capital losses is described below.
19
ACQUISITION AND DISPOSITION OF THE COMMON STOCK
The cost of the common stock received on a retraction, redemption or
exchange of exchangeable shares will be equal to the fair market value of the
common stock at the time of that event, and will be averaged with the adjusted
cost base of any other shares of common stock held by you at that time as
capital property (other than common stock considered to have been continually
held by you since 1971) for the purpose of determining the adjusted cost base of
your common stock.
A disposition or deemed disposition of the common stock by you will
generally result in a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to you of such shares
immediately before the disposition. The taxation of capital gains and capital
losses is described below.
DIVIDENDS ON EXCHANGEABLE SHARES
If you are an individual, dividends received or deemed to be received on
the exchangeable shares will be included in computing your income, and will be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from a corporation resident in Canada. Subject to the
discussion below, if you are a corporation, other than a "specified financial
institution" as defined in the Tax Act, dividends received or deemed to be
received on the exchangeable shares normally will be included in your income and
deductible in computing your taxable income.
The exchangeable shares will be "term preferred shares," as defined in the
Tax Act. Consequently, if you are a "specified financial institution," as
defined in the Tax Act, a dividend received or deemed to be received on a
redemption of the exchangeable shares will be deductible in computing your
taxable income only if:
- you did not acquire the exchangeable shares in the ordinary course of
carrying on your business; or
- at the time the dividend is received, the exchangeable shares are listed
on a prescribed stock exchange in Canada (which currently includes the
Toronto Stock Exchange (TSE)) and you, either alone or together with
persons with whom you do not deal at arm's length, do not receive (or are
not deemed to receive) dividends in respect of more than 10% of the
issued and outstanding exchangeable shares.
If you are a "private corporation," as defined in the Tax Act, or any other
corporation resident in Canada and controlled or deemed to be controlled by or
for the benefit of an individual or a related group of individuals, you may be
liable under Part IV of the Tax Act to pay a refundable tax of 33 1/3% of any
dividends received or deemed to be received on your exchangeable shares to the
extent that these dividends are deductible in computing your taxable income.
If you are throughout the relevant taxation year a "Canadian-controlled
private corporation," as defined in the Tax Act, you may be liable to pay an
additional refundable tax of 6 2/3% on dividends received or deemed to be
received on your exchangeable shares that are not deductible in computing
taxable income.
DIVIDENDS ON THE COMMON STOCK
Dividends on the common stock will be included in your income for the
purposes of the Canadian Income Tax Act. If you are an individual, you will not
be subject to the gross-up and dividend tax credit rules in the Canadian Income
Tax Act applicable to dividends received from corporations resident in Canada.
If you are a corporation, you will be required to include these dividends in
computing your income and generally will not be entitled to deduct the amount of
these dividends in computing your taxable income. If you are throughout the
relevant taxation year a "Canadian-controlled private corporation," as defined
in the Tax Act, you may be liable to pay an additional refundable tax of 6 2/3%
on such dividends. If there is United States non-resident withholding tax on any
dividends you receive on the common stock, you will generally be eligible for
foreign tax credit or deduction treatment where applicable under the Tax Act.
20
TAXATION OF CAPITAL GAINS AND CAPITAL LOSSES
One-half of any capital gain (a "taxable capital gain") realized by you on
a disposition or deemed disposition of exchangeable shares or the common stock
must be included in your income for the year of the disposition. One-half of any
capital loss (an "allowable capital loss") realized by you may be deducted by
you against taxable capital gains realized in the year of the disposition. Any
allowable capital losses in excess of taxable capital gains in the year of
disposition may be carried back up to three taxation years or forward
indefinitely and deducted against net taxable capital gains in those other years
to the extent and in the circumstances prescribed in the Tax Act.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Tax Act.
If you are throughout the relevant taxation year a "Canadian-controlled
private corporation," as defined in the Tax Act, you may be liable to pay an
additional refundable tax of 6 2/3% on taxable capital gains.
If you are a corporation, the amount of any capital losses arising from a
disposition or deemed disposition of exchangeable shares may be reduced by the
amount of any dividends received or deemed to have been received by you on the
exchangeable shares to the extent and under circumstances prescribed by the Tax
Act. Similar rules may apply where you are a corporation that is a member of a
partnership or a beneficiary of a trust that owns exchangeable shares or common
shares or where a trust or partnership of which a corporation is a beneficiary
or a member owns any of these shares. You should consult your own tax advisors
if these rules may be relevant to you.
FOREIGN PROPERTY INFORMATION REPORTING
If you are a "specified Canadian entity" (as defined in the Tax Act), you
may be required to file an information return relating to any "specified foreign
property" (as defined in the Tax Act) owned by you, which would include the
common stock, the exchangeable shares and certain exchange and voting rights
relating thereto. You should consult you own advisors about whether you must
comply with these rules with respect to the ownership of exchangeable shares or
common stock.
FOREIGN INVESTMENT ENTITY DRAFT LEGISLATION
Draft legislation regarding the taxation of investments in "foreign
investment entities" was released on August 2, 2001. In general, if the draft
legislation applies, a holder of an interest in a foreign investment entity
generally will be required to take into account in computing income changes in
the value of that interest. A corporation is not a foreign investment entity if
the "carrying value" of all of its "investment property" is not greater than
one-half of the "carrying value" of all of its property or if its principal
business is not an "investment business" within the meaning of those terms in
the draft legislation. We believe that we would not currently be a "foreign
investment entity" under the draft legislation; however, no assurances can be
given that the draft legislation will be enacted in its current form. On
December 17, 2001, the Department of Finance (Canada) issued a press release
announcing that the effective date for the proposed rules will be delayed one
year, generally to take effect for taxation years commencing after 2002, to
allow time for consultation on the draft legislation.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Vinson & Elkins L.L.P., our United States counsel, the
following is an accurate summary of the principal United States federal income
tax considerations under the United States Internal Revenue Code of 1986, as
amended (the "Code"), generally applicable to you if you are a holder of
exchangeable shares and you are not:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision thereof;
21
- an estate, the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if a United States court is able to exercise primary supervision
over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the
trust.
This summary does not discuss all United States federal income tax
considerations that may be relevant to you in light of your particular
circumstances or if you are subject to special treatment under the Code. This
summary is applicable to you only if you hold exchangeable shares as capital
assets and does not consider your tax treatment if you hold exchangeable shares
through a partnership or other pass-through entity. Furthermore, this summary
does not discuss any aspects of foreign, state or local taxation. This summary
is based on current provisions of the Code, existing, temporary and proposed
regulations promulgated under the Code and administrative and judicial
interpretations of the Code, all of which are subject to change, possibly with
retroactive effect. No advance income tax ruling has been sought or obtained
from the Internal Revenue Service (the "IRS") regarding the tax consequences of
the transactions described herein.
YOU ARE ADVISED TO CONSULT YOUR TAX ADVISORS WITH RESPECT TO THE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE TRANSACTIONS
DESCRIBED HEREIN.
SALE OR EXCHANGE OF EXCHANGEABLE SHARES
You generally will not be subject to United States federal income tax on
any gain realized on the sale or exchange of exchangeable shares, including the
exchange of exchangeable shares for common stock, unless the gain is effectively
connected with your United States trade or business or, if you are an
individual, you are present in the United States for 183 days or more during the
taxable year of disposition and certain other conditions are satisfied.
DIVIDENDS ON THE COMMON STOCK
Dividends paid to you as a holder of common stock generally will be subject
to withholding of United States federal income tax at a rate of 30% (or such
lower rate as may be specified by an applicable income tax treaty) unless the
dividend is effectively connected with the conduct of your trade or business
within the United States (or if a tax treaty applies, is attributable to your
United States permanent establishment), in which case the dividend will be taxed
at ordinary United States federal income tax rates. If you are a corporation,
such effectively connected income may also be subject to an additional "branch
profits tax." You will be required to satisfy certain certification requirements
to claim treaty benefits or otherwise claim a reduction of, or exemption from,
the withholding tax described above.
SALE OR EXCHANGE OF COMMON STOCK
You generally will not be subject to United States federal income tax on
any gain realized on the sale or exchange of shares of common stock unless:
- the gain is effectively connected with your United States trade or
business; or
- you are an individual and you are present in the United States for 183
days or more during the taxable year of disposition and certain other
conditions are satisfied.
BACKUP WITHHOLDING AND INFORMATION REPORTING
You are generally subject to information reporting requirements with
respect to dividends paid by us to you and any tax withheld with respect to such
dividends. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which you reside under the provisions of an applicable income tax treaty. You
will be subject to backup withholding unless applicable certification
requirements are met. Payment of the proceeds of a sale of shares of the common
stock
22
within the United States or through certain United States brokers is subject to
both backup withholding and information reporting unless you as beneficial owner
certify under penalties of perjury that you are not a United States person for
purposes of the Code (and the payor does not have actual knowledge or reason to
know that you are a United States person) or otherwise establishes an exemption.
Backup withholding tax is not a separate tax. Any amounts withheld under
the backup withholding rules are generally allowable as a credit against your
United States federal income tax liability (if any), which may entitle you to a
refund, provided that the required information is furnished to the IRS.
The discussion of United States federal income tax consequences set forth
above is for general information only and does not purport to be a complete
analysis or listing of all potential tax effects that may apply to you. You are
strongly encouraged to consult your tax adviser to determine the particular tax
consequences to you, including the application and effect of United States
federal, state, local and foreign tax laws.
EXPERTS
The consolidated balance sheet of Oil States International, Inc. as of
December 31, 2001 and the combined balance sheet as of December 31, 2000, and
the related consolidated and combined statement of operations, stockholders'
equity and cash flows for the year ended December 31, 2001 and the combined
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 2000, incorporated by reference in
this Registration Statement have been audited by Ernst & Young LLP, independent
auditors, the consolidated balance sheets of PTI Group Inc., as of December 31,
2000, and the related consolidated statement of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 2000,
included in the combined financial statements of Oil States International, Inc.
as of such date and for such period have been audited by PriceWaterhouseCoopers
LLP, independent auditors, and the consolidated balance sheet of Oil States
International, Inc., as of December 31, 1999, and the related consolidated
statement of operations, stockholders' equity and cash flows for the year ended
December 31, 1999, included in the combined financial statements of Oil States
International, Inc. as of such date and for such period have been audited by
Arthur Andersen LLP, independent auditors, each as set forth in their respective
reports thereon incorporated by reference herein, and are included in reliance
upon such reports given on the authority of such firms as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered pursuant
to this prospectus and certain U.S. tax consequences will be passed upon for us
by Vinson & Elkins L.L.P., Houston, Texas. Certain Canadian tax consequences
will be passed on by Donahue LLP, Calgary, Alberta, Canada.
23