S-4 1 d773596ds4.htm S-4 S-4
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As filed with the Securities and Exchange Commission on May 1, 2024

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Dril-Quip, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3533   74-2162088

(State or Other Jurisdiction of

Incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

2050 West Sam Houston Parkway S., Suite 1100

Houston, Texas 77042

(713) 939-7711

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

James C. Webster

Vice President, General Counsel and Secretary

Dril-Quip, Inc.

2050 West Sam Houston Parkway S., Suite 1100

Houston, Texas 77042

(713) 939-7711

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With copies to:

 

Gerald M. Spedale

Gibson, Dunn & Crutcher LLP

811 Main Street, Suite 3000

Houston, Texas 77002

(346) 718-6600

 

W. Robert Shearer

John P. Clayton

Mary W. Lovely

Akin Gump Strauss Hauer & Feld LLP

1111 Louisiana Street, 44th Floor

Houston, Texas 77002

(713) 220-5800

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and upon completion of the mergers described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date or dates as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. We may not distribute the common stock being registered pursuant to this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED MAY 1, 2024

 

 

LOGO

PROXY STATEMENT/PROSPECTUS

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

On behalf of the board of directors of Dril-Quip, Inc. (“Dril-Quip”), we are pleased to enclose the accompanying proxy statement/prospectus relating to the business combination of Dril-Quip and Innovex Downhole Solutions, Inc. (“Innovex”). We are requesting that you take certain actions as a Dril-Quip stockholder.

On March 18, 2024, Dril-Quip entered into an Agreement and Plan of Merger (as amended from time to time, the “merger agreement”) with Innovex and certain subsidiaries of Dril-Quip that provides for the combination of Dril-Quip and Innovex. Pursuant to the merger agreement, (i) Ironman Merger Sub, Inc., a direct wholly owned subsidiary of Dril-Quip (“Merger Sub Inc.”), will merge with and into Innovex, with Innovex continuing as the surviving company (the “first merger” and the surviving company, the “surviving corporation”), and (ii) immediately following the first merger, the surviving corporation will merge with and into DQ Merger Sub, LLC, a direct wholly owned subsidiary of Dril-Quip (“Merger Sub LLC”), with Merger Sub LLC surviving the merger as a direct wholly owned subsidiary of Dril-Quip (the “second merger” and, together with the first merger, the “mergers”).

If the mergers are completed, subject to certain exceptions, the aggregate merger consideration paid at the effective time of the first merger (the “effective time”) to the holders of common stock, par value $0.01 per share, of Innovex (“Innovex common stock”) then issued and outstanding (including each Innovex stock option and restricted stock unit) will be a number of shares of common stock, par value $0.01 per share, of Dril-Quip (“Dril-Quip common stock”) (including restricted stock awards) equal to the product of (i) 48% multiplied by (ii) the quotient of (x) the number of shares of Dril-Quip common stock outstanding immediately prior to the effective time of the mergers, calculated on a fully diluted basis, divided by (y) 52% (the “aggregate merger consideration”). Each holder of Innovex common stock, other than holders who are entitled to demand, and properly demand, appraisal of their shares of Innovex common stock (“dissenting shares”), will be entitled to receive, for each share of Innovex common stock, a number of shares of Dril-Quip common stock equal to the aggregate merger consideration divided by the number of shares of Innovex common stock outstanding immediately prior to the effective time calculated on a fully diluted basis (the “per share merger consideration”), plus the cash value of any fractional shares of Dril-Quip common stock that would otherwise be payable. Each share of Innovex common stock held in treasury by Innovex or owned directly or indirectly by Dril-Quip, Merger Sub Inc. or Merger Sub LLC immediately before the effective time (“disregarded shares”) will be automatically cancelled for no consideration. Upon consummation of the mergers and the other transactions contemplated by the merger agreement, Innovex will be a wholly owned subsidiary of Dril-Quip and the name of Dril-Quip will be changed to Innovex International, Inc. The common stock of the combined company will remain listed on the New York Stock Exchange (the “NYSE”) following the completion of the mergers and is expected to trade under a new ticker symbol, “INVX”.

Following the closing of the mergers, it is anticipated that persons who were stockholders of Dril-Quip and Innovex immediately prior to the mergers will own approximately 52% and 48% of the combined company, respectively.

Dril-Quip will hold a special meeting of its stockholders in connection with the mergers (as may be adjourned or postponed from time to time, the “special meeting”).


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At the special meeting, Dril-Quip stockholders will be asked to consider and vote on proposals to (1) approve the issuance of Dril-Quip common stock to Innovex stockholders pursuant to the merger agreement (the “stock issuance proposal”), (2) approve an amendment of Dril-Quip’s restated certificate of incorporation (the “charter amendment proposal” and, together with the stock issuance proposal, the “merger proposals”), (3) on a non-binding advisory basis, approve six separately presented proposals to approve certain governance provisions in the charter amendment, to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the General Corporation Law of the State of Delaware (the “DGCL”) and (iii) waive corporate opportunities obligations with respect to Amberjack Capital Partners, L.P. (“Amberjack”) and certain of its affiliates (collectively, the “non-binding governance proposals”), (4) approve the Innovex 2024 long-term incentive plan (the “2024 LTIP”), which provides for the issuance of up to a number of shares of Dril-Quip common stock equal to 5% of the fully-diluted shares of Dril-Quip common stock outstanding at the time the 2024 LTIP becomes effective (the “2024 LTIP proposal”), (5) on a non-binding advisory basis, approve the compensation that may be paid or become payable to Dril-Quip’s named executive officers that is based on or otherwise relates to the mergers (the “non-binding compensation proposal”) and (6) approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the merger proposals. The Dril-Quip Board unanimously recommends that Dril-Quip stockholders vote FOR each of the proposals to be considered at the special meeting. Completion of the mergers is conditioned on approval of the merger proposals.

Dril-Quip common stock is traded on the NYSE under the symbol “DRQ”. The market price of Dril-Quip common stock will fluctuate before the mergers, and you should obtain a current stock price quotation for the Dril-Quip common stock. Innovex common stock is not currently traded on a national securities exchange.

Your vote is very important. We cannot complete the mergers unless the Dril-Quip stockholders vote to approve the merger proposals.

This document is a prospectus relating to the Dril-Quip common stock to be issued to Innovex stockholders pursuant to the mergers and a proxy statement for Dril-Quip to solicit proxies for the special meeting. It contains answers to frequently asked questions and a summary of the important terms of the mergers, the merger agreement and related transactions, followed by a more detailed discussion.

Please carefully read this entire document, including “Risk Factors” beginning on page 27, for a discussion of the risks relating to Dril-Quip, Innovex and the mergers.

 

Sincerely,
Jeffrey J. Bird
President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulatory authority has approved or disapproved of the mergers or the securities to be issued under this proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

 

The date of the accompanying proxy statement/prospectus is     , 2024, and it is first being mailed or otherwise delivered to Dril-Quip stockholders on or about     , 2024.


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LOGO

Dril-Quip, Inc.

2050 West Sam Houston Pkwy S., Suite 1100

Houston, Texas 77042

(713) 939-7711

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON     , 2024

To the Stockholders of Dril-Quip, Inc.:

We are pleased to invite you to attend the special meeting of stockholders of Dril-Quip, Inc., a Delaware corporation (“Dril-Quip”), which will be held at Dril-Quip’s executive offices at 2050 West Sam Houston Parkway S., Suite 1100, Houston, Texas 77042, on     , 2024 at     , local time, for the following purposes:

 

  1.

to vote on a proposal to approve the issuance of shares of Dril-Quip’s common stock, par value $0.01 per share (“Dril-Quip common stock”), to stockholders of Innovex Downhole Solutions, Inc. (“Innovex”) in the mergers contemplated by the Agreement and Plan of Merger, dated as of March 18, 2024, by and among Dril-Quip, Innovex, Ironman Merger Sub, Inc., a wholly owned subsidiary of Dril-Quip (“Merger Sub Inc.”), and DQ Merger Sub, LLC, a wholly owned subsidiary of Dril-Quip (“Merger Sub LLC”) (as that agreement may be amended from time to time, the “merger agreement”), a copy of which is included as Annex A to the proxy statement/prospectus of which this notice is a part, for purposes of complying with Section 312.03(c) of the NYSE’s Listed Company Manual and, in the event such issuance constitutes a change of control, Section 312.03(d) of the NYSE’s Listed Company Manual (the “stock issuance proposal”);

 

  2.

to vote on a proposal to approve an amendment of Dril-Quip’s restated certificate of incorporation (such amendment, the “charter amendment” and such proposal, the “charter amendment proposal,” and the charter amendment proposal together with the stock issuance proposal, the “merger proposals”);

 

  3.

to vote, on a non-binding advisory basis, upon six separately presented proposals to approve certain governance provisions in the charter amendment to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the General Corporation Law of the State of Delaware (the “DGCL”) and (iii) waive corporate opportunities obligations with respect to Amberjack and certain of its affiliates (collectively, the “non-binding governance proposals”);

 

  4.

to approve a proposal to approve the Innovex 2024 long-term incentive plan (the “2024 LTIP”), which provides for the issuance of up to a number of shares of Dril-Quip common stock equal to 5% of the fully-diluted shares of Dril-Quip common stock outstanding at the time the 2024 LTIP becomes effective (the “2024 LTIP proposal”);

 

  5.

to vote, on a non-binding advisory basis, on the compensation that may be paid or become payable to Dril-Quip’s named executive officers (“NEOs”) that is based on or otherwise relates to the mergers (the “non-binding compensation proposal”); and

 

  6.

to approve a proposal to approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger proposals (the “adjournment proposal”).

Dril-Quip will transact no other business at the special meeting except such business as may properly be brought before the special meeting by or at the direction of the Dril-Quip board of directors (the “Dril-Quip Board”). References to the special meeting in the proxy statement/prospectus are to such special meeting as


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adjourned or postponed. Please refer to the proxy statement/prospectus of which this notice is a part for further information with respect to the business to be transacted at the special meeting.

The Dril-Quip Board has fixed the close of business on     , 2024 as the record date for the special meeting. Only Dril-Quip stockholders of record at that time are entitled to receive notice of, and to vote at, the special meeting. The eligible Dril-Quip stockholder list will be available at the special meeting for examination by any stockholder present at such meeting.

Completion of the mergers is conditioned on approval of the merger proposals. Approval of the stock issuance proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Approval of the charter amendment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock.

The approval of the non-binding governance proposals, the 2024 LTIP proposal, the non-binding compensation proposal and the adjournment proposal are not conditions to the completion of the mergers. Approval of each of the non-binding governance proposals, the 2024 LTIP proposal and the non-binding compensation proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. The adjournment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, regardless of whether there is a quorum.

The Dril-Quip Board unanimously (a) determined that the merger agreement and the transactions contemplated by the merger agreement are fair to, and in the best interests of, Dril-Quip and the holders of shares of Dril-Quip common stock, and (b) approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement on the terms and subject to the conditions set forth in the merger agreement. The Dril-Quip Board unanimously recommends that Dril-Quip stockholders vote FOR the stock issuance proposal, FOR the charter amendment proposal, FOR the non-binding governance proposals, FOR the 2024 LTIP proposal, FOR the non-binding compensation proposal and FOR the adjournment proposal.

Your vote is very important regardless of the number of shares that you own. Whether or not you expect to attend the special meeting in person, to ensure your representation at the special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (i) accessing the internet site listed on the Dril-Quip proxy card, (ii) calling the toll-free number listed on the Dril-Quip proxy card or (iii) submitting your Dril-Quip proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Dril-Quip common stock who is present at the special meeting may vote in person, thereby canceling any previous proxy. In any event, a proxy may be revoked at any time before the special meeting in the manner described in the accompanying proxy statement/prospectus. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker or other nominee.


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The enclosed proxy statement/prospectus provides a detailed description of the mergers, the merger agreement and the other matters to be considered at the special meeting. We urge you to carefully read the proxy statement/prospectus, including any documents incorporated by reference, and the annexes in their entirety. If you have any questions concerning the mergers or the proxy statement/prospectus or if you would like additional copies or need help voting your shares of Dril-Quip common stock, please contact Dril-Quip’s proxy solicitor:

Morrow Sodali LLC

333 Ludlow Street, 5th Floor, South Tower

Stamford, Connecticut 06902

Stockholders may call toll-free: (800) 662-5200

Banks and brokers may call collect: (203) 658-9400

 

BY ORDER OF THE BOARD OF DIRECTORS,
Jeffrey J. Bird
President and Chief Executive Officer
    , 2024


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ADDITIONAL INFORMATION

Dril-Quip files annual, quarterly and current reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the “SEC”) electronically, and the SEC maintains a website located at www.sec.gov containing this information. You can also obtain these documents, free of charge, from Dril-Quip at www.dril-quip.com. The information contained on, or that may be accessed through, the Dril-Quip website is not incorporated by reference into, and is not a part of, this proxy statement/prospectus.

Dril-Quip has filed a registration statement on Form S-4 with respect to the shares of Dril-Quip common stock to be issued in the mergers, of which this proxy statement/prospectus forms a part. As permitted by SEC rules, this proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits to the registration statement. You may read the registration statement, including any amendments and exhibits, at the SEC’s website mentioned above. Statements contained in this proxy statement/prospectus as to the contents of any contract or other documents referred to in this proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable agreement or other document filed as an exhibit to the registration statement.

This proxy statement/prospectus incorporates important business and financial information about Dril-Quip from documents that are not attached to this proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this proxy statement/prospectus, including copies of financial statements and management’s discussion and analysis, free of charge by requesting them in writing or by telephone from the appropriate company or its proxy solicitor at the following addresses and telephone numbers:

Dril-Quip, Inc.

Attn: Investor Relations

2050 West Sam Houston Pkwy S., Suite 1100

Houston, Texas 77042

(713) 939-7711

Morrow Sodali LLC

333 Ludlow Street, 5th Floor, South Tower

Stamford, Connecticut 06902

Stockholders may call toll-free: (800) 662-5200

Banks and brokers may call collect: (203) 658-9400

If you would like to request any documents, please do so by     , 2024, which is five business days prior to the date of the special meeting, in order to receive them before the applicable meeting.

For a more detailed description of the information incorporated by reference into this proxy statement/prospectus and how you may obtain it, please see “Where You Can Find More Information.”

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of the registration statement on Form S-4 filed with the SEC by Dril-Quip, constitutes a prospectus of Dril-Quip under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Dril-Quip common stock to be issued to Innovex stockholders pursuant to the merger agreement. This proxy statement/prospectus also constitutes a proxy statement for Dril-Quip under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This proxy statement/prospectus also constitutes a notice of meeting with respect to the special meeting.

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. Dril-Quip has not authorized anyone to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated     , 2024, and you should assume that the information contained in this proxy statement/prospectus is accurate only as of such date.

Further, you should also assume that the information incorporated by reference into this proxy statement/prospectus is accurate only as of the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to Dril-Quip stockholders nor the issuance by Dril-Quip of shares of Dril-Quip common stock pursuant to the merger agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Dril-Quip has supplied all information contained or incorporated by reference into this proxy statement/prospectus relating to Dril-Quip, and Innovex has supplied all such information relating to Innovex. Dril-Quip and Innovex have both contributed to the information related to the mergers contained in this proxy statement/prospectus.

 

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GLOSSARY

The following terms have the following meanings in this proxy statement/prospectus:

 

   

“2024 LTIP” means the Innovex 2024 long-term incentive plan, which provides for the issuance of up to a number of shares of Dril-Quip common stock equal to 5% of the fully-diluted shares of Dril-Quip common stock outstanding at the time the 2024 LTIP becomes effective;

 

   

“aggregate merger consideration” means a number of shares of Dril-Quip common stock equal to the product of (i) 48% multiplied by (ii) the quotient of (x) the number of shares of Dril-Quip common stock outstanding immediately prior to the effective time of the mergers, calculated on a fully diluted basis, divided by (y) 52%;

 

   

“Amberjack” means Amberjack Capital Partners, L.P.;

 

   

“average Dril-Quip stock price” means the average of the closing sale prices of a share of Dril-Quip common stock as reported on the NYSE for each of the 10 consecutive trading days ending on the sixth trading day prior to the closing date;

 

   

“bylaws” means, with respect to Dril-Quip, the Amended and Restated Bylaws of Dril-Quip and, with respect to Innovex, the Second Amended and Restated Bylaws of Innovex, in each case as amended;

 

   

“certificate of incorporation” means, with respect to Dril-Quip, the Restated Certificate of Incorporation of Dril-Quip and, with respect to Innovex, the Sixth Amended and Restated Certificate of Incorporation of Innovex, in each case as amended;

 

   

“charter amendment” means an amendment of Dril-Quip’s restated certificate of incorporation to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the DGCL and (iii) waive corporate opportunities obligations, with respect to Amberjack and certain of its affiliates, among others;

 

   

“closing date” means the date on which the effective time occurs;

 

   

“combined company” means Dril-Quip immediately following completion of the mergers and the other transactions contemplated by the merger agreement to be renamed “Innovex International, Inc.”;

 

   

“combined company board” means the board of directors of Dril-Quip immediately following completion of the mergers and the other transactions contemplated by the merger agreement;

 

   

“consenting stockholders” means collectively, Intervale Capital Fund II, L.P., a Delaware limited partnership, Intervale Capital Fund III, L.P., a Delaware limited partnership, Amberjack Capital Fund II, L.P., a Delaware limited partnership, Innovex Co-Invest Fund, L.P., a Delaware limited partnership, Innovex Co-Invest Fund II, L.P., a Delaware limited partnership, and Intervale Capital Fund II-A, L.P., a Delaware limited partnership;

 

   

“DGCL” means the General Corporation Law of the State of Delaware;

 

   

“disregarded shares” means each share of Innovex common stock owned by Innovex, Merger Sub Inc., Dril-Quip or any direct or indirect, wholly owned subsidiary of Innovex or Dril-Quip immediately before the effective time;

 

   

“dissenting shares” means shares of Innovex common stock that are issued and outstanding immediately prior to the effective time and which are held by a stockholder who did not vote in favor of the first merger (or consent thereto in writing) and who is entitled to demand and properly demands appraisal of such shares;

 

   

“Dril-Quip” means Dril-Quip, Inc., a Delaware corporation;

 

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“Dril-Quip Board” means the board of directors of Dril-Quip;

 

   

“Dril-Quip common stock” means the common stock, par value $0.01 per share, of Dril-Quip;

 

   

“Dril-Quip required vote” means, collectively, approval of the stock issuance proposal by the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal and approval of the charter amendment proposal by the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock;

 

   

“Dril-Quip stockholders” means the holders of Dril-Quip common stock;

 

   

“effective time” means the effective time of the first merger;

 

   

“eligible shares” means each share of Innovex common stock issued and outstanding immediately prior to the effective time (other than any disregarded shares and dissenting shares);

 

   

“first merger” means the merger of Merger Sub Inc. with and into Innovex pursuant to the merger agreement, with Innovex surviving the merger as the surviving corporation;

 

   

“GAAP” means accounting principles generally accepted in the United States;

 

   

“Innovex” means Innovex Downhole Solutions, Inc., a Delaware corporation;

 

   

“Innovex Board” means the board of directors of Innovex;

 

   

“Innovex common stock” means the common stock, par value $0.01 per share, of Innovex;

 

   

“Innovex required vote” means approval of the merger agreement and transactions contemplated thereby by the requisite Innovex stockholders comprising at least the holders of a majority of the outstanding shares of Innovex common stock entitled to vote on the adoption of the merger agreement;

 

   

“Innovex stockholders” means the holders of Innovex common stock;

 

   

“Innovex stockholders agreement” means that certain Amended and Restated Stockholders Agreement, dated as of January 1, 2023, by and among Innovex and the stockholders named therein, as may be amended, supplemented, modified or restated from time to time;

 

   

“merger agreement” means the Agreement and Plan of Merger, dated as of March 18, 2024, by and among Dril-Quip, Merger Sub Inc., Merger Sub LLC and Innovex, as may be amended from time to time;

 

   

“Merger Sub Inc.” means Ironman Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Dril-Quip;

 

   

“Merger Sub LLC” means DQ Merger Sub, LLC, a Delaware limited liability company and direct wholly owned subsidiary of Dril-Quip;

 

   

“mergers” or “integrated mergers” means the first merger and the second merger, collectively;

 

   

“NYSE” means the New York Stock Exchange;

 

   

“per share merger consideration” means a number of shares of Dril-Quip common stock that will be issued to holders of eligible shares of Innovex common stock in connection with the first merger equal to the aggregate merger consideration divided by the number of shares of Innovex common stock outstanding immediately prior to the effective time calculated on a fully diluted basis;

 

   

“record date” means    , 2024;

 

   

“special meeting” means the meeting of the Dril-Quip stockholders in connection with the mergers, as may be adjourned or postponed from time to time;

 

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“second merger” means the merger of the surviving corporation with and into Merger Sub LLC pursuant to the merger agreement, with Merger Sub LLC surviving the merger as a direct wholly owned subsidiary of Dril-Quip;

 

   

“second merger effective time” means the effective time of the second merger;

 

   

“stock issuance” means the issuance of Dril-Quip common stock to Innovex stockholders pursuant to the mergers;

 

   

“surviving company” means Merger Sub LLC as the surviving company of the second merger; and

 

   

“surviving corporation” means Innovex as the surviving corporation of the first merger.

All currency amounts referenced in this proxy statement/prospectus are in U.S. dollars.

 

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TABLE OF CONTENTS

 

Questions and Answers About the Meeting

     1  

Summary

     10  

The Parties

     10  

The Mergers

     11  

Special Meeting

     11  

Opinion of Dril-Quip’s Financial Advisor

     12  

Board of Directors and Management of the Combined Company

     13  

Appraisal Rights or Dissenters’ Rights

     13  

Material U.S. Federal Income Tax Consequences

     13  

Accounting Treatment of the Mergers

     14  

Regulatory Approvals

     14  

Treatment of Innovex Equity-Based Awards

     15  

Listing of Dril-Quip Common Stock

     15  

No Solicitation; Recommendations

     16  

Conditions to the Completion of the Mergers

     16  

Termination of the Merger Agreement

     18  

Termination Fees and Expense Reimbursement

     19  

Specific Performance

     20  

Closing and Effective Time of the Mergers

     20  

Comparison of Stockholders’ Rights

     21  

Risk Factors

     21  

Market Price Information

     24  

Cautionary Statement Regarding Forward-Looking Statements

     25  

Risk Factors

     27  

Risks Relating to the Mergers

     27  

Risks Relating to the Combined Company

     35  

Other Risks Relating to Dril-Quip

     38  

Other Risks Relating to Innovex

     39  

Special Meeting

     64  

General

     64  

Date, Time and Place of the Special Meeting

     64  

Purpose of the Special Meeting

     64  

Recommendation of the Dril-Quip Board

     64  

Voting by Directors and Executive Officers

     65  

Record Date

     65  

Outstanding Shares and Voting Rights of Dril-Quip Stockholders

     65  

Stockholder List

     65  

Quorum

     65  

Adjournment

     65  

Vote Required

     66  

Voting of Proxies by Holders of Record

     66  

Shares Held in Street Name

     67  

Voting in Person

     67  

Proxies and Revocation

     67  

Solicitation of Proxies

     68  

Other Matters

     68  

Questions and Additional Information

     68  

The Stock Issuance Proposal

     69  

The Charter Amendment Proposal

     70  

The Non-Binding Governance Proposals

     74  

 

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The 2024 LTIP Proposal

     76  

The Non-Binding Compensation Proposal

     82  

The Adjournment Proposal

     83  

The Mergers

     84  

Background of the Mergers

     84  

Recommendation of the Dril-Quip Board and Reasons for the Mergers

     95  

Innovex’s Reasons for the Mergers

     98  

Unaudited Prospective Financial Information

     99  

Dril-Quip’s Projections

     101  

Innovex’s Projections

     102  

Non-GAAP Financial Information

     103  

Opinion of Dril-Quip’s Financial Advisor

     103  

Board of Directors and Management of the Combined Company

     111  

Interests of Dril-Quip Directors and Executive Officers in the Mergers

     114  

Material U.S. Federal Income Tax Consequences

     118  

Accounting Treatment of the Mergers

     122  

Regulatory Approvals

     122  

Listing of Dril-Quip Common Stock

     123  

Appraisal Rights or Dissenters’ Rights

     123  

The Merger Agreement

     124  

Explanatory Note Regarding the Merger Agreement

     124  

Structure of the Mergers

     124  

Closing and Effective Time of the Mergers

     125  

Merger Consideration

     125  

Treatment of Innovex Equity-Based Awards

     125  

Governance

     126  

Exchange of Shares

     126  

Termination of the Exchange Fund

     127  

Lost, Stolen or Destroyed Share Certificates

     128  

Withholding Rights

     128  

Adjustments to Prevent Dilution

     128  

Representations and Warranties

     128  

Covenants

     131  

Conditions to the Completion of the Mergers

     144  

Termination of the Merger Agreement

     147  

Termination Fees and Expense Reimbursement

     148  

Amendment

     149  

Waiver

     149  

Specific Performance

     149  

Third-Party Beneficiaries

     149  

Agreements Related to the Mergers

     150  

Amendment to Bylaws

     150  

Registration Rights Agreement

     150  

Stockholders Agreement

     151  

Executive Compensation of the Combined Company

     154  

Annual Base Salary

     154  

Annual Bonuses

     154  

Equity Awards

     154  

Retention Bonuses

     155  

2023 Summary Compensation Table

     155  

Outstanding Equity Awards at Fiscal Year-End

     156  

Additional Narrative Disclosure

     157  

 

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Innovex Business

     163  

Management Following the Mergers

     193  

Composition of the Combined Company Board of Directors, Executive Officers and Directors

     193  

Executive Officers of the Combined Company

     193  

Non-Employee Directors of the Combined Company

     194  

Composition of the Combined Company Board of Directors

     196  

Committees of the Combined Company Board of Directors

     196  

Director Compensation

     197  

Unaudited Pro Forma Condensed Combined Financial Statements

     199  

Related Party Transactions of Directors and Executive Officers of Innovex

     211  

Comparison of Stockholders’ Rights

     212  

Principal Stockholders of Dril-Quip

     231  

Principal Stockholders of Innovex

     233  

Legal Matters

     235  

Experts

     236  

Dril-Quip, Inc.

     236  

Innovex Downhole Solutions, Inc.

     236  

Stockholder Proposals

     237  

Householding of Proxy Materials

     238  

Where You Can Find More Information

     239  

Index to Innovex’s Financial Statements

     F-1  

 

ANNEX A  

AGREEMENT AND PLAN OF MERGER

ANNEX B  

OPINION OF CITIGROUP GLOBAL MARKETS INC.

ANNEX C  

PROPOSED AMENDED AND RESTATED CHARTER OF DRIL-QUIP, INC.

ANNEX D  

FORM OF AMENDMENT TO THE AMENDED AND RESTATED BYLAWS OF DRIL-QUIP, INC.

ANNEX E  

FORM OF REGISTRATION RIGHTS AGREEMENT

ANNEX F  

FORM OF STOCKHOLDERS AGREEMENT

ANNEX G  

FORM OF 2024 LONG-TERM INCENTIVE PLAN

 

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QUESTIONS AND ANSWERS ABOUT THE MEETING

The following are some questions that you, as a stockholder of Dril-Quip, may have regarding the mergers and the other matters being considered at the special meeting of Dril-Quip stockholders, and brief answers to those questions. You are urged to carefully read this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety. Additional important information is contained in the annexes to, and the documents incorporated by reference into, this proxy statement/prospectus. You may obtain the information incorporated by reference in this proxy statement/prospectus for free by following the instructions in “Additional Information.”

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because Dril-Quip and Innovex have entered into the merger agreement, pursuant to which, upon the terms and subject to the conditions set forth in the merger agreement, (i) Merger Sub Inc. will merge with and into Innovex, with Innovex continuing as the surviving corporation, and (ii) immediately following the first merger, the surviving corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving company. Upon consummation of the mergers and the other transactions contemplated by the merger agreement, Innovex will be a wholly owned subsidiary of Dril-Quip. Your vote is required in connection with the mergers. The merger agreement, which governs the terms of the mergers, is attached to this proxy statement/prospectus as Annex A.

In order to complete the mergers, Dril-Quip stockholders must approve (a) in accordance with the rules of the NYSE, the issuance of shares of Dril-Quip common stock in the mergers pursuant to the terms of the merger agreement (the “stock issuance proposal”), and (b) an amendment to Dril-Quip’s certificate of incorporation (the “charter amendment proposal” and, together with the stock issuance proposal, the “merger proposals”). In addition, Dril-Quip stockholders will be asked to consider and vote on proposals to (a) on a non-binding advisory basis, consider and vote upon six separately presented proposals to approve certain governance provisions in the charter amendment to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the DGCL and (iii) waive corporate opportunities obligations, with respect to Amberjack and certain of its affiliates (collectively, the “non-binding governance proposals”), (b) approve the Innovex 2024 long term incentive plan (the “2024 LTIP”), which provides for the issuance of up to a number of shares of Dril-Quip common stock equal to 5% of the fully-diluted shares of Dril-Quip common stock outstanding at the time the 2024 LTIP becomes effective (the “2024 LTIP proposal”), (c) on a non-binding advisory basis, consider and vote upon the compensation that may be paid or become payable to Dril-Quip’s named executive officers (“NEOs”) that is based on or otherwise relates to the mergers (the “non-binding compensation proposal”) and (d) approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger proposals (the “adjournment proposal”).

This proxy statement/prospectus serves as the proxy statement through which Dril-Quip will solicit proxies to obtain the necessary stockholder approval for the mergers. It also serves as the prospectus by which Dril-Quip will issue shares of its common stock as consideration in the mergers.

This proxy statement/prospectus, which you should carefully read in its entirety, contains important information about the mergers and the other matters being considered at the special meeting.

 

Q:

When and where is the special meeting?

 

A:

The special meeting of Dril-Quip stockholders will be held at Dril-Quip’s executive offices at 2050 West Sam Houston Parkway S., Suite 1100, Houston, Texas 77042, on    , 2024, at   , local time.

 

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Q:

What will Innovex stockholders receive for their shares of Innovex common stock in the mergers?

 

A:

At the effective time, subject to certain exceptions, the holders of Innovex common stock issued and outstanding immediately prior to the effective time (including each Innovex stock option and restricted stock unit), in accordance with the terms of the merger agreement, will be entitled to receive a number of shares of Dril-Quip common stock (including restricted stock awards) equal to the aggregate merger consideration. Each holder of Innovex common stock, other than holders of dissenting shares, will be entitled to receive, for each share of Innovex common stock, a number of shares of Dril-Quip common stock equal to the aggregate merger consideration divided by the number of shares of Innovex common stock outstanding immediately prior to the effective time calculated on a fully diluted basis (the “per share merger consideration”), plus the cash value of any fractional shares of Dril-Quip common stock that would otherwise be payable. Each disregarded share will be automatically cancelled and will cease to exist, and no consideration will be issued therefor.

In addition, Innovex and Dril-Quip will take, or cause to be taken, all actions necessary so that, at the effective time, each Innovex stock option award that is outstanding immediately prior to the effective time, whether vested or unvested (each, an “Innovex stock option”) and restricted stock unit awards will be treated as described in “The Merger Agreement—Treatment of Innovex Equity-Based Awards.”

For additional information regarding the consideration to be received in the mergers, please see “The Merger Agreement—Merger Consideration.”

 

Q:

What will holders of Innovex equity awards receive in the mergers?

 

A:

The merger agreement provides for the treatment set forth below with respect to the awards held by Innovex’s non-employee directors, executive officers and other employees at the effective time:

Innovex Stock Option Awards: Each Innovex stock option will, at the effective time, be converted into the right to receive a number of shares of Dril-Quip common stock, equal to (a) (i) the product of (1) the number of shares of Innovex common stock subject to such Innovex stock option immediately prior to the effective time, (2) the per share merger consideration and (3) the average Dril-Quip stock price less (ii) the aggregate exercise price of the shares of Innovex common stock subject to such Innovex stock option immediately prior to the effective time (clause (i) and (ii), the “Innovex option cash equivalent”) divided by (b) the average Dril-Quip stock price (rounded up to the nearest whole cent), reduced by applicable tax withholding.

Innovex Time-Based Restricted Stock Unit Awards: Innovex time-based restricted stock unit awards covering approximately 311,206 shares of Innovex common stock and outstanding immediately prior to the effective time and held by certain Innovex employees and non-employee directors, whether vested or unvested (each, a “continuing RSU” and, collectively, the “continuing RSUs”) will each, at the effective time, be converted into an award covering a number of shares of Dril-Quip common stock, rounded down to the nearest whole share, equal to the product of (a) the number of shares of Innovex common stock subject to such award and (b) the per share merger consideration. If Dril-Quip stockholders approve the 2024 LTIP, the continuing RSUs will be considered substitute awards under the 2024 LTIP, subject to vesting over the same time period as was applicable under the respective continuing RSUs, but otherwise subject to the terms and conditions set forth in the 2024 LTIP. If Dril-Quip stockholders do not approve the 2024 LTIP, the continuing RSUs will be assumed by Dril-Quip on the same terms and conditions as were applicable to such awards as of immediately prior to the effective time (including vesting restrictions). Each Innovex time-based restricted stock unit award that is outstanding immediately prior to the effective time, whether vested or unvested, that is not a continuing RSU (each, an “Innovex RSU”) will be entitled to receive that number of shares of Dril-Quip common stock equal to the number of shares of Innovex common stock subject to such Innovex RSU multiplied by the per share merger consideration reduced by applicable tax withholding.

For additional information regarding the treatment of Innovex equity awards, please see “The Merger Agreement—Treatment of Innovex Equity-Based Awards.”

 

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Q:

Who will own Dril-Quip immediately following the mergers?

 

A:

It is anticipated that, upon the closing of the mergers, current Dril-Quip stockholders will hold approximately 52%, and current Innovex stockholders will hold approximately 48% of the combined company. The exact equity stake of Dril-Quip stockholders and Innovex stockholders in the combined company immediately following the effective time will depend on the number of shares of Dril-Quip common stock and Innovex common stock issued and outstanding, in each case on a fully diluted basis, immediately prior to the effective time.

 

Q:

What will be the composition of the board of directors and management of the combined company following the completion of the mergers?

 

A:

The combined company board will have nine members, including (a) four directors designated by Dril-Quip (the “Dril-Quip designees”), (b) four directors designated by Innovex (the “Innovex designees”) and (c) the Chief Executive Officer of Innovex as of immediately prior to the effective time. The Chairperson of the Dril-Quip Board as of immediately prior to the effective time will serve as Chairperson of the combined company board.

In addition, at the effective time, (i) a Dril-Quip designee will be appointed as Chairperson of the Audit Committee, the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board and (ii) certain Innovex designees will be appointed to the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board.

At the effective time, the following individuals will be appointed as executive officers of the combined company: Adam Anderson as Chief Executive Officer, Kendal Reed as Chief Financial Officer and Mark Reddout as President of North America. For additional information, please see “The MergersBoard of Directors and Management of the Combined Company.

 

Q:

How important is my vote?

 

A:

Your vote “FOR” each proposal presented at the special meeting is very important and you are encouraged to submit a proxy as soon as possible. The mergers cannot be completed without, among other things, the approval of the merger proposals by Dril-Quip stockholders.

Approval of the stock issuance proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for this proposal.

Approval of the charter amendment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock. Shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have the same effect as a vote “AGAINST” the approval of such proposal.

Approval of the non-binding governance proposals requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for such proposal.

Approval of the 2024 LTIP proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for such proposal.

Approval of the non-binding compensation proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a

quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for such proposal.

 

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The adjournment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, regardless of whether there is a quorum. Shares that are not present in person or by proxy and broker non-votes (if any) will have no effect on the vote for this proposal; however, abstentions will have the same effect as a vote “AGAINST” the approval of such proposal.

Regardless of whether there is a quorum, the Chairperson of the special meeting may also adjourn the special meeting.

 

Q:

How does the Dril-Quip Board recommend that I vote?

 

A:

The Dril-Quip Board unanimously recommends that Dril-Quip stockholders vote “FOR” the stock issuance proposal, “FOR” the charter amendment proposal, “FOR” the non-binding governance proposals, “FOR” the 2024 LTIP proposal, “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal. For additional information regarding how the Dril-Quip Board recommends that Dril-Quip stockholders vote, see the section titled “The Mergers—Recommendation of the Dril-Quip Board and Reasons for the Mergers.”

 

Q:

Will the shares of Dril-Quip common stock that I acquire in the mergers receive a dividend?

 

A:

After the closing of the mergers, as a holder of Dril-Quip common stock, you will receive the same dividends on shares of Dril-Quip common stock that all other holders of Dril-Quip common stock will receive for any dividend with a record date that occurs after the effective time.

 

Q:

Will the shares of Dril-Quip common stock received at the time of completion of the mergers be traded on an exchange?

 

A:

Yes. It is a condition to the consummation of the mergers that the shares of Dril-Quip common stock issuable to Innovex stockholders in the mergers be approved for listing on the NYSE, upon official notice of issuance. Dril-Quip common stock currently trades on the NYSE under the stock symbol “DRQ”. Following the completion of the mergers, it is expected that the common stock of the combined company will trade under a new ticker symbol, “INVX”.

 

Q:

How will Dril-Quip stockholders be affected by the mergers?

 

A:

Upon completion of the mergers, each Dril-Quip stockholder will hold the same number of shares of Dril-Quip common stock that such stockholder held immediately prior to completion of the mergers. As a result of the mergers, Dril-Quip stockholders will own shares in a larger company with more assets. However, because Dril-Quip will be issuing additional shares of Dril-Quip common stock to Innovex stockholders in exchange for their eligible shares of Innovex common stock in the mergers, each share of Dril-Quip common stock issued and outstanding immediately prior to the mergers will represent a smaller percentage of the aggregate number of shares of Dril-Quip common stock issued and outstanding after the mergers.

 

Q:

What are the material U.S. federal income tax consequences of the integrated mergers to Innovex stockholders?

 

A:

The mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and Dril-Quip and Innovex intend to report the mergers consistent with such qualification. Dril-Quip and Innovex have not sought, and do not intend to seek, any ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the qualification of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. As a result, there can be no assurance that the IRS would not assert, or that a court would not sustain,

 

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  a position contrary to the treatment of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming that the integrated mergers, taken together, qualify as a “reorganization” within the meaning of Section 368(a) of the Code, U.S. holders (as defined in “The Mergers—Material U.S. Federal Income Tax Consequences”) generally will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of Innovex common stock for shares of Dril-Quip common stock pursuant to the first merger, except with respect to cash paid in lieu of fractional shares of Dril-Quip common stock. If the integrated mergers do not qualify as a “reorganization,” the integrated mergers generally would be a taxable transaction to U.S. holders, and each U.S. holder generally would recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the fair market value of the Dril-Quip common stock it receives in the first merger plus the amount of any cash paid in lieu of fractional shares of Dril-Quip common stock and (ii) such holder’s adjusted tax basis in its shares of Innovex common stock exchanged in the first merger.

The U.S. federal income tax consequences described above may not apply to all holders of Innovex common stock. Each Innovex stockholder should read “The Mergers—Material U.S. Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the integrated mergers to U.S. holders. Tax matters can be complicated and the tax consequences of the integrated mergers to an Innovex stockholder will depend on its particular tax situation. Each Innovex stockholder is strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the integrated mergers to it.

 

Q:

When do Dril-Quip and Innovex expect to complete the mergers?

 

A:

Dril-Quip and Innovex currently expect to complete the mergers in the third quarter of 2024. However, neither Dril-Quip nor Innovex can predict the actual date on which the mergers will be completed, nor can the parties ensure that the mergers will be completed, because completion is subject to conditions beyond the control of either company. Please see “The Mergers—Regulatory Approvals” and “The Merger Agreement—Conditions to the Completion of the Mergers.”

 

Q:

What happens if the mergers are not completed?

 

A:

If the merger proposals are not approved by Dril-Quip stockholders or the mergers are not otherwise completed for any other reason, Innovex stockholders will not receive any consideration for shares of Innovex common stock they own. Instead, Innovex common stock will remain outstanding and the separate existence of Innovex will continue apart from Dril-Quip.

Under specified circumstances, Dril-Quip or Innovex may be required to reimburse the other party’s expenses or pay a termination fee upon or subsequent to termination of the merger agreement, as described in “The Merger Agreement—Termination Fees and Expense Reimbursement.”

 

Q:

Who can vote at, and what is the record date of, the special meeting?

 

A:

All Dril-Quip stockholders who hold shares of Dril-Quip common stock of record at the close of business on     , 2024, the record date for the special meeting (the “record date”), are entitled to receive notice of and to vote at the special meeting.

 

Q:

How many votes may I cast?

 

A:

Each issued and outstanding share of Dril-Quip common stock entitles its holder of record to one vote on each matter to be considered at the special meeting. The Dril-Quip stockholders of record on the record date are the only Dril-Quip stockholders that are entitled to receive notice of, and to vote at, the special meeting.

 

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Q:

What constitutes a quorum at the special meeting?

 

A:

In order for business to be conducted at the special meeting, a quorum must be present.

Holders of shares of Dril-Quip common stock entitling them to exercise a majority of the voting power of Dril-Quip entitled to vote at the special meeting, present in person or represented by proxy, will constitute a quorum for the transaction of business to be considered at such meeting.

Abstentions and broker non-votes will be included in determining whether a quorum is present at the special meeting. A “broker non-vote” occurs when a nominee (such as a broker) holding shares for a beneficial owner abstains from voting on a particular proposal because the nominee does not have discretionary voting power for that proposal and has not received instructions from the beneficial owner on how to vote those shares.

 

Q:

What do I need to do now?

 

A:

After you have carefully read and considered the information contained in or incorporated by reference into this proxy statement/prospectus, please submit your proxy via the internet or by telephone in accordance with the instructions set forth on the applicable proxy card or voting instruction form you received, or complete, sign, date, and return the applicable proxy card or voting instruction form in the self-addressed, stamped envelope provided as soon as possible so that your shares will be represented and voted at the special meeting.

For additional information on voting procedures, please see “Special Meeting.”

 

Q:

How will my proxy be voted?

 

A:

If you submit your proxy via the internet, by telephone, or by completing, signing, dating, and returning the applicable proxy card or voting instruction form, your proxy will be voted in accordance with your instructions. If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy card will be voted in accordance with the recommendation of the Dril-Quip Board.

For additional information on voting procedures, please see “Special Meeting.”

 

Q:

What should I do if I receive more than one set of voting materials for the special meeting?

 

A:

You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold your shares of Dril-Quip common stock in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please submit each separate proxy or voting instruction form that you receive by following the instructions set forth in each separate proxy or voting instruction form. If you fail to submit each separate proxy or voting instruction form that you receive, not all of your shares will be voted.

 

Q:

What is the difference between holding shares of record and holding shares as a beneficial owner of shares of Dril-Quip common stock?

 

A:

If your shares of Dril-Quip common stock are registered directly in your name with Dril-Quip’s registrar and transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered, with respect to those shares, to be the stockholder of record. If you are a stockholder of record, then this proxy statement/prospectus and your proxy card have been sent directly to you by Dril-Quip.

If your shares of Dril-Quip common stock are held through a bank, broker or other nominee, you are considered, with respect to those shares, the beneficial owner, and those shares are held in “street name” by

 

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your bank, broker or other nominee. In that case, this proxy statement/prospectus has been forwarded to you by your bank, broker or other nominee. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting, and you are also invited to attend the special meeting.

 

Q:

If my shares of Dril-Quip common stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote my shares for me?

 

A:

No. If your shares of Dril-Quip common stock are held in the name of a bank, broker or other nominee, you will receive separate instructions from your bank, broker or other nominee describing how to vote your shares. The availability of internet or telephonic voting will depend on the nominee’s voting process. Please check with your bank, broker or other nominee and follow the voting procedures provided by your bank, broker or other nominee on your voting instruction form.

You should instruct your bank, broker or other nominee how to vote your shares of Dril-Quip common stock. Under the rules applicable to broker-dealers, your bank, broker or other nominee does not have discretionary authority to vote your shares on any of the proposals scheduled to be voted on at the special meeting. A so-called “broker non-vote” results when banks, brokers and other nominees return a valid proxy but do not vote on a particular proposal because they do not have discretionary authority to vote on the matter and have not received specific voting instructions from the beneficial owner of such shares. Dril-Quip does not expect any broker non-votes at the special meeting because the rules applicable to banks, brokers and other nominees only provide brokers with discretionary authority to vote on proposals that are considered routine. As a result, no broker will be permitted to vote your shares of Dril-Quip common stock at the special meeting without receiving instructions. Failure to instruct your broker on how to vote your shares will have (i) no effect on the stock issuance proposal, the non-binding governance proposals, the 2024 LTIP proposal or the non-binding compensation proposal and (ii) the same effect as a vote “AGAINST” the approval of the charter amendment and the adjournment proposal.

For additional information on voting procedures, please see “Special Meeting.”

 

Q:

What do I do if I am a Dril-Quip stockholder and I want to revoke my proxy?

 

A:

Dril-Quip stockholders of record may revoke their proxies at any time before their shares of Dril-Quip common stock are voted at the special meeting in any of the following ways:

 

   

delivering written notice of revocation of the proxy to Dril-Quip’s corporate secretary at Dril-Quip’s principal executive offices at 2050 West Sam Houston Pkwy S., Suite 1100, Houston, Texas 77042, by no later than 10:59 p.m. local time on     , 2024;

 

   

delivering another proxy with a later date to Dril-Quip’s corporate secretary at Dril-Quip’s principal executive offices at 2050 West Sam Houston Pkwy S., Suite 1100, Houston, Texas 77042, by no later than 10:59 p.m. local time on     , 2024 (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

   

submitting another proxy again via the internet or by telephone at a later date, by no later than 10:59 p.m. local time on     , 2024 (in which case only the later-dated proxy is counted and the earlier proxy is revoked); or

 

   

attending the special meeting in person and voting his, her or its shares during the meeting; attendance at the special meeting will not, in and of itself, revoke a valid proxy that was previously delivered unless you give written notice of revocation to the Dril-Quip corporate secretary before the proxy is exercised or unless you vote your shares in person during the special meeting.

If your shares are held in “street name” through a broker, bank or other nominee and deliver voting instructions to the record holder of those shares, you may only revoke the voting of those shares in

 

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accordance with your instruction if the record holder revokes the original proxy as directed above and either resubmits a proxy reflecting your voting instructions or delivers to you a legal proxy giving you the right to vote the shares.

For additional information, please see “Special Meeting.”

 

Q:

Are there any risks that I should consider as a Dril-Quip stockholder in deciding how to vote?

 

A:

Yes. You should read and carefully consider the risks set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Dril-Quip contained in the documents that are incorporated by reference into this proxy statement/prospectus.

 

Q:

What happens if I sell or otherwise transfer my shares of Dril-Quip common stock before the special meeting?

 

A:

The record date is prior to the date of the special meeting. If you sell or otherwise transfer your shares of Dril-Quip common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares of Dril-Quip common stock, you will retain your right to vote such shares at the special meeting but will otherwise transfer ownership of and the economic interest in your shares of Dril-Quip common stock.

 

Q:

What happens if I sell or otherwise transfer my shares of Innovex common stock before the completion of the mergers?

 

A:

Only Innovex stockholders as of immediately prior to the effective time will become entitled to receive the merger consideration. If you sell your shares of Innovex common stock prior to the completion of the mergers, you will not be entitled to receive the merger consideration by virtue of the mergers.

 

Q:

Do any of the officers or directors of Dril-Quip have interests in the mergers that may differ from or be in addition to my interests as a Dril-Quip stockholder?

 

A:

Yes. In considering the recommendation of the Dril-Quip Board that Dril-Quip stockholders vote to approve the merger proposals, Dril-Quip stockholders should be aware that, aside from their interests as stockholders of Dril-Quip, Dril-Quip’s directors and executive officers have interests in the mergers that may be different from, or in addition to, the interests of Dril-Quip stockholders generally. The Dril-Quip Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated therein, in approving the mergers, and in recommending the approval of the merger proposals.

For more information on these interests and quantification of certain of these interests, please see “The Mergers—Interests of Dril-Quip Directors and Executive Officers in the Mergers.”

 

Q:

If I am a Dril-Quip stockholder and I oppose any of the proposals, but all such proposals are approved, what are my rights?

 

A:

Under Delaware law, Dril-Quip stockholders are not entitled to dissenters’ or appraisal rights in connection with any of the proposals as contemplated by the merger agreement.

 

Q:

Where can I find voting results of the special meeting?

 

A:

Dril-Quip intends to announce its preliminary voting results at the special meeting and disclose its final voting results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that Dril-Quip files with the SEC are publicly available when filed. Please see “Where You Can Find More Information.”

 

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Q:

How can I find more information about Dril-Quip?

 

A:

You can find more information about Dril-Quip from various sources described in “Where You Can Find More Information.”

 

Q:

Who can answer any questions I may have about the special meeting or the transactions contemplated by the merger agreement?

 

A:

If you have any questions about the special meeting, the mergers, the merger proposals, the non-binding governance proposals, the 2024 LTIP proposal, the non-binding compensation proposal or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or documents incorporated by reference herein, the applicable enclosed proxy card or voting instructions, you should contact:

Dril-Quip, Inc.

Attn: Investor Relations

2050 West Sam Houston Pkwy S., Suite 1100

Houston, Texas 77042

(713) 939-7711

Morrow Sodali LLC

333 Ludlow Street, 5th Floor, South Tower

Stamford, Connecticut 06902

Stockholders may call toll-free: (800) 662-5200

Banks and brokers may call collect: (203) 658-9400

 

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SUMMARY

The following summary highlights selected information described in more detail elsewhere in this proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus and may not contain all the information that may be important to you. To understand the mergers and the matters being voted on by Dril-Quip stockholders at the special meeting more fully, and to obtain a more complete description of the legal terms of the merger agreement and the agreements related thereto, you should carefully read this entire document, including the annexes and the documents incorporated by reference herein and to which Dril-Quip refers you. Items in this summary include page references directing you to a more complete description of the topics. See “Where You Can Find More Information.”

The Parties

Dril-Quip, Inc.

Dril-Quip is a leading developer, manufacturer and provider of highly engineered equipment and services for the global offshore and onshore oil and gas industry. Dril-Quip is a Delaware corporation, formed in 1997, and its common stock is listed and traded on the NYSE under the ticker symbol “DRQ”. Dril-Quip’s principal executive office is located at 2050 West Sam Houston Pkwy S., Suite 1100, Houston, Texas 77042 and its telephone number is (713) 939-7711.

Additional information about Dril-Quip and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 228.

Ironman Merger Sub, Inc.

Merger Sub Inc., a direct wholly owned subsidiary of Dril-Quip, is a Delaware corporation formed on March 13, 2024, for the purpose of effecting the first merger. Under the merger agreement, Merger Sub Inc. will merge with and into Innovex, with Innovex surviving the merger as the surviving corporation and a direct wholly owned subsidiary of Dril-Quip. Merger Sub Inc. has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the mergers.

DQ Merger Sub, LLC

Merger Sub LLC, a direct wholly owned subsidiary of Dril-Quip, is a Delaware limited liability company formed on March 13, 2024, for the purpose of effecting the second merger. Under the merger agreement, following the consummation of the first merger, the surviving corporation will merge with and into Merger Sub LLC, with Merger Sub LLC surviving the second merger as the surviving company and a direct wholly owned subsidiary of Dril-Quip. Merger Sub LLC has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the mergers.

Innovex Downhole Solutions, Inc.

Innovex designs, manufactures and installs mission-critical drilling & deployment, well construction, completion, production and fishing & intervention solutions to support upstream onshore and offshore activities worldwide. Innovex is headquartered in Houston, Texas with sales, operations and service locations throughout North America, Latin America, Europe, the Middle East and Asia. The principal executive offices of Innovex are located at 19120 Kenswick Drive, Humble, Texas 77338 and its telephone number is (346) 398-0000.

 

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The Mergers

Upon satisfaction or waiver of the conditions to closing in the merger agreement, at the effective time, Merger Sub Inc. will merge with and into Innovex, with Innovex surviving the merger as the surviving corporation and a direct wholly owned subsidiary of Dril-Quip. At the second merger effective time, Innovex, as the surviving corporation of the first merger, will merge with and into Merger Sub LLC, with Merger Sub LLC surviving the merger as the surviving company and a direct wholly owned subsidiary of Dril-Quip. At the effective time, the holders of Innovex common stock issued and outstanding immediately prior to the effective time (including each Innovex stock option and restricted stock unit) will be entitled to receive a number of shares of Dril-Quip common stock (including restricted stock awards) equal to the aggregate merger consideration. Each holder of Innovex common stock, other than holders of dissenting shares, will be entitled to receive, for each share of Innovex common stock, a number of shares of Dril-Quip common stock equal to the aggregate merger consideration divided by the number of shares of Innovex common stock outstanding immediately prior to the effective time calculated on a fully diluted basis, plus the cash value of any fractional shares of Dril-Quip common stock that would otherwise be payable. In addition, Innovex and Dril-Quip will take, or cause to be taken, all actions necessary so that at the effective time, each issued and outstanding Innovex stock option, Innovex RSU and continuing RSU will be treated as described in “The Merger Agreement—Treatment of Innovex Equity-Based Awards.”

Special Meeting

The special meeting of Dril-Quip stockholders will be held at Dril-Quip’s executive offices at 2050 West Sam Houston Parkway S., Suite 1100, Houston, Texas 77042 on     , 2024 at     , local time. The special meeting of Dril-Quip stockholders is being held to consider and vote on:

 

  1.

a proposal to approve the issuance of shares of Dril-Quip common stock to Innovex stockholders in the mergers contemplated by the merger agreement for purposes of complying with Section 312.03(c) of the NYSE’s Listed Company Manual and, in the event such issuance constitutes a change of control, Section 312.03(d) of the NYSE’s Listed Company Manual;

 

  2.

a proposal to approve an amendment of Dril-Quip’s certificate of incorporation;

 

  3.

a non-binding advisory basis, upon six separately presented proposals to approve certain governance provisions in the charter amendment to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the DGCL and (iii) waive corporate opportunities obligations, with respect to Amberjack and certain of its affiliates;

 

  4.

a proposal to approve the Innovex 2024 long-term incentive plan;

 

  5.

a non-binding advisory basis, the compensation that may be paid or become payable to Dril-Quip’s named executive officers that is based on or otherwise relates to the mergers; and

 

  6.

a proposal to approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger proposals.

Completion of the mergers is conditioned on approval by Dril-Quip stockholders of the merger proposals, but not the non-binding governance proposals, the 2024 LTIP proposal, the non-binding compensation proposal or the adjournment proposal.

Only record holders of shares of Dril-Quip common stock at the close of business on     , 2024, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting. At the close of

 

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business on the record date, the only outstanding voting securities of Dril-Quip were common stock, and     shares of Dril-Quip common stock were issued and outstanding, of which approximately     were owned and entitled to be voted by Dril-Quip directors and executive officers. The Dril-Quip directors and executive officers are currently expected to vote their shares in favor of each proposal listed above.

With respect to each proposal listed above, Dril-Quip stockholders may cast one vote for each share of Dril-Quip common stock that they own as of the record date. Approval of the stock issuance proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Approval of the charter amendment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock. Approval of each of the non-binding governance proposals, the 2024 LTIP proposal and the non-binding compensation proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on each such proposal. The adjournment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, regardless of whether there is a quorum.

No business may be transacted at the special meeting unless a quorum is present. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the merger proposals, then the Chairperson of the meeting has the power to adjourn the meeting, or, alternatively, Dril-Quip stockholders may be asked to approve a proposal to adjourn the special meeting in order to permit the further solicitation of proxies. No notice of an adjourned meeting need be given unless the date, time and place of the resumption of the meeting are not announced at the adjourned meeting, the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

The Dril-Quip Board unanimously recommends that the Dril-Quip stockholders vote “FOR” the stock issuance proposal, “FOR” the charter amendment proposal, “FOR” the non-binding governance proposals, “FOR” the 2024 LTIP proposal, “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal.

For additional information on the recommendation of the Dril-Quip Board, please see “The Mergers— Recommendation of the Dril-Quip Board and Reasons for the Mergers.”

Opinion of Dril-Quip’s Financial Advisor

Dril-Quip has engaged Citigroup Global Markets Inc. (“Citi”) as Dril-Quip’s financial advisor in connection with the proposed mergers. In connection with this engagement, Citi delivered a written opinion, dated March 17, 2024, to the Dril-Quip Board as to the fairness, from a financial point of view and as of the date of the opinion, to Dril-Quip of the aggregate merger consideration provided for pursuant to the merger agreement, which aggregate merger consideration Citi was advised implies a pro forma equity ownership interest in Dril-Quip upon consummation of the first merger by the securityholders of Innovex immediately prior to consummation of the first merger of 48% on a fully-diluted basis. The full text of Citi’s written opinion, dated March 17, 2024, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Dril-Quip Board (in its capacity as such) in connection with its evaluation of the aggregate merger consideration from a financial point of view to Dril-Quip and did not address any other terms, aspects or

 

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implications of the mergers. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Dril-Quip to effect or enter into the mergers, the relative merits of the mergers as compared to any alternative business strategies that might exist for Dril-Quip or the effect of any other transaction that Dril-Quip might engage in or consider. Citi’s opinion was not intended to be and did not constitute a recommendation as to how the Dril-Quip Board, and is not intended to be and does not constitute a recommendation as to how any securityholder, should vote or act on any matters relating to the proposed mergers or otherwise.

For a further discussion of Citi’s opinion, see “The Mergers—Opinion of Dril-Quip’s Financial Advisor.”

Board of Directors and Management of the Combined Company

The combined company board will have nine members, including (a) four Dril-Quip designees, (b) four Innovex designees and (c) the Chief Executive Officer of Innovex as of immediately prior to the effective time. The Chairperson of the Dril-Quip Board as of immediately prior to the effective time will serve as Chairperson of the combined company board.

The combined company will take all actions necessary such that one of the Innovex designees will serve in the class of directors to be elected at the 2024 annual meeting of Dril-Quip stockholders, one of the Innovex designees will serve in the class of directors to be elected at the 2025 annual meeting of Dril-Quip stockholders and two of the Innovex designees will serve in the class of directors to be elected at the 2026 annual meeting of Dril-Quip stockholders. In addition, at the effective time, (i) a Dril-Quip designee will be appointed as Chairperson of the Audit Committee, the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board and (ii) certain Innovex designees will be appointed to the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board.

At the effective time, the following individuals will be appointed as executive officers of the combined company: Adam Anderson as Chief Executive Officer, Kendal Reed as Chief Financial Officer and Mark Reddout as President of North America. For additional information, please see “The MergersBoard of Directors and Management of the Combined Company.

Appraisal Rights or Dissenters’ Rights

Under Delaware law, Dril-Quip stockholders are not entitled to dissenters’ or appraisal rights in connection with any of the proposals as contemplated by the merger agreement. Innovex stockholders are entitled to appraisal rights in connection with the mergers under Section 262 of the DGCL. For more information regarding appraisal rights, please see “The Mergers—Appraisal Rights or Dissenters’ Rights.”

Material U.S. Federal Income Tax Consequences

The mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and Dril-Quip and Innovex intend to report the integrated mergers consistent with such qualification. Dril-Quip and Innovex have not sought, and do not intend to seek, any ruling from the IRS regarding the qualification of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. As a result, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to the treatment of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming that the integrated mergers, taken together, qualify as a “reorganization” within the meaning of Section 368(a) of the Code, U.S. holders (as defined in “The Mergers—Material U.S. Federal Income Tax Consequences”) generally will not recognize gain or loss for U.S. federal income tax

 

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purposes upon the exchange of Innovex common stock for shares of Dril-Quip common stock pursuant to the first merger, except with respect to cash proceeds received from the sale of fractional shares of Dril-Quip common stock. If the integrated mergers do not qualify as a “reorganization,” the integrated mergers generally would be a taxable transaction to U.S. holders, and each U.S. holder generally would recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the fair market value of the Dril-Quip common stock it receives in the first merger plus the amount of any cash proceeds received from the sale of fractional shares of Dril-Quip common stock and (ii) such holder’s adjusted tax basis in its shares of Innovex common stock exchanged in the first merger.

The U.S. federal income tax consequences described above may not apply to all holders of Innovex common stock. Each Innovex stockholder should read “The Mergers—Material U.S. Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the integrated mergers to U.S. holders. Tax matters can be complicated and the tax consequences of the integrated mergers will depend on each Innovex stockholder’s particular tax situation. Each Innovex stockholder is strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the integrated mergers to it.

Accounting Treatment of the Mergers

Dril-Quip prepares its financial statements in accordance with GAAP. The mergers will be accounted for as a business combination and as a reverse acquisition pursuant to Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), where Innovex, the legal acquiree, is determined to be the accounting acquirer of Dril-Quip. Under the reverse acquisition method of accounting, the assets and liabilities of Dril-Quip as of the closing date will be consolidated by Innovex at their respective fair values, and the excess or shortfall of the purchase price consideration over the fair value of Dril-Quip’s net assets will be recognized as goodwill or gain on bargain purchase, respectively.

Regulatory Approvals

Antitrust Clearance

To complete the mergers, Dril-Quip, Innovex and Amberjack (or its affiliates) must make filings with and obtain authorizations, approvals or consents from a number of regulatory authorities in accordance with applicable antitrust and foreign investment laws. The completion of the mergers is subject to antitrust review in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder, the mergers cannot be completed until the parties to the merger agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated. Dril-Quip and Innovex each filed an HSR Act notification with the FTC and the DOJ on April 1, 2024. Dril-Quip and Innovex derive revenues in other jurisdictions where antitrust/foreign investment clearances are or may be required, including Saudi Arabia, Colombia and Ecuador. Filings were submitted with the Superintendency of Economic Competition of Ecuador on March 25, 2024 and April 24, 2024, and are expected to be submitted with the General Authority for Competition for the Kingdom of Saudi Arabia and with the Superintendency of Industry and Commerce of Colombia in order to obtain their approvals.

Dril-Quip and Innovex cannot assure you that all of the regulatory approvals described above will be obtained, and, if obtained, Dril-Quip and Innovex cannot assure you as to the date of any approvals (or conditions placed thereon) or the absence of any litigation challenging such approvals. At any time before or after consummation of the mergers, the FTC, the DOJ or any state could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the mergers or seeking the divestiture of substantial assets of Dril-Quip or Innovex or their respective subsidiaries. Private parties may also seek to take legal action under antitrust laws under certain circumstances.

 

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Dril-Quip and Innovex are not currently aware of any material governmental approvals or actions that are required for completion of the transaction other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Securities and Exchange Commission

Dril-Quip has filed a registration statement on Form S-4 with the SEC under the Securities Act, of which this proxy statement/prospectus forms a part, that must be declared effective by the SEC and pursuant to which the issuance of shares of Dril-Quip common stock issuable at the effective time, other than the shares of Dril-Quip common stock issuable to the consenting stockholders, will be registered with the SEC.

NYSE

In addition, the completion of the mergers is subject to approval for listing on the NYSE of the shares of Dril-Quip common stock to be issued in the mergers, subject to official notice of issuance.

Treatment of Innovex Equity-Based Awards

The merger agreement provides for the treatment set forth below with respect to the awards held by Innovex’s non-employee directors, executive officers and other employees at the effective time:

Innovex Stock Option Awards: Each Innovex stock option award that is outstanding immediately prior to the effective time will, at the effective time, be converted into the right to receive a number of shares of Dril-Quip common stock, equal to (a) the Innovex option cash equivalent divided by (b) the average Dril-Quip stock price (rounded up to the nearest whole cent), reduced by applicable tax withholding.

Innovex Time-Based Restricted Stock Unit Awards: Each continuing RSU will, at the effective time, be converted into an award covering a number of shares of Dril-Quip common stock, rounded down to the nearest whole share, equal to the product of (a) the number of shares of Innovex common stock subject to such award and (b) the per share merger consideration. If Dril-Quip stockholders approve the 2024 LTIP, the continuing RSUs will be considered substitute awards under the 2024 LTIP, subject to vesting over the same time period as was applicable under the respective continuing RSUs, but otherwise subject to the terms and conditions set forth in the 2024 LTIP. If Dril-Quip stockholders do not approve the 2024 LTIP, the continuing RSUs will be assumed by Dril-Quip on the same terms and conditions as were applicable to such awards as of immediately prior to the effective time (including vesting restrictions). Each Innovex RSU will be entitled to receive the number of shares of Dril-Quip common stock equal to the number of shares of Innovex common stock subject to such Innovex RSU multiplied by the per share merger consideration reduced by applicable tax withholding.

For additional information regarding the treatment of Innovex equity awards, please see “The Merger Agreement—Treatment of Innovex Equity-Based Awards.”

Listing of Dril-Quip Common Stock

It is a condition to the consummation of the mergers that the shares of Dril-Quip common stock issuable to Innovex stockholders in the mergers be approved for listing on the NYSE, subject to official notice of issuance.

Shares of Dril-Quip common stock currently trade on the NYSE under the stock symbol “DRQ”. The common stock of the combined company will remain listed on the NYSE following the completion of the mergers and is expected to trade under a new ticker symbol, “INVX”.

 

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No Solicitation; Recommendations

Subject to certain exceptions, each of Dril-Quip and Innovex has agreed that it will not, and will cause its subsidiaries not to, and will use its reasonable best efforts to cause its and their respective subsidiaries’ directors, officers, employees, financial advisors, accountants and other advisors, agents or representatives not to, directly or indirectly initiate, solicit, knowingly encourage or knowingly facilitate or discuss or negotiate with any person, or furnish any nonpublic information or data to any person, with respect to an alternative proposal (as defined herein). For a more detailed discussion of the ability of Dril-Quip and Innovex to consider other proposals, please see “The Merger Agreement—Covenants—No Solicitation of Alternative Proposals.”

Conditions to the Completion of the Mergers

The obligations of the parties to consummate the mergers are subject to the satisfaction at or prior to the effective time of the following mutual conditions:

 

   

receipt of the Innovex required vote, which was satisfied on March 18, 2024;

 

   

receipt of the Dril-Quip required vote;

 

   

no law or governmental order being in effect that restrains, enjoins, makes illegal or otherwise prohibits the consummation of the mergers, the stock issuance, the charter amendment or adoption of the 2024 LTIP;

 

   

expiration or earlier termination of any waiting period (and any extension of such period) under the HSR Act applicable to the mergers and receipt of all approvals required to be obtained under antitrust and foreign investments laws;

 

   

the registration statement on Form S-4, of which this proxy statement/prospectus forms a part, becoming effective, no stop order suspending the effectiveness of the registration statement being issued and remaining in effect, and no proceedings for that purpose having been commenced or threatened in writing by the SEC; and

 

   

the shares of Dril-Quip common stock issuable to Innovex stockholders in accordance with the merger agreement being approved for listing on the NYSE, subject to official notice of issuance.

The obligations of Dril-Quip to effect the mergers are also subject to the satisfaction, or waiver by Dril-Quip, at or prior to the effective time of the following additional conditions:

 

   

the accuracy of the representations and warranties of Innovex as follows:

 

   

the representations and warranties of Innovex regarding qualification and organization, stock issuances, corporate authority and approval must have been true and correct in all material respects as of the date of the merger agreement and must be true and correct in all material respects as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date);

 

   

the representation of Innovex regarding capital structure, no conflict or breach of organizational documents, compliance with anti-corruption laws, absence of certain changes and finders or brokers must have been true and correct in all respects as of the date of the merger agreement and must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date), other than, in each case, de minimis inaccuracies; and

 

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each other representation and warranty of Innovex set forth in the merger agreement must be true and correct in all respects (without giving effect to any qualification by materiality or material adverse effect contained in the merger agreement) as of the date of the merger agreement and as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date), except for inaccuracies of such representation and warranty the circumstances giving rise to which would not have, and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect with respect to Innovex (without giving effect to any qualification by materiality or material adverse effect contained in the merger agreement);

 

   

Innovex’s performance of, in all material respects, its obligations under the merger agreement required to be performed at or prior to the effective time;

 

   

the receipt by Dril-Quip of a certificate of an executive officer of Innovex certifying that the conditions in the immediately preceding bullets with respect to representations and warranties and performance of obligations have been satisfied;

 

   

the receipt by Dril-Quip of a certificate of the Chief Financial Officer of Innovex certifying that Net Debt (as defined in the merger agreement) as of the closing does not exceed the Permitted Net Debt Amount (as defined in the section titled “The Merger Agreement—Covenants—Conduct of Business Prior to the Effective Time”);

 

   

the receipt by Dril-Quip of the registration rights agreement in the form of Exhibit C to the merger agreement (the “registration rights agreement”) duly executed by the consenting stockholders;

 

   

the receipt by Dril-Quip of the stockholders agreement in the form of Exhibit D to the merger agreement (the “stockholders agreement”) duly executed by each Innovex stockholder specifically contemplated in the stockholders agreement;

 

   

the receipt by Dril-Quip of a certificate of the Chief Financial Officer of Innovex setting forth, as of immediately prior to the effective time, a detailed report containing all data necessary to calculate the fully diluted shares of Innovex;

 

   

the termination of the Innovex stockholders agreement; and

 

   

the receipt by Dril-Quip of a certificate of the consenting stockholders certifying that the representations and warranties provided by the consenting stockholders in the written consent delivered by the consenting stockholders pursuant to the merger agreement were true and correct in all material respects as of the date of such consent and are true and correct in all material respects as of the closing date.

The obligations of Innovex to effect the mergers are also subject to the satisfaction, or waiver by Innovex, at or prior to the effective time of the following additional conditions:

 

   

the accuracy of the representations and warranties of Dril-Quip as follows:

 

   

the representations and warranties of Dril-Quip regarding qualification and organization, stock issuances, corporate authority and approval must have been true and correct in all material respects as of the date of the merger agreement and must be true and correct in all material respects as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date);

 

   

the representation of Dril-Quip regarding capital structure, no conflict or breach of organizational documents, compliance with anti-corruption laws, absence of certain changes and finders or brokers must have been true and correct in all respects as of the date of the merger agreement and

 

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must be true and correct in all respects as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date), other than, in each case, de minimis inaccuracies; and

 

   

each other representation and warranty of Dril-Quip set forth in the merger agreement must be true and correct in all respects (without giving effect to any qualification by materiality or material adverse effect contained in the merger agreement) as of the date of the merger agreement and as of the closing date (except to the extent that any such representation and warranty expressly relate to an earlier date, in which case such representation and warranty must have been true and correct as of such earlier date), except for inaccuracies of such representation and warranty the circumstances giving rise to which would not have, and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect with respect to Dril-Quip (without giving effect to any qualification by materiality or material adverse effect contained in the merger agreement);

 

   

the performance by Dril-Quip, Merger Sub Inc. and Merger Sub LLC, in all material respects, of their obligations under the merger agreement required to be performed at or prior to the closing date; and

 

   

the receipt by Innovex of a certificate of the Chief Executive Officer or Chief Financial Officer of Dril-Quip certifying that the conditions in the immediately preceding bullets with respect to representations and warranties and performance of obligations have been satisfied;

 

   

the receipt by Innovex of the registration rights agreement duly executed by Dril-Quip;

 

   

the receipt by Innovex of the stockholders agreement duly executed by Dril-Quip;

 

   

the receipt by Innovex of a certificate of the Chief Financial Officer of Dril-Quip setting forth, as of immediately prior to the effective time, a detailed report containing all data necessary to calculate the fully diluted shares of Dril-Quip;

 

   

Dril-Quip having taken the specified actions regarding the appointment of directors and executive officers of the combined company as provided in the merger agreement;

 

   

the filing of the charter amendment with the Secretary of State of the State of Delaware; and

 

   

effective as of (and contingent on) the closing, the adoption by the Dril-Quip Board, subject to the approval of the 2024 LTIP proposal by Dril-Quip stockholders, of the 2024 LTIP in substantially the form attached as Exhibit F to the merger agreement.

As further discussed under the section titled “Risk Factors,” neither Dril-Quip nor Innovex can be certain when, or if, the conditions to the mergers will be satisfied or waived, or that the mergers will be completed.

Termination of the Merger Agreement

Dril-Quip and Innovex may mutually agree in writing to terminate the merger agreement before consummating the mergers.

In addition, either Dril-Quip or Innovex may terminate the merger agreement if:

 

   

the mergers have not been completed by December 18, 2024, which date will be automatically extended until March 18, 2025 (as applicable, the “outside date”) if certain conditions relating to regulatory filings (including under the HSR Act and other antitrust and foreign investment laws) have not been satisfied or waived on or prior to the outside date but all other conditions to closing have been satisfied or are capable of being satisfied at that time or waived, although such right to terminate will not be available to any party whose breach of the merger agreement has been the primary cause of the failure of the mergers to occur on or before such date (such termination, an “outside date termination”);

 

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a governmental order permanently enjoining or otherwise prohibiting consummation of the mergers has become final and non-appealable, and the party seeking to terminate the merger agreement as described in this bullet point has used reasonable best efforts to prevent, oppose and to remove such governmental order in accordance with the merger agreement (such termination, a “regulatory restraint termination event”); or

 

   

the Dril-Quip required vote has not been obtained at the special meeting (or, if the special meeting has been adjourned or postponed in accordance with the merger agreement, at the final adjournment or postponement thereof) at which a vote on the merger proposals was taken (such termination, a “Dril-Quip no vote termination”).

In addition, Innovex may terminate the merger agreement prior to the effective time:

 

   

prior to the receipt of the Dril-Quip required vote, if the Dril-Quip Board has made a change of recommendation;

 

   

if at any time prior to the effective time, there has been a breach or failure to perform by Dril-Quip, Merger Sub Inc. or Merger Sub LLC of any of their representations, warranties, covenants or agreements set forth in the merger agreement such that (i) the conditions to closing relating to accuracy of representations and warranties and performance of covenants would not be satisfied (“terminable breach”) and (ii) such breach or failure cannot be cured by the outside date, or, if curable, is not cured within 30 days of receipt by Dril-Quip of written notice of such breach or failure by Innovex, except that this right to terminate the merger agreement is not available if Innovex is then in terminable breach of any of its representations, warranties, covenants or agreements set forth in the merger agreement; or

 

   

if at any time prior to the effective time, there has been a material breach by Dril-Quip or any of its subsidiaries of its non-solicitation covenant.

In addition, Dril-Quip may terminate the merger agreement prior to the effective time:

 

   

if at any time prior to the effective time, Innovex is (i) in terminable breach of any of its representations, warranties, covenants or agreements set forth in the merger agreement and (ii) such breach or failure cannot be cured by the outside date, or, if curable, is not cured within 30 days of receipt by Innovex of written notice of such breach or failure by Dril-Quip, except that this right to terminate the merger agreement is not available if Dril-Quip is then in terminable breach of any of its representations, warranties, covenants or agreements set forth in the merger agreement; or

 

   

if, in accordance with Dril-Quip’s non-solicitation covenant, (i) the Dril-Quip Board has authorized Dril-Quip to enter into an alternative acquisition agreement with respect to a superior proposal, (ii) prior to or concurrently with such termination, Dril-Quip has paid the termination fee to Innovex as set forth in the merger agreement and (iii) concurrently with the termination of the merger agreement, Dril-Quip enters into an alternative acquisition agreement with respect to such superior proposal (such termination, a “Dril-Quip superior proposal termination”).

Termination Fees and Expense Reimbursement

Termination Fees Payable by Dril-Quip

Dril-Quip will be required to pay to Innovex a termination fee of $31,895,000 if the merger agreement is terminated:

 

   

by either party pursuant to an outside date termination or a Dril-Quip no vote termination, or by Innovex pursuant to a Dril-Quip terminable breach, and, in each case:

 

   

a bona fide acquisition proposal with respect to Dril-Quip has been publicly disclosed or announced after the date of the merger agreement and at least five days prior to the stockholder

 

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meeting (in the case of a Dril-Quip no vote termination), the date of termination (in the case of an outside date termination) or prior to a material breach that gives rise to Innovex’s termination rights (in the case of a Dril-Quip terminable breach); and

 

   

within twelve months after such termination, (i) Dril-Quip or any of its subsidiaries has entered into an alternative acquisition agreement with respect to any superior proposal with respect to Dril-Quip (which is thereafter consummated) or (ii) there has been consummated any superior proposal with respect to Dril-Quip (in each case of clauses (i) and (ii), with 50% being substituted in lieu of 20% in each instance thereof in the definition of “alternative proposal”);

 

   

by Innovex following a material breach by Dril-Quip of its non-solicitation obligations under the merger agreement or a change of recommendation by Dril-Quip; or

 

   

by Dril-Quip pursuant to a Dril-Quip superior proposal termination.

Expenses

If the merger agreement had been terminated by either Innovex or Dril-Quip for a failure to obtain Innovex required vote, then within two business days after the date of such termination, Innovex would have had to pay to Dril-Quip all of the reasonable and documented out-of-pocket transaction expenses of Dril-Quip up to a maximum amount equal to $4,253,000. The Innovex required vote was received on March 18, 2024.

If the merger agreement is terminated by either Innovex or Dril-Quip pursuant to a Dril-Quip no vote termination and the Dril-Quip termination fee is not otherwise payable by Dril-Quip, then within two business days after the date of such termination, Dril-Quip will pay to Innovex all of the reasonable and documented out-of-pocket transaction expenses of Innovex up to a maximum amount equal to $4,253,000 (provided that any such amounts paid will be credited (without interest) against any termination fee paid by Dril-Quip to Innovex pursuant to the terms of the merger agreement).

Specific Performance

In addition to any other available remedies a party may have in equity or at law, each party will be entitled to enforce specifically the terms and provisions of the merger agreement and to obtain an injunction restraining any breach or violation or threatened breach or violation of the provisions of the merger agreement.

Closing and Effective Time of the Mergers

Unless Dril-Quip and Innovex otherwise agree, the closing of the mergers will take place on the third business day following the day on which the last to be satisfied or (to the extent permissible) waived of the conditions for completion of the mergers set forth in the merger agreement (other than those conditions that by their nature must be satisfied or (to the extent permissible) waived at the closing, but subject to the satisfaction or waiver of those conditions) is satisfied or (to the extent permissible) waived in accordance with the merger agreement.

Upon the terms and subject to the provisions of the merger agreement and in accordance with the DGCL and the Delaware Limited Liability Company Act (the “DLLCA”), as applicable, as soon as practicable on the closing date, the applicable parties will (i) file a certificate of merger with the Secretary of State of the State of Delaware, executed in accordance with the relevant provisions of the DGCL, to effect the first merger and (ii) file a certificate of merger, executed in accordance with the relevant provisions of the DGCL and DLLCA, to effect the second merger, which will be effective one minute after the effectiveness of the first merger.

 

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Dril-Quip and Innovex are working to complete the merger prior to the outside date of December 18, 2024 (subject to extension in certain circumstances to March 18, 2025 pursuant to the terms of the merger agreement). It is possible that factors outside the control of both companies could result in the mergers being completed at a different time, or not at all. Please see “The Merger Agreement—Conditions to the Completion of the Mergers”.

Comparison of Stockholders’ Rights

Innovex stockholders receiving Dril-Quip common stock in the mergers will have different rights once they become stockholders of the combined company due to differences between the governing documents of Dril-Quip and Innovex. These differences are described in more detail in “Comparison of Stockholders’ Rights.”

Risk Factors

The transactions contemplated by the merger agreement, including the mergers, involve risks. In considering the mergers, including whether to vote for the merger proposals, the non-binding governance proposals, the 2024 LTIP proposal, the non-binding compensation proposal and the adjournment proposal, you should carefully consider the information about these risks set forth under the section entitled “Risk Factors,” a summary of which is set forth below, together with the other information included or incorporated by reference in this proxy statement/prospectus.

Risks Relating to the Mergers

 

   

Because the market price of Dril-Quip common stock will fluctuate, Innovex stockholders cannot be sure of the value of the shares of Dril-Quip common stock they will receive in connection with the mergers. The per share merger consideration will not be adjusted in the event of any change in the stock price of Dril-Quip.

 

   

The market price for Dril-Quip common stock following the closing may be affected by factors different from those that historically have affected or currently affect Dril-Quip common stock.

 

   

Dril-Quip stockholders and Innovex stockholders, in each case as of immediately prior to the mergers, will have reduced ownership in the combined company.

 

   

Dril-Quip and Innovex must obtain certain regulatory approvals and clearances to consummate the mergers, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the mergers, result in additional expenditures of money and resources or reduce the anticipated benefits of the mergers.

 

   

The mergers are subject to a number of conditions to the obligations of both Dril-Quip and Innovex to complete the mergers, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the mergers or result in termination of the merger agreement.

 

   

If the integrated mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Innovex stockholders may be required to pay substantial taxes.

 

   

Dril-Quip’s ability to utilize its historic U.S. net operating loss carryforwards may be impacted as a result of the completion of the mergers.

 

   

Uncertainties associated with the mergers may cause a loss of management personnel and other key employees of Dril-Quip or Innovex, which could adversely affect the future business and operations of the combined company.

 

   

The business relationships of Dril-Quip and Innovex may be subject to disruption due to uncertainty associated with the mergers, which could have a material adverse effect on the results of operations, cash flows and financial position of Dril-Quip or Innovex pending and following the mergers.

 

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The merger agreement subjects Dril-Quip and Innovex to restrictions on their respective business activities prior to the effective time.

 

   

Directors and executive officers of Dril-Quip have interests in the mergers that may be different from, or in addition to, the interests of the Dril-Quip stockholders generally.

 

   

The merger agreement limits Dril-Quip’s and Innovex’s respective ability to pursue alternatives to the mergers, may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require Dril-Quip to pay Innovex a termination fee.

 

   

The financial forecasts are based on various assumptions that may not be realized.

 

   

Failure to complete the mergers could negatively impact Dril-Quip’s stock price and have a material adverse effect on its results of operations, cash flows and financial position.

 

   

The shares of common stock of the combined company to be received by Innovex stockholders upon completion of the mergers will have different rights from shares of Innovex common stock.

Risks Relating to the Combined Company

 

   

Dril-Quip may be unable to integrate the businesses of Innovex successfully or realize the anticipated benefits or synergies of the mergers.

 

   

Legal proceedings and governmental investigations could have a negative impact on the business, financial condition and results of operations of the combined company.

 

   

The future results of the combined company following the mergers will suffer if the combined company does not effectively manage its expanded operations.

 

   

The mergers may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the modification or termination of existing contracts.

 

   

The market price of the combined company’s common stock may be volatile, and holders of the combined company’s common stock could lose a significant portion of their investment due to drops in the market price of the combined company’s common stock following completion of the mergers.

 

   

Certain of the stockholders of the combined company will have the ability to exercise significant influence over certain corporate actions following completion of the mergers.

Other Risks Relating to Innovex

 

   

Innovex’s business and financial performance depend primarily upon the general level of activity in the oil and natural gas industry. A decline in prices for oil and natural gas may have an adverse effect on Innovex’s revenue, cash flows, profitability and growth.

 

   

The cyclical nature of the oil and natural gas industry may cause Innovex’s operating results to fluctuate.

 

   

Innovex is subject to risks relating to existing international operations and expansion into new geographical markets.

 

   

Innovex has identified material weaknesses in Innovex’s internal control over financial reporting which, if not corrected, could affect the reliability of the combined company’s financial statements and have other adverse consequences. Additional material weaknesses in internal controls over financial reporting may be identified, which may not be remedied in a timely manner.

 

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Innovex’s operations and the operations of Innovex’s customers are subject to environmental, health and safety laws and regulations, and future compliance, claims, and liabilities relating to such matters may have a material adverse effect on Innovex’s results of operations, financial position or cash flows.

 

   

To compete in its industry, Innovex must continue to develop new technologies and products to support its operations, secure and maintain patents related to Innovex’s current and new technologies and products and protect and enforce Innovex’s intellectual property rights.

 

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MARKET PRICE INFORMATION

Dril-Quip’s common stock is listed on the NYSE under the symbol “DRQ”.

The high and low trading prices for Dril-Quip common stock as of March 15, 2024, the last full trading day prior to the public announcement of the mergers, were $24.33 and $23.39, respectively. The closing price for Dril-Quip common stock on    , 2024, the last practicable trading day before the date of this proxy statement/prospectus, was $    per share.

As of    , 2024, there were    shares of Dril-Quip common stock issued and outstanding.

Because the per share merger consideration will not be adjusted for changes in the market price of Dril-Quip common stock, the market value of Dril-Quip common stock that Innovex stockholders will have the right to receive on the date the mergers are completed may vary significantly from the market value of the Dril-Quip common stock that Innovex stockholders would receive if the mergers were completed on the date of this proxy statement/prospectus. As a result, you are encouraged to obtain current market quotations for Dril-Quip common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of Dril-Quip common stock before or after the effective date of the mergers. Please see “Risk Factors” and “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain forward-looking statements within the meaning of the federal securities laws that are not limited to historical facts but reflect Dril-Quip’s and/or Innovex’s current beliefs, expectations or intentions regarding future events. Statements in this proxy statement/prospectus and the documents incorporated by reference herein that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Words such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, Dril-Quip’s and/or Innovex’s expectations with respect to the synergies, costs and other anticipated financial impacts of the mergers; future financial and operating results of the combined company; the combined company’s plans, objectives, expectations and intentions with respect to future operations and services; approval of the mergers by stockholders; the satisfaction of the closing conditions to the mergers; and the timing of the completion of the mergers.

Although Dril-Quip and Innovex believe the expectations reflected in such forward-looking statements are reasonable, such expectations may not occur. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the combined company to be materially different from actual future results expressed or implied by the forward- looking statements. These risks and uncertainties also include those set forth under “Risk Factors” included in this proxy statement/prospectus, as well as, among others, risks and uncertainties relating to:

 

   

the receipt of approval of Dril-Quip stockholders;

 

   

the time required to complete the mergers;

 

   

uncertainty as to whether the conditions to closing the mergers will be satisfied or whether the mergers will be completed;

 

   

the risk that a regulatory approval, consent or authorization that may be required for the transaction is not obtained in a timely manner or at all, or is obtained subject to conditions that are not anticipated;

 

   

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

 

   

the diversion of management time on merger-related issues;

 

   

the ultimate timing, outcome and results of integrating the operations of Dril-Quip and Innovex;

 

   

the effects of the business combination on Dril-Quip and Innovex, including the combined company’s future financial condition, results of operations, strategy and plans;

 

   

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the mergers;

 

   

the prompt and effective integration of Dril-Quip’s and Innovex’s businesses;

 

   

expected benefits from the mergers and the ability of Dril-Quip to realize those benefits;

 

   

the significant costs required to complete the mergers and integrate operations of Dril-Quip and Innovex;

 

   

whether merger-related litigation will occur and, if so, the results of any litigation, settlements and investigations;

 

   

the risks relating to Dril-Quip’s, Innovex’s and the combined company’s operating results and businesses generally; and

 

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other financial, operational and legal risks and uncertainties detailed from time to time in Dril-Quip’s SEC filings.

Dril-Quip cautions that the foregoing list of factors is not exclusive. Additional information concerning these and other risk factors is contained in Dril-Quip’s most recently filed Annual Reports on Form 10-K, subsequent Quarterly Report on Form 10-Q, recent Current Reports on Form 8-K and other SEC filings and in “Risk Factors” included elsewhere in this proxy statement/prospectus. The forward-looking statements speak only as of the date made and, other than as required by law, neither Dril-Quip nor Innovex undertake any obligation to update publicly or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise. In the event that a party does update any forward-looking statement, no inference should be made that the parties will make additional updates with respect to that statement, related matters or any other forward-looking statements. All subsequent written and oral forward-looking statements concerning Dril-Quip, Innovex, the mergers or other matters and attributable to Dril-Quip, Innovex or any person acting on Dril-Quip’s or Innovex’s behalf are expressly qualified in their entirety by the cautionary statements above.

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote. In addition, you should read and carefully consider the risks associated with Dril-Quip and its business. These risks can be found in Dril-Quip’s Annual Report on Form 10-K for the year ended December 31, 2023, which is filed with the SEC and incorporated by reference into this proxy statement/prospectus. For further information regarding the documents incorporated into this proxy statement/prospectus by reference, please see the section titled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described elsewhere in this proxy statement/prospectus in the documents incorporated by reference could have a material adverse effect on Dril-Quip’s, Innovex’s or the combined company’s businesses, financial condition, cash flows and results of operations.

Risks Relating to the Mergers

Because the market price of Dril-Quip common stock will fluctuate, Innovex stockholders cannot be sure of the value of the shares of Dril-Quip common stock they will receive in connection with the mergers. The per share merger consideration will not be adjusted in the event of any change in the stock price of Dril-Quip.

At the effective time, the holders of Innovex common stock issued and outstanding immediately prior to the effective time (including each Innovex stock option and restricted stock unit) will be entitled to receive a number of shares of Dril-Quip common stock (including restricted stock awards) equal to the aggregate merger consideration. Each holder of Innovex common stock, other than holders of dissenting shares, will be entitled to receive, for each share of Innovex common stock, a number of shares of Dril-Quip common stock equal to the aggregate merger consideration divided by the number of shares of Innovex common stock outstanding immediately prior to the effective time calculated on a fully diluted basis, plus the cash value of any fractional shares of Dril-Quip common stock that would otherwise be payable. The per share merger consideration will not be adjusted for changes in the market price of Dril-Quip common stock between the date of signing the merger agreement and completion of the mergers. Changes in the price of Dril-Quip common stock prior to the mergers will affect the value of Dril-Quip common stock that Innovex stockholders will receive on the date of the mergers. Stock price changes may result from a variety of factors (many of which are out of our control), including the following:

 

   

changes in the respective businesses, operations and prospects of Dril-Quip and Innovex;

 

   

changes in market assessments of the business, operations and prospects of Dril-Quip and Innovex;

 

   

investor behavior and strategies, including market assessments of the likelihood that the mergers will be completed;

 

   

interest rates, general market and economic conditions and other factors generally affecting the price of Dril-Quip common stock; and

 

   

legislation, governmental regulation and legal developments in the businesses in which Dril-Quip and Innovex operate.

The price of Dril-Quip common stock at the closing may vary from its price on the date the merger agreement was executed, on the date of this proxy statement/prospectus and on the date of the special meeting. As a result, the value represented by the per share merger consideration will also vary, and you will not know or be able to calculate at the time of the special meeting the market value of the per share merger consideration Innovex stockholders will receive upon completion of the mergers. For example, based on the closing price of Dril-Quip common stock during the period from March 15, 2024, the last trading day before public announcement of the mergers, through     , 2024, the latest practicable trading date before the date of this

 

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proxy statement/prospectus, and assuming the issuance of    million shares of Dril-Quip common stock in the mergers, the per share merger consideration represented a value ranging from a high of $     to a low of $     for each share of Innovex common stock. Neither Dril-Quip nor Innovex is permitted to terminate the merger agreement solely because of changes in the market price or value of Dril-Quip’s common stock or the value of Innovex’s equity securities.

The market price for Dril-Quip common stock following the closing may be affected by factors different from those that historically have affected or currently affect Dril-Quip common stock.

Upon completion of the mergers, Innovex stockholders will receive shares of Dril-Quip common stock. Dril-Quip’s financial position may differ from its financial position before the completion of the mergers, and the results of operations of the combined company may be affected by factors that are different from those currently affecting the results of operations of Dril-Quip and those currently affecting the results of operations of Innovex. Accordingly, the market price and performance of Dril-Quip common stock is likely to be different from the performance of Dril-Quip common stock in the absence of the mergers. In addition, general fluctuations in trading activity and prices on the NYSE could have a material adverse effect on the market for, or liquidity of, Dril-Quip common stock, regardless of Dril-Quip’s actual operating performance. For a discussion of the businesses of Dril-Quip and Innovex and important factors to consider in connection with those businesses, see the documents incorporated by reference herein and referred to in “Where You Can Find More Information.”

Dril-Quip stockholders and Innovex stockholders, in each case as of immediately prior to the mergers, will have reduced ownership in the combined company.

Based on the number of issued and outstanding shares of Innovex common stock as of     , 2024 and the number of issued and outstanding Innovex equity awards currently estimated to be payable in shares of Dril-Quip common stock in connection with the mergers, Dril-Quip anticipates issuing approximately    million shares of Dril-Quip common stock pursuant to the merger agreement. The actual number of shares of Dril-Quip common stock to be issued pursuant to the merger agreement will be determined at the completion of the mergers based on the number of shares of Dril-Quip common stock outstanding immediately prior to such time, calculated on a fully diluted basis and the number of shares of Innovex common stock issued and outstanding immediately prior to such time, calculated on a fully diluted basis. The issuance of these new shares could have the effect of depressing the market price of Dril-Quip common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Dril-Quip’s earnings per share could cause the price of Dril-Quip common stock to decline or increase at a reduced rate.

Immediately after the completion of the mergers, it is expected that Dril-Quip stockholders as of immediately prior to the mergers will own approximately 52%, and Innovex stockholders as of immediately prior to the mergers will own approximately 48% of the issued and outstanding shares of Dril-Quip common stock. As a result, Dril-Quip’s current stockholders and Innovex’s current stockholders will have less influence on the policies of the combined company than they currently have on the policies of Dril-Quip and Innovex, respectively.

Dril-Quip and Innovex must obtain certain regulatory approvals and clearances to consummate the mergers, which, if delayed, not granted or granted with unacceptable conditions, could prevent, substantially delay or impair consummation of the mergers, result in additional expenditures of money and resources or reduce the anticipated benefits of the mergers.

The completion of the mergers is subject to antitrust review in the United States and approval under certain other antitrust and foreign investment laws. Dril-Quip and Innovex derive revenues in other jurisdictions where antitrust/foreign investment clearances are or may be required, including Saudi Arabia, Colombia and Ecuador. Filings were submitted with the Superintendency of Economic Competition of Ecuador on March 25, 2024 and April 24, 2024, and are expected to be submitted with the General Authority for Competition for the Kingdom of

 

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Saudi Arabia and with the Superintendency of Industry and Commerce of Colombia in order to obtain their approvals. Regulatory entities may impose certain requirements or obligations as conditions for their approval or in connection with their review. Neither Dril-Quip nor Innovex can provide any assurance that they will obtain the necessary clearances or approvals, or that any required conditions will not have a material adverse effect on the combined company following the mergers or result in the abandonment of the mergers. Under the HSR Act and the rules promulgated thereunder, the mergers cannot be completed until the parties to the merger agreement have given notification and furnished information to the FTC and the DOJ, and until the applicable waiting period has expired or has been terminated.

Dril-Quip and Innovex each filed an HSR Act notification with the FTC and the DOJ on April 1, 2024. The 30-day HSR waiting period with respect to the mergers is expected to expire at 11:59 p.m. EDT on May 1, 2024, unless Dril-Quip “pulls and refiles” its HSR filing or the FTC or the DOJ issues requests for additional information and documentary material related to the mergers. If the FTC or the DOJ issues such requests, the waiting period with respect to the mergers will be extended for an additional period of 30 calendar days, which will begin on the date on which both parties have substantially complied with such requests, as applicable. Complying with such requests can take a significant period of time.

At any time before or after consummation of the mergers, notwithstanding the expiration of the applicable waiting period under the HSR Act, the FTC, the DOJ or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the mergers or seeking the divestiture of substantial assets of Dril-Quip or Innovex or their respective subsidiaries or requiring Dril-Quip or Innovex to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the mergers, and notwithstanding the expiration of the applicable waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the mergers or seeking divestiture of substantial assets of Dril-Quip or Innovex. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

The mergers are subject to a number of conditions to the obligations of both Dril-Quip and Innovex to complete the mergers, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the mergers or result in termination of the merger agreement.

The mergers are subject to a number of conditions beyond the control of Dril-Quip or Innovex that may prevent, delay or otherwise materially adversely affect its completion. Neither Dril-Quip nor Innovex can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to the outside date, it is possible that the merger agreement may be terminated. Although Dril-Quip and Innovex have agreed in the merger agreement to use reasonable best efforts, subject to certain limitations, to complete the mergers as promptly as reasonably practicable, these and other conditions to the completion of the mergers may fail to be satisfied. In addition, satisfying the conditions to and completing the mergers may take longer, and could cost more, than Dril-Quip and Innovex expect. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the mergers for a significant period of time or prevent them from occurring. Any delay in completing the mergers may adversely affect the cost savings and other benefits that Dril-Quip and Innovex expect to achieve if the mergers and the integration of the companies’ respective businesses are completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date. For additional information, please see The Merger Agreement—Conditions to the Completion of the Mergers.

If the integrated mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Innovex stockholders may be required to pay substantial taxes.

The integrated mergers are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and Dril-Quip and Innovex intend to report the integrated mergers consistent with such qualification.

 

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Dril-Quip and Innovex have not sought, and will not seek, any ruling from the IRS regarding any matters relating to the transactions, and, as a result, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to the treatment of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. If the IRS or a court determines that the integrated mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Innovex common stock generally would recognize taxable gain or loss upon the exchange of Innovex common stock for Dril-Quip common stock pursuant to the integrated mergers. See “The Mergers—Material U.S. Federal Income Tax Consequences.”

Dril-Quip’s ability to utilize its historic U.S. net operating loss carryforwards may be impacted as a result of the completion of the mergers.

As of December 31, 2023, Dril-Quip had approximately $135.5 million of gross U.S. federal net operating losses (“NOLs”). Most of Dril-Quip’s U.S. federal NOLs were generated after 2017 and can be carried forward indefinitely.

Section 382 of the Code (“Section 382”) generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of such corporation’s stock has increased their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change occurs, utilization of the relevant corporation’s NOLs would be subject to an annual limitation under Section 382, generally determined, subject to certain adjustments, by multiplying (i) the fair market value of such corporation’s stock outstanding at the time of the ownership change by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. Any unused annual limitation may be carried over to later years.

We may experience an ownership change (under Section 382) as a result of the closing of the mergers. If the closing of the mergers causes an ownership change, our ability to utilize our available NOLs and other tax attributes to reduce future taxable income following this “ownership change” would depend on many factors, including our future income, which cannot be assured. An ownership change may also require NOLs to be utilized later than they otherwise would be able to be utilized, increasing cash taxes payable in earlier years.

Uncertainties associated with the mergers may cause a loss of management personnel and other key employees of Dril-Quip or Innovex, which could adversely affect the future business and operations of the combined company.

Dril-Quip and Innovex are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. The combined company’s success after the mergers will depend in part upon its ability to retain key management personnel and other key employees. Current and prospective employees of Dril-Quip or Innovex may experience uncertainty about their roles within the combined company following the mergers or other concerns regarding the timing and completion of the mergers or the operations of the combined company following the mergers, any of which may have an adverse effect on the ability of Dril-Quip or Innovex to retain or attract key management and other key personnel. In addition, the loss of key Dril-Quip or Innovex personnel could diminish the anticipated benefits of the mergers and the integration of the companies may be more difficult. Furthermore, the combined company may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of each of Dril-Quip and Innovex. No assurance can be given that the combined company will be able to retain or attract key management personnel and other key employees of Dril-Quip or Innovex to the same extent that Dril-Quip and Innovex have previously been able to retain or attract their own employees.

 

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The business relationships of Dril-Quip and Innovex may be subject to disruption due to uncertainty associated with the mergers, which could have a material adverse effect on the results of operations, cash flows and financial position of Dril-Quip or Innovex pending and following the mergers.

Parties with which Dril-Quip or Innovex do business may experience uncertainty associated with the mergers, including with respect to current or future business relationships with the combined company following the mergers. Dril-Quip’s and Innovex’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than Dril-Quip or Innovex prior to or following the mergers. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of Dril-Quip or Innovex, regardless of whether the mergers are completed, as well as a material and adverse effect on Dril-Quip’s ability to realize the expected cost savings and other benefits of the mergers. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the mergers or termination of the merger agreement.

The merger agreement subjects Dril-Quip and Innovex to restrictions on their respective business activities prior to the effective time.

The merger agreement subjects Dril-Quip and Innovex to restrictions on their respective business activities prior to the effective time. The merger agreement obligates each of Dril-Quip and Innovex to use its commercially reasonable efforts to carry on its business in the ordinary course in all material respects, and the merger agreement obligates each of Dril-Quip and Innovex to use its commercially reasonable efforts to conduct its business in the ordinary course of business in all material respects and preserve substantially intact its present business organization, except as otherwise expressly contemplated by the merger agreement. These restrictions could prevent Dril-Quip and Innovex from pursuing certain business opportunities that arise prior to the effective time and are outside the ordinary course of business. See “The Merger Agreement—Covenants—Conduct of Business Prior to the Effective Time” for additional details.

Directors and executive officers of Dril-Quip have interests in the mergers that may be different from, or in addition to, the interests of the Dril-Quip stockholders generally.

In considering the recommendation of the Dril-Quip Board that Dril-Quip stockholders vote in favor of the merger proposals, Dril-Quip stockholders should be aware of and take into account the fact that Dril-Quip directors and executive officers have interests in the mergers that may be different from, or in addition to, the interests of Dril-Quip stockholders generally. These interests include, among others, severance rights, rights to continuing indemnification and directors’ and officers’ liability insurance and accelerated vesting of outstanding equity awards held by non-employee directors. See “The MergersInterests of Dril-Quip Directors and Executive Officers in the Mergers” for a more detailed description of these interests. The Dril-Quip Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and overseeing the negotiation, of the mergers, in approving the merger agreement and the transactions contemplated thereby, including the mergers, and in recommending that the Dril-Quip stockholders approve the merger proposals and the non-binding compensation proposal.

The merger agreement limits Dril-Quip’s and Innovex’s respective ability to pursue alternatives to the mergers, may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require Dril-Quip to pay Innovex a termination fee.

The merger agreement contains certain provisions that restrict each of Dril-Quip’s and Innovex’s ability to initiate, solicit, propose, knowingly encourage or knowingly facilitate any inquiry regarding, or the making of any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to, an acquisition proposal with respect to Dril-Quip or Innovex, as applicable, and Dril-Quip and Innovex have each agreed to certain terms

 

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and conditions relating to their ability to engage, continue or otherwise participate in any discussions or negotiations regarding, or furnish to a third party any non-public information with respect to, or otherwise knowingly facilitate any effort or attempt to make, any acquisition proposal. Further, even if the Dril-Quip Board withdraws, modifies or qualifies in any manner adverse to Innovex its recommendation with respect to the merger proposals, unless the merger agreement has been terminated in accordance with its terms, Dril-Quip will still be required to submit the merger proposals to a vote at the Dril-Quip special meeting. In addition, Innovex generally has an opportunity to offer to modify the terms of the merger agreement in response to any competing acquisition proposals or intervening events before the Dril-Quip Board may withdraw, modify or qualify its recommendations. The merger agreement further provides that, under specified circumstances, including in the event that the Dril-Quip Board has authorized Dril-Quip to enter into an alternative acquisition agreement with respect to a superior proposal to Dril-Quip and concurrently with the termination of the merger agreement, Dril-Quip enters into an acquisition agreement with respect to such superior proposal, Dril-Quip is required to pay Innovex a termination fee equal to $31,895,000. See The Merger Agreement—Covenants” and The Merger Agreement—Termination Fees and Expense Reimbursement” for additional details.

These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in acquiring all or a significant portion of Dril-Quip from considering or pursuing an alternative transaction with Dril-Quip or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid or received in the mergers. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

The financial forecasts are based on various assumptions that may not be realized.

The unaudited prospective financial information set forth in the forecasts included under the sections “The Mergers—Unaudited Prospective Financial Information” were prepared solely for internal use and are subjective in many respects. Dril-Quip’s and Innovex’s prospective financial information was based solely upon assumptions of, and information available to Dril-Quip’s and Innovex’s management when prepared, and these estimates and assumptions are subject to uncertainties, many of which are beyond Dril-Quip’s or Innovex’s control and may not be realized. Many factors mentioned in this proxy statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining the combined company’s future results. As a result of these contingencies, actual future results may vary materially from Dril-Quip’s and Innovex’s estimates. In view of these uncertainties, the inclusion of prospective financial information in this proxy statement/prospectus is not and should not be viewed as a representation that the forecasted results will necessarily be predictive of actual future results.

The unaudited prospective financial information set forth in the forecasts included under the sections “The Mergers—Unaudited Prospective Financial Information” was not prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information. Further, any forward-looking statement speaks only as of the date on which it is made, and each of Dril-Quip and Innovex undertake no obligation, other than as required by applicable law, to update, correct or otherwise revise the unaudited prospective financial information herein to reflect events or circumstances after the date those prospective financial information were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances, even in the event that any or all of the assumptions underlying any such prospective financial information are no longer appropriate (even in the short term).

The unaudited prospective financial information of Dril-Quip and Innovex included in this proxy statement/prospectus has been prepared by, and is the responsibility of, the management of Dril-Quip or the management of Innovex, as applicable. Neither PricewaterhouseCoopers LLP (“PwC”), the independent registered accountant of

 

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Dril-Quip, nor Grant Thornton LLP (“Grant Thornton”), the independent certified public accountants of Innovex, has audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the accompanying unaudited prospective financial information and, accordingly, neither PwC nor Grant Thornton expresses an opinion or any other form of assurance with respect thereto. The report of PwC with respect to Dril-Quip, incorporated by reference in this proxy statement/prospectus relates to the historical financial statements of Dril-Quip, does not extend to the unaudited prospective financial information of Dril-Quip and should not be read to do so. The report of Grant Thornton with respect to Innovex’s audited financial statements included elsewhere in this proxy statement/prospectus, relates to the historical financial statements of Innovex, does not extend to the unaudited prospective financial information of Innovex and should not be read to do so. See “The Mergers—Unaudited Prospective Financial Information” for more information.

Failure to complete the mergers could negatively impact Dril-Quip’s stock price and have a material adverse effect on its results of operations, cash flows and financial position.

If the mergers are not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals or if the Dril-Quip stockholders fail to approve the applicable proposals, the ongoing business of Dril-Quip may be materially adversely affected and, without realizing any of the benefits of having completed the mergers, Dril-Quip would be subject to a number of risks, including the following:

 

   

Dril-Quip may experience negative reactions from the financial markets, including negative impacts on Dril-Quip’s stock prices;

 

   

Dril-Quip and its subsidiaries may experience negative reactions from their respective customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;

 

   

Dril-Quip will still be required to pay certain significant costs relating to the mergers, such as legal, accounting, consulting, financial advisor and printing fees;

 

   

Dril-Quip may be required to pay a termination fee or expense reimbursement fee as required by the merger agreement;

 

   

the merger agreement places certain restrictions on the conduct of Dril-Quip’s business pursuant to the terms of the merger agreement, which may delay or prevent Dril-Quip from undertaking business opportunities that, absent the merger agreement, may have been pursued;

 

   

matters relating to the mergers (including integration planning) require substantial commitments of time and resources by Dril-Quip’s management, which may have resulted in the distraction of each company’s management from ongoing business operations and pursuing other opportunities that could have been beneficial to the companies; and

 

   

litigation related to any failure to complete the mergers or related to any enforcement proceeding commenced against Dril-Quip to perform its obligations pursuant to the merger agreement.

If the mergers are not completed, the risks described above may materialize and they may have a material adverse effect on Dril-Quip’s results of operations, cash flows, financial position and stock price.

The shares of common stock of the combined company to be received by Innovex stockholders upon completion of the mergers will have different rights from shares of Innovex common stock.

Upon completion of the mergers, Innovex stockholders will no longer be stockholders of Innovex. Instead, former Innovex stockholders will become stockholders of the combined company, and, while their rights as stockholders of the combined company will continue to be governed by the laws of the state of Delaware, their rights will be subject to and governed by the terms of the certificate of incorporation and the bylaws of the combined company. The laws of the state of Delaware and terms of the certificate of incorporation and bylaws of the combined company are in some respects different than the terms of the Innovex certificate of incorporation

 

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and the Innovex bylaws, which currently govern the rights of Innovex stockholders. See “Comparison of Stockholders’ Rights” for a discussion of the different rights associated with shares of Innovex common stock, shares of Dril-Quip common stock and shares of the combined company’s common stock.

Dril-Quip and Innovex are expected to incur significant transaction costs in connection with the mergers, which may be in excess of those anticipated by them.

Dril-Quip and Innovex have incurred and are expected to continue to incur significant non-recurring costs associated with negotiating and completing the mergers, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by Dril-Quip and Innovex whether or not the mergers are completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs and filing fees. Dril-Quip will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. Dril-Quip and Innovex will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the mergers and the integration of the two companies’ businesses. While Dril-Quip and Innovex have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by Dril-Quip or Innovex even if the mergers are not completed, could have an adverse effect on Dril-Quip’s or Innovex’s financial condition and operating results.

Litigation relating to the mergers could result in an injunction preventing the completion of the mergers and/or substantial costs to Dril-Quip and Innovex.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into acquisition, merger, or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Dril-Quip’s and Innovex’s respective liquidity and financial condition.

Lawsuits that may be brought against Dril-Quip, Innovex or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the mergers. One of the conditions to the closing of the mergers is that no law or governmental order is in effect that restrains, enjoins, makes illegal or otherwise prohibits the closing of the mergers. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the mergers, that injunction may delay or prevent the mergers from being completed within the expected timeframe or at all, which may adversely affect Dril-Quip’s and Innovex’s respective business, financial position and results of operation. Either Dril-Quip or Innovex may terminate the merger agreement if any governmental order permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement becomes final and nonappealable, so long as the party seeking to terminate the merger agreement has used its reasonable best efforts prevent the entry of and to remove such governmental order in accordance with the terms of the merger agreement.

There can be no assurance that any of the defendants will be successful in the outcome of any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the mergers are completed may adversely affect Dril-Quip’s or Innovex’s business, financial condition, results of operations and cash flows.

 

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The mergers may be completed even though material adverse changes subsequent to the announcement of the mergers, such as industry-wide changes or other events, may occur.

In general, either party can refuse to complete the mergers if there is a material adverse change affecting the other party. However, some types of changes do not permit either party to refuse to complete the transaction, even if such changes would have a material adverse effect on either of the parties. For example, a worsening of Dril-Quip’s or Innovex’s financial condition or results of operations due to a decrease in commodity prices or general economic conditions would not give the other party the right to refuse to complete the mergers. In addition, the parties have the ability, but are under no obligation, to waive any material adverse change that results in the failure of a closing condition and instead proceed with completing the mergers. If adverse changes occur that affect either party, but the parties are still required or voluntarily decide to complete the transaction, Dril-Quip’s share price, business and financial results after the mergers may suffer.

Risks Relating to the Combined Company

Dril-Quip may be unable to integrate the businesses of Innovex successfully or realize the anticipated benefits of the mergers.

The mergers involve the combination of companies that currently operate as independent companies, in the case of Dril-Quip and Innovex. The combination of independent businesses is complex, costly and time consuming, and each of Dril-Quip and Innovex will be required to devote significant management attention and resources to integrating the respective business practices and operations of the companies. Potential difficulties that the companies may encounter as part of the integration process include the following:

 

   

the inability to successfully combine the businesses of Innovex with Dril-Quip in a manner that permits the combined company to achieve, on a timely basis or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the mergers;

 

   

complexities associated with managing the combined businesses, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

 

   

the assumption of contractual obligations with less favorable or more restrictive terms; and

 

   

potential unknown liabilities and unforeseen increased expenses or delays associated with the mergers.

In addition, Dril-Quip and Innovex have previously operated and, until the completion of the mergers, will continue to operate, independently. It is possible that the integration process could result in:

 

   

diversion of the attention of each company’s management; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.

Any of these issues could adversely affect each company’s ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the mergers or could reduce each company’s earnings or otherwise adversely affect the business and financial results of the combined company following the mergers.

The synergies attributable to the mergers may vary from expectations.

Dril-Quip may fail to realize the anticipated benefits and synergies expected from the mergers, which could adversely affect the combined company’s business, financial condition and operating results. The success of the mergers will depend, in significant part, on Dril-Quip’s ability to successfully integrate the acquired business and realize the anticipated strategic benefits and synergies from the combination. The anticipated benefits of the

 

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transaction may not be realized fully or at all, or may take longer to realize than expected. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than expected or may take longer to achieve than anticipated. If the combined company is not able to achieve these objectives and realize the anticipated benefits and synergies expected from the mergers within the anticipated timing or at all, the combined company’s business, financial condition and operating results may be adversely affected.

Legal proceedings and governmental investigations could have a negative impact on the business, financial condition and results of operations of the combined company.

The nature of the business of the combined company will make it susceptible to legal proceedings and governmental investigations from time to time. Lawsuits or claims against the combined company, including pending lawsuits and claims against Dril-Quip and Innovex, could have a material adverse effect on the combined company’s business, financial condition and results of operations. Any legal proceedings or claims, even if fully indemnified or insured, could negatively affect the combined company reputation among its customers and the public, and make it more difficult for the combined company to compete effectively or obtain adequate insurance in the future.

The future results of the combined company following the mergers will suffer if the combined company does not effectively manage its expanded operations.

Following the mergers, the size and geographic footprint of the business of the combined company will increase. The combined company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and geographies and associated increased costs and complexity. The combined company may also face increased scrutiny from governmental authorities as a result of the increase in the size of its business. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the mergers.

The mergers may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the modification or termination of existing contracts.

Following the mergers, some of the customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners of Dril-Quip or Innovex may modify, terminate or scale back their current or prospective business relationships with the combined company. Some customers may not wish to source a larger percentage of their needs from a single company or may feel that the combined company is too closely allied with one of their competitors. In addition, Dril-Quip and Innovex have contracts with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners that may require Dril-Quip or Innovex to obtain consents from these other parties in connection with the mergers, which may not be obtained on favorable terms or at all. If relationships with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners are adversely affected by the mergers, or if the combined company loses the benefits of the contracts of Dril-Quip or Innovex, the combined company’s business and financial performance could suffer.

The market price of the combined company’s common stock may be volatile, and holders of the combined company’s common stock could lose a significant portion of their investment due to drops in the market price of the combined company’s common stock following completion of the mergers.

The market price of the combined company’s common stock may be volatile due to factors unrelated to the combined company’s operating performance or prospects. Specific factors that may have a significant effect on the market price for the combined company’s common stock include, among others, the following:

 

   

changes in stock market analyst recommendations or earnings estimates regarding the combined company, other companies comparable to it or companies in the industries they serve;

 

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actual or anticipated fluctuations in the combined company’s operating results or future prospects;

 

   

reaction to public announcements by the combined company;

 

   

strategic actions taken by the combined company or its competitors, such as acquisitions, divestitures or restructurings;

 

   

failure of the combined company to achieve the perceived benefits of the mergers, including financial results and anticipated synergies, as rapidly as or to the extent anticipated by financial or industry analysts;

 

   

adverse conditions in the financial market or general U.S. or international economic conditions, including those resulting from war, incidents of terrorism and response to such events; and

 

   

sales of the combined company’s common stock by members of its management team or significant stockholders.

Additionally, current stockholders of Dril-Quip and Innovex may reduce or eliminate their investment in the combined company for various reasons, including in order to comply with institutional investing guidelines, to increase diversification, to track any rebalancing of stock indices in which Dril-Quip’s common stock is included, to respond to the risk profile of the combined company or to realize a gain. If, following the mergers, large amounts of the combined company’s common stock are sold, the price could decline.

The unaudited pro forma financial information included in this document is presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the mergers.

The unaudited pro forma financial information contained in this document is presented for illustrative purposes only, is based on various adjustments, assumptions and preliminary estimates and may not be an indication of the combined company’s financial condition or results of operations following the mergers for several reasons. The actual financial condition and results of operations of the combined company following the mergers may not be consistent with—or evident from—this unaudited pro forma financial information. In addition, the assumptions used in preparing the unaudited pro forma financial information may prove to be inaccurate, and other factors may affect the combined company’s financial condition or results of operations following the mergers. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

Business issues currently faced by Dril-Quip or Innovex may be imputed to the operations of the other.

To the extent that either Dril-Quip or Innovex currently has or is perceived by customers to have operational challenges, such as service performance, safety issues or workforce issues, those challenges may raise concerns by existing customers of the other company following the mergers, which may limit or impede the combined company’s future ability to obtain additional work from those customers.

Certain of the stockholders of the combined company will have the ability to exercise significant influence over certain corporate actions following completion of the mergers.

Following the mergers, Amberjack and its affiliates are expected to collectively own approximately 43% of the combined company’s outstanding common stock. As a result, these stockholders could have significant influence over the outcome of matters requiring a stockholder vote, including the election of directors, the adoption of any amendment to the combined company’s bylaws and the approval of mergers and other significant corporate transactions. Their influence over the combined company may have the effect of delaying or preventing a change of control or may adversely affect the voting and other rights of other stockholders. In

 

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addition, pursuant to the stockholders agreement, subject to certain exceptions, Amberjack and its affiliates are expected to have the right to designate four nominees for election to the combined company’s nine-member board of directors. Finally, if these stockholders were in the future to sell all or a material number of shares of common stock, the market price of the combined company’s common stock could be negatively impacted.

The bylaws of the combined company provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between the combined company and its stockholders, which could limit the combined company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or employees.

It is anticipated that the combined company will adopt an amendment to the Dril-Quip bylaws in substantially the form included in the proxy statement/prospectus as Annex D (the “amended bylaws”), which will provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware) is the exclusive forum for any claims, including claims in the right of the combined company: (a) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or (b) as to which the DGCL confers jurisdiction upon the Court of Chancery. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. The amended bylaws further provide that the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act, to the fullest extent permitted by law, shall be the federal district courts of the United States. The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. Alternatively, if a court were to find either exclusive forum provision in the combined company’s bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on its business, financial condition, and results of operations.

Other Risks Relating to Dril-Quip

As a result of entering into the merger agreement, Dril-Quip’s business is and will be subject to the risks described above. In addition, Dril-Quip is, and following completion of the mergers, the combined company will be, subject to the risks described in Dril-Quip’s Annual Report on Form 10-K for the year ended December 31, 2023 as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement/prospectus.

 

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Other Risks Relating to Innovex

As a result of entering into the merger agreement, Innovex’s business is and will be subject to the risks described above. In addition, Innovex is, and following completion of the mergers, the combined company will be, subject to the following risks:

Innovex’s business and financial performance depend primarily upon the general level of activity in the oil and natural gas industry, including the number of drilling rigs in operation, the number of oil and natural gas wells being drilled, the volume of production, the number of well completions and the level of well remediation activity and the corresponding capital expenditures by oil and natural gas companies within North America, the Middle East, Latin America and Europe, among other global markets. A decline in prices for oil and natural gas may have an adverse effect on Innovex’s revenue, cash flows, profitability and growth.

Demand for most of Innovex’s products and services depends primarily on the level of activity in the oil and natural gas industry in North America, the Middle East, Latin America and Europe, among other global markets. As a result, Innovex’s operations are dependent on the levels of activity and capital spending in oil and natural gas exploration, development and production. A prolonged reduction in oil and natural gas prices would generally depress the level of oil and natural gas exploration, development, production, and well completion activity and would result in a corresponding decline in the demand for the products and services that Innovex provides. The significant decline in oil and natural gas prices that occurred in 2020 caused a reduction in Innovex customers’ spending and associated drilling and completion activities, which had an adverse effect on its revenue. While oil and natural gas prices have since increased, should prices again decline, similar declines in Innovex customers’ spending would have an adverse effect on Innovex’s revenue. In addition, a worsening of these conditions may result in a material adverse impact on certain of Innovex customers’ liquidity and financial position resulting in further spending reductions, delays in the collection of amounts owing to Innovex and other similar impacts.

Many factors over which Innovex has no control affect the supply of and demand for, and Innovex customers’ willingness to explore, develop and produce oil and natural gas, and therefore, influence the volumes Innovex can sell and the prices Innovex can charge for its products and services, including:

 

   

the global supply of, and demand for, oil and natural gas;

 

   

the level of prices, and expectations about future prices, of oil and natural gas;

 

   

the level of global oil and natural gas exploration and production;

 

   

the cost of exploring for, developing, producing and delivering oil and natural gas;

 

   

the supply of and demand for Innovex’s products and services;

 

   

global or national health concerns, including health epidemics such as the COVID-19 pandemic;

 

   

the expected decline rates of current production;

 

   

inability to acquire or maintain necessary permits or mining or water rights;

 

   

the price and quantity of foreign imports;

 

   

political and economic conditions in oil and natural gas producing countries and regions, including the United States, the Middle East, Africa, Europe, Latin America and Russia;

 

   

actions by the members of the Organization of the Petroleum Exporting Countries, Russia and other oil producing countries with respect to oil production levels and announcements of potential changes in such levels;

 

   

speculative trading in crude oil and natural gas derivative contracts;

 

   

the level of consumer product demand;

 

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the discovery rates of new oil and natural gas reserves;

 

   

contractions in the credit market;

 

   

the strength or weakness of the U.S. dollar;

 

   

available pipeline and other transportation capacity;

 

   

the levels of oil and natural gas storage;

 

   

the proximity and capacity of oil and natural gas pipelines and other transportation facilities;

 

   

adverse weather conditions and other natural disasters;

 

   

U.S. and non-U.S. tax policy;

 

   

U.S. and non-U.S. governmental approvals and regulatory requirements and conditions;

 

   

the continued threat of terrorism and the impact of military and other action, including military action in the Middle East and the Russia-Ukraine war;

 

   

technical advances affecting energy consumption;

 

   

the price and availability of alternative fuels and energy sources;

 

   

uncertainty in commodities markets and the ability of oil and natural gas producers to raise equity capital and debt financing;

 

   

acquisition and divestiture activity among oil and natural gas producers;

 

   

cyclical/seasonal business and dependence upon spending of Innovex customers;

 

   

competition among oilfield service and equipment providers;

 

   

changes in transportation regulations that result in increased costs or administrative burdens; and

 

   

overall domestic and global economic conditions.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty. A decline in oil and natural gas prices may have a material adverse effect on Innovex’s business, results of operations and financial condition.

The cyclical nature of the oil and natural gas industry may cause Innovex’s operating results to fluctuate.

Innovex derives its revenues from companies in the oil and natural gas exploration and production and oilfield services industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices. Innovex has experienced, and may in the future experience, significant fluctuations in operating results as a result of the reactions of its customers to changes in oil and natural gas prices. For example, prolonged low commodity prices experienced by the oil and natural gas industry during 2015, 2016 and 2020, combined with adverse changes in the capital and credit markets, caused many exploration and production companies to reduce their capital budgets and drilling activity. This resulted in a significant decline in demand for oilfield services and products and adversely impacted the volume of products and services oilfield services companies could sell, and the prices oilfield services companies could charge for their products and services. In addition, a majority of the revenue Innovex earns is based upon product sales at market pricing. By selling its products at market pricing, Innovex is exposed to the risks of a rapid reduction in prices and resulting volatility in Innovex’s revenues.

Innovex is subject to risks relating to existing international operations and expansion into new geographical markets.

Innovex continues to focus on expanding sales globally as part of its overall growth strategy and expects sales from outside the United States to continue to represent a significant and growing portion of its revenue.

 

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Innovex’s international operations and global expansion strategy are subject to general risks related to such operations, including:

 

   

political, social and economic instability and disruptions;

 

   

export controls, economic sanctions, embargoes, import controls, duties and tariffs, and other trade restrictions;

 

   

the imposition of duties and tariffs and other trade barriers;

 

   

limitations on ownership and on repatriation or dividend of earnings;

 

   

transportation delays and interruptions;

 

   

labor unrest and current and changing regulatory environments;

 

   

increased compliance costs, including costs associated with disclosure requirements and related due diligence;

 

   

difficulties in staffing and managing multi-national operations;

 

   

limitations on Innovex’s ability to enforce legal rights and remedies;

 

   

access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks; and

 

   

fluctuations in foreign currency exchange rates.

If Innovex is unable to successfully manage the risks associated with expanding its global business or adequately manage operational risks of its existing international operations, these risks could have a material adverse effect on Innovex’s growth strategy into new geographical markets, its reputation, its business, results of operations, financial condition and cash flows.

Innovex often sells and rents products to International Oil Companies (“IOCs”) and National Oil Companies (“NOCs”). Many IOCs and NOCs require products to undergo extensive registration and qualification processes before such product can be purchased or rented. This process can take several years to complete. Innovex will seek to undergo these registration and qualification processes for its current and future products, and there is no guarantee Innovex’s products will successfully complete these processes, or if Innovex does, that such IOCs or NOCs will purchase or rent such products in the future.

Innovex must comply with export and import controls, economic sanctions and embargoes, and other international trade laws and regulations and any failure to comply with such laws and regulations could subject Innovex to liability and have a material adverse impact on its business, financial condition and results of operations.

Innovex conducts business globally, and its business activities and services are subject to import and export control laws and regulations, as well as economic sanctions and other international trade laws of the United States and other countries. Innovex must comply with U.S. export and import controls, economic sanctions, embargoes and other international trade laws, including the U.S. Commerce Department’s Export Administration Regulations and economic sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control and the U.S. Department of State. Although Innovex has instituted policies and procedures designed to promote compliance with such laws and regulations, violations of import or export control laws and regulations or economic sanctions, embargoes or other international trade laws could result in negative consequences to Innovex, including government investigations, sanctions, criminal or civil fines or penalties, more onerous compliance requirements, loss of authorizations or licenses needed to conduct aspects of its business, default under debt, reputational harm and other adverse consequences. Moreover, if any of Innovex’s counterparties or jurisdictions where it conducts business becomes the target of economic sanctions,

 

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Innovex may face an array of issues, including, but not limited to, having to abandon the related project, being unable to recoup prior invested time and capital or being subject to lawsuits, investigations or regulatory proceedings that could be time consuming and expensive to respond to, and which could lead to criminal or civil fines or penalties. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations can cause delays in shipments and unscheduled operational downtime.

Innovex’s operations outside the United States must comply with a number of U.S. and international regulations, violations of which could have a material adverse effect on Innovex’s business, results of operations, and financial condition.

Innovex’s operations outside the United States must comply with a number of U.S. and international regulations. For example, Innovex’s operations in countries outside the United States are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage. Innovex’s activities create the risk of unauthorized payments or offers of payments by Innovex’s employees or agents that could be in violation of anti-corruption laws, even though some of these parties are not subject to Innovex’s control. Innovex has internal control policies and procedures and has implemented training and compliance programs for its employees and agents to promote and achieve compliance with the FCPA and other similar laws. However, Innovex cannot assure that its compliance policies, procedures and programs will always protect Innovex from unlawful acts committed by its employees or agents. Innovex is also subject to the risks that its employees and agents outside of the United States may fail to comply with other applicable laws. Violations of anti-corruption laws may result in severe criminal or civil sanctions, and Innovex may be subject to other liabilities, which could have a material adverse effect on its business, results of operations and financial condition. In addition, any major violations could have a significant effect on Innovex’s reputation and consequently on Innovex’s ability to win future business and maintain existing customer and supplier relationships.

Innovex is also required to comply with various complex U.S. and foreign tax laws, regulations and treaties. These laws, regulations and treaties can change frequently and significantly, and it is reasonable to expect changes in the future. If Innovex fails to comply with any of these tax laws, regulations or treaties, it could be subject to, among other things, civil and criminal prosecution, fines, penalties and confiscation of Innovex’s assets, which could disrupt its ability to provide its products and services to its customers. Any of these events could have a material adverse effect on Innovex’s business, financial condition, results of operations and cash flows.

The scope of Innovex’s international operations subjects Innovex to risks from currency fluctuations that could adversely affect Innovex’s liquidity, financial position and results of operations.

Innovex’s non-U.S. operations generate significant revenues and earnings. Fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of the products Innovex provides in international markets where payment for Innovex’s products is made in the local currency. Innovex has significant operations in several key international and offshore markets, including the Middle East, Latin America and Europe, among others (together “International and Offshore markets”), where Innovex earned approximately 34% of its revenues in 2023. Although not all revenue is priced in local currency, Innovex’s financial results are affected by currency fluctuations, and the impact of those currency fluctuations on the underlying economies. Innovex generally does not use financial instruments that exposes Innovex to significant risk involving foreign currency transactions; however, the relative size of Innovex’s non-U.S. activities has a significant impact on reported operating results and its net assets. Therefore, as exchange rates change, Innovex’s results can be materially affected.

 

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Also, Innovex has a diverse supply chain that utilizes international vendors to provide certain services, including machining services, and source raw materials, component parts and finished products from countries other than that of the intended sale. This practice can give rise to foreign exchange risk.

Policy changes affecting international trade could adversely impact the demand for Innovex’s products and its competitive position.

Changes in government policies on foreign trade and investment can affect the demand for Innovex’s products and services, impact the competitive position of Innovex’s products and services or prevent Innovex from being able to sell products and services in certain countries. Innovex’s business benefits from free trade agreements, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, economic sanctions, anti-boycott laws, exchange controls or new barriers to entry, could have a material adverse effect on Innovex’s results of operations, financial condition or cash flows. For example, Innovex is experiencing increased tariffs on certain of its products and product components from China, and dissolved its Russian subsidiary following the imposition of economic sanctions and export controls by the U.S. and other governments and counter measures by Russia. However, these tariffs and other trade policies have not ultimately had a material adverse effect on Innovex’s results due to, among other reasons, the implementation of various mitigation efforts in conjunction with Innovex’s supply chain and end market partners.

Innovex’s business, financial condition and results of operations may be affected by economic sanctions and export controls, including those targeting Russia.

During 2014, the United States, the European Union and the United Kingdom and certain other countries imposed sanctions on certain sectors of the Russian economy, and on certain individuals and entities, and additional sanctions have been imposed since 2014, including with respect to the energy sector. In response to Russia’s military action in Ukraine in 2022, the United States, the European Union and the United Kingdom, among others, have imposed significant economic sanctions and export control measures on Russia and others supporting Russia’s military and political actions in Ukraine, including blocking or “asset freezing” sanctions on designated entities and individuals; restrictions on the Russian energy and financial sectors; blocking economic activity in certain areas of Ukraine not controlled by the Ukrainian government; prohibitions in relation to investment in Russia; prohibitions and restrictions relating to Russian origin oil and oil products; and export controls limiting the export of a wide range of goods and technical assistance to Russia. In response, Russia has implemented counter-sanctions, including restrictions on the divestment from Russian assets by foreign investors and restrictions on the payments of dividends and transfers of funds out of Russia by foreign investors. Existing and future economic sanctions, export controls, import controls and other measures, as well as the existing and potential further responses from Russia or other countries to such economic sanctions, and further tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect Innovex’s business, financial condition and results of operations.

Changes in U.S. and international tax rules and regulations, or interpretations thereof, may materially and adversely affect Innovex’s cash flows, results of operations and financial condition.

Innovex is subject to income- and non-income-based taxes in the United States under federal, state and local jurisdictions and in the foreign jurisdictions in which it operates. Tax laws, regulations and administrative practices in various jurisdictions may be subject to significant change, with or without advance notice, due to economic, political and other conditions, and significant judgment is required in evaluating and estimating Innovex’s provision and accruals for these taxes. Innovex’s tax liabilities could be affected by numerous factors, such as changes in tax, accounting and other laws, regulations, administrative practices, principles and interpretations, the mix and level of earnings in a given taxing jurisdiction or Innovex’s ownership or capital structure. For example, on August 16, 2022, the United States enacted the Inflation Reduction Act (“IRA”),

 

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which is highly complex, subject to interpretation, and contains significant changes to U.S. tax law. The U.S. Department of the Treasury and the IRS are expected to release further regulations and interpretive guidance implementing the legislation contained in the IRA, but the details and timing of such regulations are subject to uncertainty at this time. It is possible that the enactment of changes in the U.S. corporate tax system, including in connection with the IRA, could have a material effect on Innovex’s consolidated cash taxes in the future.

Innovex faces significant competition that may cause Innovex to lose market share.

The oilfield services industry is highly competitive. The principal competitive factors impacting sales of Innovex’s products are technology, service quality, safety track record and price. The market is also fragmented and includes numerous small companies capable of competing effectively in Innovex’s markets on a local basis, as well as several large companies that possess substantially greater financial and other resources than Innovex does. Innovex’s larger competitors’ greater resources could allow those competitors to compete more effectively than Innovex can. For instance, Innovex’s larger competitors may offer products at below-market prices or bundle ancillary products and services at no additional cost to Innovex’s customers. Innovex competes with large national and multi-national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than Innovex does. Several of Innovex’s competitors provide a broader array of products and services and have a stronger presence in more geographic markets.

Some jobs are awarded on a bid basis, which further increases competition based on price. Pricing is one of the primary factors in determining which qualified contractor is awarded a job. The competitive environment may be further intensified by mergers and acquisitions among oil and natural gas companies or other events that have the effect of reducing the number of available customers. If competition remains the same or increases as a result of future industry downturns, Innovex may be required to lower its prices, which would adversely affect Innovex’s results of operations. In the future, Innovex may lose market share or be unable to maintain or increase prices for its present products or to acquire additional business opportunities, which could have a material adverse effect on its business, financial condition, results of operations and cash flows.

Innovex’s competitors may be able to respond more quickly to new or emerging technologies and services and changes in customer requirements. The amount of equipment available may exceed demand, which could result in active price competition.

In addition, competition among oilfield equipment providers is affected by each provider’s reputation for safety and quality. Innovex cannot assure that it will be able to maintain its competitive position.

Innovex’s business depends upon Innovex’s ability to obtain specialized equipment, parts and key raw materials from third-party suppliers, and Innovex may be vulnerable to delayed deliveries and future price increases.

Innovex purchases certain parts and raw materials, as well as specialized equipment from third-party suppliers and affiliates. At times during the commodity price cycle, there is a high demand for oilfield services and extended lead times to obtain raw materials needed to provide these services. Even if Innovex has multiple suppliers of a particular raw material, there are occasionally shortages which lead to price increases. Any significant disruption in supply could affect Innovex’s ability to obtain raw materials or satisfactory substitutes or could increase the cost of such raw materials or substitutes, which could have a material adverse effect on Innovex’s liquidity, financial position and results of operations. Should Innovex’s current suppliers be unable or unwilling to provide the necessary parts, raw materials or equipment or otherwise fail to deliver the products timely and in the quantities required, any resulting delays in the provision of Innovex’s products could have a material adverse effect on Innovex’s business, financial condition, results of operations and cash flows. In addition, future price increases for this type of parts, raw materials and equipment could negatively impact Innovex’s ability to meet the current demands of its customers.

 

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Innovex is subject to the risk of supplier concentration for certain product lines.

Certain of Innovex’s product lines, including frac plugs and well intervention tools, depend on a limited number of third-party suppliers and vendors, including for supplies of certain raw materials. As a result of this concentration in some of its supply chains, Innovex’s business and operations could be negatively affected if Innovex’s key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of its products. The partial or complete loss of any one of Innovex’s key suppliers, or a significant adverse change in the relationship with any of these suppliers, through consolidation or otherwise, would limit Innovex’s ability to manufacture or sell certain of Innovex’s products, or require Innovex to depend on costly alternatives, which may impact financial performance.

Innovex could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of raw materials or if Innovex is unable to obtain raw materials.

Innovex purchases raw materials, sub-assemblies and components for use in manufacturing operations, which exposes it to volatility in prices for certain commodities. Significant price increases for these commodities could adversely affect Innovex’s operating profits. Additionally, like others in Innovex’s industry, in 2023, Innovex faced, and continues to face considerable inflation in raw materials cost. In addition to general inflationary pressures relating to the global economy reopening, adverse weather may also result in raw materials supply chain disruptions, that can lead to short-term raw material cost inflation. International conflicts or other geopolitical events, such as the continuing Russia-Ukraine war, may also cause upward pressure on raw materials costs due to transportation disruptions, higher manufacturing costs, disruptions in supply chains and availability of raw materials, interruptions in manufacturing operation, and heightened inflation. While Innovex will generally attempt to mitigate the impact of increased raw material prices by endeavoring to make strategic purchasing decisions, broadening its supplier base and passing along increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of Innovex’s products. For example, one of Innovex’s product families depends on alloying elements such as magnesium, with China providing the majority of the world supply. Prices for alloying elements like magnesium are subject to constant volatility and may increase significantly from time to time. The inability to obtain necessary raw materials on acceptable terms could affect Innovex’s ability to meet customer commitments and satisfy demand for certain products. Public health threats, such as the COVID-19 pandemic, severe influenza and other highly communicable viruses or diseases, in addition to international conflicts or other geopolitical events or extreme weather events could limit access to vendors and its facilities, or the ability to transport raw materials from Innovex’s vendors, which would adversely affect Innovex’s ability to obtain necessary raw materials for certain of its products or increase the costs of such materials. A significant price increase in or the unavailability of raw materials may result in a loss of customers and adversely impact Innovex’s business, results of operations, financial condition and cash flows, and could result in asset impairments, including an impairment of the carrying value of Innovex’s goodwill.

Innovex is exposed to counterparty credit risk. Nonpayment and nonperformance by Innovex’s customers, suppliers or vendors could adversely impact Innovex’s operations, cash flows and financial condition.

Weak economic conditions, volatility in the banking sector and/or widespread financial distress could reduce the liquidity of Innovex’s customers, suppliers or vendors, making it more difficult for them to meet their obligations to Innovex. Severe financial problems encountered by Innovex customers, suppliers and vendors could limit Innovex’s ability to collect amounts owed to it or to enforce the performance of obligations owed to it under contractual arrangements and/or limit its ability to enter into future contractual arrangements with such customers, suppliers or vendors. In the event that any of Innovex’s customers were to enter into bankruptcy, Innovex could lose all or a portion of the amounts owed to it by such customer, and Innovex may be forced to cancel all or a portion of its contracts with such customer at significant expense to Innovex.

In addition, nonperformance by suppliers or vendors who have committed to provide Innovex with critical products or services could raise Innovex’s costs or interfere with its ability to successfully conduct its business.

 

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These factors, combined with volatile prices of oil and natural gas, may precipitate a continued economic slowdown and/or a recession.

Growth in drilling and completion activity, and Innovex’s ability to benefit from such growth, could be adversely affected by any significant constraints in equipment, labor or takeaway capacity in the regions in which Innovex operates.

Growth in drilling and completion activity may be impacted by, among other things, the availability and cost of oil country tubular goods, pipeline capacity, and material and labor shortages. Should significant growth in activity occur there could be concerns over availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market. Should significant constraints develop that materially impact the efficiency and economics of oil and natural gas producers, growth in drilling and completion activity could be adversely affected. This would have an adverse impact on the demand for Innovex’s products, which could have a material adverse effect on Innovex’s business, results of operations and cash flows.

Equipment failures or production curtailments or shutdowns at Innovex’s manufacturing and production facilities could adversely affect Innovex’s manufacturing capability.

Innovex’s manufacturing capacity is subject to equipment failures and the risk of catastrophic loss due to unanticipated events, such as fires, explosions and adverse weather conditions. Innovex’s manufacturing processes depend on critical pieces of equipment. Such equipment may, on occasion, be out of service as a result of unanticipated failures, which could require Innovex to close part or all of the relevant manufacturing and production facility or cause it to reduce production on one or more of Innovex’s product lines. Any interruption in manufacturing capability may require Innovex to make significant and unanticipated capital expenditures to effect repairs, which could have a negative effect on Innovex’s profitability and cash flows. Innovex carries extra expense coverage; however, recoveries under insurance coverage that it currently maintains or may obtain in the future may not be sufficient to completely offset the lost revenues or increased costs resulting from a disruption of Innovex’s operations. A sustained disruption to Innovex’s business could also result in delays to or cancellations of customer orders and contractual penalties, which may also negatively impact Innovex’s reputation among its customers. Any or all of these occurrences could have a material adverse effect on Innovex’s business, results of operations, financial condition and prospects.

Innovex relies on a few key employees whose absence or loss could adversely affect Innovex’s business.

Many key responsibilities within Innovex’s business have been assigned to a small number of employees. Innovex depends on its current senior management for the implementation of Innovex’s strategy and the supervision of its day-to-day activities. However, there can be no assurance that these individuals will continue to make their services available to Innovex in the future. The loss of their services could adversely affect Innovex’s business. In particular, the loss of the services of one or more members of Innovex’s senior management team could disrupt Innovex’s operations. The loss or diminution of the services of Innovex’s senior management or an inability to attract and retain additional senior management personnel could have a material adverse effect on Innovex’s business, financial condition, results of operations and prospects. Further, competition in Innovex’s industry for personnel with relevant expertise is intense due to the relatively small number of qualified individuals, and this competition could affect Innovex’s ability to retain its existing senior management and attract additional suitably qualified senior management personnel. As a result, the departure of key managers could have a material adverse effect on Innovex’s business, financial condition, results of operations and prospects. Innovex does not maintain “key person” life insurance policies on any of Innovex’s employees. As a result, Innovex is not insured against any losses resulting from the death of Innovex’s key employees.

 

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If Innovex is unable to employ a sufficient number of skilled and qualified workers, Innovex’s capacity and profitability could be diminished and Innovex’s growth potential could be impaired.

Many of Innovex’s products are mechanically complex and often must perform in extremely challenging conditions. The design and delivery of Innovex’s products requires skilled and qualified technical personnel with specialized skills and experience, and Innovex’s ability to be productive and profitable will depend upon Innovex’s ability to employ and retain skilled workers. In addition, Innovex’s ability to expand its operations depends in part on its ability to increase the size of its skilled labor force. The demand for skilled workers is high, and the supply is limited. As a result, competition for experienced personnel is intense, and Innovex faces significant challenges in competing for crews and management with large and well-established competitors. A significant increase in the wages paid by competing employers could result in a reduction of Innovex’s skilled labor force, increases in the wage rates that Innovex must pay, or both. If either of these events were to occur, Innovex’s capacity and profitability could be diminished and its growth potential could be impaired.

A negative shift in investor sentiment of the oil and natural gas industry has had and could in the future have adverse effects on Innovex’s customers’ operations, its business and on its access to investors and financing.

Certain segments of the investor community have developed negative sentiment towards investing in Innovex’s industry. Equity returns over the last decade in the sector versus other industry sectors have led to lower oil and natural gas and related services representation in certain key equity market indices. Investors and lenders may factor historical returns into future investment and financing decisions. In addition, some investors, including investment advisors and certain sovereign wealth funds, pension funds, university endowments and family foundations, have stated policies to disinvest in the oil and natural gas sector based on their social and environmental considerations. Certain other stakeholders have also pressured commercial and investment banks and other lenders and investors to stop financing oil and natural gas production and related infrastructure projects, which adversely affects Innovex’s customers. Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could result in downward pressure on the stock prices of oilfield service companies, including Innovex’s stock price. While a substantial number of banks and financing sources remain active in investments related to the oil and natural gas and oilfield services industries, it is possible that the investment avoidance or limitation theme could expand in the future and restrict access to capital for Innovex’s customers and for companies like Innovex.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to environmental, social and governance matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable environmental, social and governance ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward Innovex and its customers and to the diversion of investment to other industries, which could have a negative impact on Innovex’s business and both Innovex’s and its customers’ access to and cost of capital. Also, institutional lenders may decide not to provide funding for fossil fuel energy companies based on climate change-related concerns, which could affect Innovex’s or its customers’ access to capital for potential growth projects. Reputational value is based in large part on perceptions of subjective qualities, and even isolated incidents may erode trust and confidence and have adverse effects on Innovex’s business and financial results, particularly if it results in adverse publicity or widespread reaction on social media.

Innovex’s ability to access capital and credit markets or borrow on affordable terms to obtain additional capital could be limited.

From time to time, Innovex may need to access capital or credit markets to obtain financing. Innovex’s ability to access capital or credit markets for financing could be limited by oil and natural gas prices, its capital structure, its credit ratings, the state of the economy, the health or market perceptions of the oil and natural gas industry, the liquidity or instability of the capital markets, regional banks or other lending institutions and

 

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environmental, social and governance considerations and other factors. Many of the factors that affect Innovex’s ability to access capital and credit markets are outside of Innovex’s control. Among other things, Innovex’s lenders may seek to increase interest rates, enact tighter lending standards, refuse to refinance existing debt at maturity at favorable terms or at all and may reduce or cease to provide funding to Innovex. While Innovex seeks to diversify, and evaluate the risk exposure of, the financial institutions with which it does business, Innovex cannot guarantee that any such institution will not be placed into receivership or otherwise be negatively impacted by the current volatility in the banking sector. No assurance can be given that Innovex will be able to access capital or credit markets on terms acceptable to Innovex when required to do so, which could have a material adverse impact on Innovex’s business, financial condition and results of operations.

The growth of Innovex’s business through recently completed acquisitions and potential future acquisitions may expose Innovex to various risks, including those relating to difficulties in identifying suitable, accretive acquisition opportunities and integrating businesses, assets and personnel, as well as difficulties in obtaining financing for targeted acquisitions.

Innovex has pursued and intends to continue to pursue selected, accretive acquisitions of complementary assets and businesses. Acquisitions involve numerous risks, including:

 

   

unanticipated costs and exposure to liabilities assumed in connection with the acquired business or assets, including, but not limited to, environmental liabilities and title issues;

 

   

difficulties in integrating the operations and assets of the acquired business and the acquired personnel;

 

   

complexities associated with managing a larger, more complex, integrated business;

 

   

limitations on Innovex’s ability to properly assess and maintain an effective internal control environment over an acquired business;

 

   

potential losses of key employees, customers and business partners of the acquired business;

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention from their day-to-day responsibilities caused by completing an acquisition and integrating an acquired business;

 

   

risks of entering markets in which Innovex has limited prior experience; and

 

   

increases in Innovex’s expenses and working capital requirements.

The process of integrating an acquired business may involve unforeseen costs and delays or other operational, technical and financial difficulties, and may require a significant amount of time and resources. Difficulties may arise when integrating an acquired business’s operations and in realizing expected benefits and synergies from acquisitions. The integration process may involve unforeseen difficulties and may require a disproportionate amount of managerial and financial resources. The inability to successfully integrate the operations of acquired businesses may prevent consolidation savings and result in the incurrence of unanticipated costs and liabilities.

Failure to incorporate acquired businesses and assets into its existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on the business, liquidity position, financial condition, prospects and results of operations. Furthermore, competition for acquisitions may increase the cost of or otherwise impede the completion of acquisitions.

In addition, insufficient capital resources would prevent the completion of any acquisitions. Historically, Innovex has financed its acquisitions primarily with funding from its equity investors, commercial borrowings and cash generated by operations, as well as equity consideration and debt financing arrangements. The combined company may incur substantial indebtedness to finance any future acquisitions and also may issue equity, debt or convertible securities in connection with such acquisitions. Debt service requirements could represent a significant

 

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burden on the combined company’s results of operations and financial condition, and the issuance of additional equity or convertible securities could be dilutive to the combined company’s stockholders. Furthermore, the combined company may not be able to obtain additional financing as needed or on satisfactory terms.

The combined company’s ability to continue to grow through acquisitions and manage growth will require the combined company to continue to invest in operational, financial and management information systems and to attract, retain, motivate and effectively manage its employees. The inability to effectively manage the integration of acquisitions could reduce the combined company’s focus on operations, which, in turn, could negatively impact its earnings and growth. The combined company’s financial position and results of operations may fluctuate significantly from period to period, based on whether or not significant acquisitions are completed in particular periods.

Inflation could adversely impact Innovex’s ability to control costs, including operating expenses and capital costs.

Although inflation has been relatively low in recent years, it rose significantly in the second half of 2021 and continued through 2023. In addition, global and industry-wide supply chain disruptions have resulted in shortages in labor, materials and services. Such shortages have resulted in inflationary cost increases for labor, materials and services and could continue to cause costs to increase, as well as a scarcity of certain products and raw materials. To the extent inflation remains elevated, Innovex may experience further cost increases for its operations, as well as increased labor costs. Innovex cannot predict any future trends in the rate of inflation, and a significant increase in inflation could negatively impact its business, financial condition and results of operations.

Disruptions in Innovex’s supply chain for materials and components and the resulting increase in equipment and logistics costs could adversely affect Innovex’s financial performance.

Innovex is subject to risk from fluctuating manufacturing costs of its products based on surging consumer demand. Prices of these manufacturing costs, including the components and materials of Innovex’s products, may be affected by supply restrictions or other market factors from time to time. Innovex cannot predict whether the countries in which the components and materials are sourced, or may be sourced in the future, will be subject to new or additional trade restrictions, including the likelihood, type or effect of any such restrictions. Trade restrictions, including embargoes, safeguards and customs restrictions against certain components and materials, as well as labor strikes and work stoppages or boycotts, could increase the cost or reduce or delay the supply of components and materials available to Innovex and its vendors, which could delay or adversely affect the scope of Innovex’s projects under development or construction and adversely affect its business, financial condition or results of operations.

Innovex’s indebtedness and liquidity needs could restrict its operations and make Innovex more vulnerable to adverse economic conditions.

Innovex’s existing and future indebtedness, whether incurred in connection with acquisitions, operations or otherwise, and limited access to liquidity may adversely affect Innovex’s operations and limit its growth, and Innovex may have difficulty making debt service payments on such indebtedness as payments become due. Innovex’s level of indebtedness may affect its operations in several ways, including the following:

 

   

increasing Innovex’s vulnerability to general adverse economic and industry conditions;

 

   

the covenants that are contained in the agreements governing Innovex’s indebtedness could limit its ability to borrow funds, dispose of assets, pay dividends and make certain investments;

 

   

Innovex’s debt covenants could also affect its flexibility in planning for, and reacting to, changes in the economy and in its industry;

 

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any failure to comply with the financial or other debt covenants, including covenants that impose requirements to maintain certain financial ratios, could result in an event of default, which could result in some or all of Innovex’s indebtedness becoming immediately due and payable;

 

   

Innovex’s level of debt could impair its ability to obtain additional financing, or obtain additional financing on favorable terms, in the future for working capital, capital expenditures, acquisitions or other general corporate purposes; and

 

   

Innovex’s business may not generate sufficient cash flow from operations to enable Innovex to meet its obligations under its indebtedness.

Restrictions in Innovex’s debt agreements and any future financing agreements may limit Innovex’s ability to finance future operations, meet capital needs or capitalize on potential acquisitions and other business opportunities.

The operating and financial restrictions and covenants in existing and future debt agreements could restrict Innovex’s ability to finance future operations, meet capital needs or expand or pursue its business activities. For example, Innovex’s debt agreements restrict or limit its ability to:

 

   

grant liens;

 

   

incur additional indebtedness;

 

   

engage in a merger, consolidation or dissolution;

 

   

enter into transactions with affiliates;

 

   

sell or otherwise dispose of assets, businesses and operations;

 

   

substantially change the nature of Innovex’s business as conducted at the closing of the mergers; and

 

   

make acquisitions, capital expenditures or other investments and make dividends or repurchase Innovex’s stock.

Furthermore, Innovex’s debt agreements contain certain other operating and financial covenants, including the obligation to satisfy a certain fixed charge coverage ratio, a leverage ratio and a liquidity requirement. Innovex’s ability to comply with the covenants and restrictions contained in its debt agreements may be affected by events beyond Innovex’s control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Innovex’s ability to comply with these covenants may be impaired. If Innovex violates any of the restrictions, covenants, ratios or tests in its debt agreements, all or a significant portion of Innovex’s indebtedness may become immediately due and payable, and its lenders’ commitment to make further loans to Innovex may terminate. Innovex might not have, or be able to obtain, sufficient funds to make these accelerated payments. Innovex’s credit facility is secured by liens on substantially all of Innovex’s assets and certain of its future subsidiaries and guarantees from certain of its future subsidiaries, and any acceleration of its debt obligations could result in a foreclosure on the collateral securing such debt. Innovex’s debt agreements also require Innovex to make mandatory prepayments in certain circumstances, including a requirement to make a prepayment of the term loans with a certain percentage of Innovex’s excess cash flow each year. This excess cash flow payment, and other future required prepayments, will reduce Innovex’s cash available for investment in Innovex’s business. Any subsequent replacement of Innovex’s debt agreements or any new indebtedness could have similar or greater restrictions. Please see “Innovex Managements Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement.”

An increase in interest rates would increase the cost of servicing Innovex’s indebtedness and could reduce its profitability, decrease its liquidity and impact its solvency.

A number of Innovex’s existing debt agreements provide for, and its future debt agreements may provide for, debt incurred thereunder to bear interest at variable rates. As a result, increases in interest rates could increase the cost of servicing such indebtedness and materially reduce Innovex’s profitability and cash flows.

 

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Innovex’s operations and its customers’ operations are subject to unforeseen interruptions and hazards inherent in the oil and natural gas industry, for which Innovex and its customers may not be adequately insured and which could cause Innovex to lose customers and substantial revenue.

Innovex’s operations and its customers’ operations are exposed to the risks inherent to its industry, such as equipment defects, vehicle accidents, fires, explosions, blowouts, surface cratering, uncontrollable flows of gas or well fluids, pipe or pipeline failures, abnormally pressured formations and various environmental hazards, such as oil spills and releases of, and exposure to, hazardous substances. In addition, Innovex’s operations and its customers’ operations are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes. The occurrence of any of these events could result in substantial losses to Innovex or its customers due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties or other damage resulting in curtailment or suspension of Innovex’s operations or its customers’ operations. The cost of managing such risks may be significant. The frequency and severity of such incidents may affect operating costs, insurability and relationships with customers, employees and regulators. Innovex’s customers may elect not to purchase Innovex’s products and services if they view its environmental or safety record as unacceptable, which could cause Innovex to lose customers and substantial revenues.

Innovex’s insurance may not be adequate to cover all losses or liabilities it may suffer. Furthermore, Innovex may be unable to maintain or obtain insurance of the type and amount it desires at reasonable rates. As a result of market conditions, premiums and deductibles for certain of Innovex’ insurance policies have increased and could escalate further. In addition, sub-limits have been imposed for certain risks. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If Innovex was to incur a significant liability for which it is not fully insured, it could have a material adverse effect on Innovex’s business, results of operations and financial condition. In addition, Innovex may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause Innovex to restrict its operations, which might severely impact its financial position.

A terrorist attack or armed conflict could harm Innovex’s business.

Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States could adversely affect the U.S. and global economies and could prevent Innovex from meeting financial and other obligations. Innovex could experience loss of business, delays or defaults in payments from payors or disruptions of fuel supplies and markets if pipelines, production facilities, processing plants, refineries or transportation facilities are direct targets or indirect casualties of an act of terror or war. Such activities could reduce the overall demand for oil and natural gas, which, in turn, could also reduce the demand for Innovex’s products. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect Innovex’s results of operations, impair its ability to raise capital or otherwise adversely impact its ability to realize certain business strategies.

Innovex designs, manufactures, sells, rents and installs products that are used in oil and natural gas exploration, development and production activities, which may subject Innovex to liability, including claims for personal injury, property damage, environmental contamination and other regulatory fines and penalties should such equipment fail to perform to specifications.

Innovex provides products and systems to customers involved in oil and natural gas exploration, development and production. Some of Innovex’s equipment is designed to operate in high-temperature and/or high-pressure environments, and some equipment is designed for use in hydraulic fracturing operations. Because of applications to which Innovex’s products are exposed, particularly those involving high pressure environments, a failure of such equipment, or a failure of Innovex’s customers or its contractors to maintain or operate the equipment properly, could cause damage to the equipment, damage to the property of customers and

 

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others, personal injury and environmental contamination and could negatively impact customer relationships, which could subsequently have an adverse effect on Innovex’s business, results of operations and cash flows.

Innovex’s customers typically assume responsibility for, including control and removal of, all pollution or contamination which may occur during operations, including that which may result from seepage or any other uncontrolled flow of drilling fluids. Losses due to catastrophic events, such as blowouts, are generally the responsibility of the customer. However, Innovex may have liability in such cases if it is negligent or commits willful acts. In addition, Innovex typically has mutual indemnification agreements with customers on a “knock-for-knock” basis, which generally means that Innovex and its customers assume liability for Innovex’s respective personnel, subcontractors and property. As a result of this allocation of risk, Innovex may be liable for certain losses, which could be substantial. Furthermore, despite the general allocation of risk whereby Innovex customers have agreed to assume responsibility for or indemnify Innovex against certain liabilities, Innovex might not succeed in enforcing such contractual allocation or might incur an unforeseen liability falling outside the scope of such allocation. Litigation arising from a catastrophic occurrence at a location where Innovex’s products and equipment are being used may result in Innovex being named as a defendant in lawsuits asserting large claims. In addition, Innovex’s customers may be unable to satisfy indemnification claims against them. As a result, Innovex may incur substantial losses which could materially and adversely affect Innovex’s financial condition and results of operations.

In addition, Innovex relies on third-party insurance as part of Innovex’s risk mitigation strategy. However, Innovex’s insurance may not be adequate to cover its liabilities. Further, insurance companies may refuse to honor its policies, or insurance may not generally be available in the future, or if available, premiums may not be commercially justifiable. Innovex could incur substantial liabilities and damages that are either not covered by insurance or that are in excess of policy limits, or incur liability at a time when it is not able to obtain liability insurance. Such potential liabilities could have a material adverse effect on Innovex’s business, results of operations and cash flows.

Oilfield anti-indemnity provisions enacted by many U.S. states may restrict or prohibit a party’s indemnification of Innovex.

Innovex typically enters into agreements with its customers governing the provision of Innovex’s services, which usually include certain indemnification provisions for losses resulting from operations. Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence. Furthermore, certain states, including Louisiana, New Mexico, Texas and Wyoming, have enacted statutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements. Such oilfield anti-indemnity acts may restrict or void a party’s indemnification of Innovex, which could have a material adverse effect on Innovex’ business, results of operations and cash flows.

Innovex does not carry insurance against all potential risks and losses, and Innovex’s insurance might be inadequate to cover all of its losses or liabilities or may not be available on commercially reasonable terms.

Innovex has a limited, and potentially insufficient, insurance coverage for expenses and losses that may arise in connection with the quality of Innovex’s products, property damage, work-related accidents and occupational illnesses, natural disasters and environmental contamination. Innovex does not have insurance coverage for loss of profits or other losses caused by the death or incapacitation of Innovex’s senior management. Losses or liabilities arising from these or other such events could increase Innovex’s costs and could have a material adverse effect on its business, financial condition, results of operations and prospects.

 

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Seasonal weather conditions, natural disasters, public health crises, and other catastrophic events outside of Innovex’s control could severely disrupt normal operations and harm Innovex’s business.

Innovex’s operations are located in different regions of the United States and around the world. Some of these areas are adversely affected by seasonal weather conditions, primarily in the winter and spring. However, as evidenced by the severe winter weather experienced in the southern United States and Canada during February 2021, weather-related hazards can exist in almost all the areas where Innovex operates. During periods of heavy snow, ice or rain, Innovex may be unable to obtain adequate supplies of raw material or fuel or receive products shipped by a third party, and its employees may be unable to travel to supervise and manage implementation of Innovex’s products and services, thereby reducing Innovex’s ability to provide its products and technologies and generate revenues. The exploration activities of Innovex’s customers may also be affected during such periods of adverse weather conditions. Additionally, extended drought conditions in Innovex’s operating regions could impact Innovex’s or its customers’ ability to source sufficient water or increase the cost for such water. As a result, a natural disaster or inclement weather conditions could severely disrupt the normal operation of Innovex’s business and adversely impact Innovex’s financial condition and results of operations. Climate change may exacerbate the likelihood or intensity of such natural disasters or inclement weather conditions. Furthermore, if the area in which Innovex operates or the market demand for oil and natural gas is affected by a public health crisis, such as the COVID-19 pandemic, or other similar catastrophic events outside of Innovex’s control, its business and results of operations could suffer.

Innovex’s estimates of market opportunity and forecasts of market growth may prove to be inaccurate.

Even if Innovex’s total addressable market (“TAM”) estimates are accurate or the markets in which Innovex competes achieve the forecasted growth, Innovex’s business could fail to grow at similar rates, if at all. Market estimates and growth forecasts, including those of Rystad Energy and Innovex’s management, are uncertain and based on assumptions and estimates that may be inaccurate. The size of Innovex’s TAM depends on a number of factors, including changes in the competitive landscape, technological changes, customer budgetary constraints, changes in business practices, changes in the regulatory environment, changes in economic conditions and the price Innovex can charge for its products and services. Innovex’s estimates relating to the size of Innovex’s TAM may prove to be inaccurate. Even if the markets in which Innovex competes meet the size estimates and growth rates it estimates or forecasts, Innovex’s business could fail to grow at similar rates, if at all, which could cause the trading price of its common stock to decline or be volatile.

Innovex has identified material weaknesses in Innovex’s internal control over financial reporting which, if not corrected, could affect the reliability of the combined company’s financial statements and have other adverse consequences. Additional material weaknesses in internal controls over financial reporting may be identified, which may not be remedied in a timely manner.

Innovex identified material weaknesses in its internal control over financial reporting during the year ended December 31, 2023. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Innovex did not design and maintain effective controls related to the accounting for income taxes at a sufficient level of precision or rigor to prepare, review and reconcile the income tax provision, related income tax assets and liabilities and corresponding valuation allowance and the income tax disclosures in Innovex’s consolidated financial statements. In addition, Innovex did not design and maintain effective controls related to the review of the accounting for income taxes as a result of its failure to employ personnel with adequate expertise to identify and evaluate complex income tax accounting matters. These findings resulted in material weaknesses in Innovex’s internal control over financial reporting during the year ended December 31, 2023. The material weaknesses described above resulted in audit adjustments to deferred tax assets and liabilities, the income tax valuation allowance and related disclosures as of and for the year ended December 31, 2023.

 

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Innovex has taken steps towards remediating these material weaknesses primarily by designing and implementing additional internal controls, including those related to (i) the preparation and review of the income tax provision, related income tax assets and liabilities and corresponding valuation allowance, and the income tax disclosures in Innovex’s consolidated financial statements to ensure the mathematical accuracy and completeness of information underlying the income tax provision conclusions are sufficient to timely identify potential misstatements, and (ii) the employment of personnel with adequate expertise to identify and evaluate complex income tax accounting matters. Although Innovex has been in the process of remedial action to address the internal control deficiencies that led to the material weaknesses, Innovex was not able to fully remediate these deficiencies in 2023 and is unable to assure that the measures it has taken to date and it expects to take in the future will be sufficient to remediate the material weaknesses it identified or avoid the identification of additional material weaknesses in the future.

Effective internal controls are necessary for the combined company to provide reliable financial reports, prevent fraud and operate successfully. Innovex cannot assure that it has identified all, or that it will not in the future have additional, material weaknesses. If the material weaknesses are not remediated, any future material weaknesses related to financial reporting are identified or there are difficulties in implementing or improving internal controls or a failure to develop and maintain effective internal control over financial reporting, then the combined company’s reputation and operating results could be harmed, the combined company could fail to meet its reporting obligations or it may have a restatement of its financial statements. Ineffective internal control over financial reporting could also cause investors to lose confidence in the combined company’s reported financial information, which would harm the combined company’s business and likely have a negative effect on the trading price of the combined company’s shares of common stock.

Risks Related to Environmental and Regulatory Matters

Innovex’s operations and the operations of Innovex’s customers are subject to environmental, health and safety laws and regulations, and future compliance, claims, and liabilities relating to such matters may have a material adverse effect on Innovex’s results of operations, financial position or cash flows.

The nature of Innovex’s customers’ operations, including the sourcing, handling, transporting and disposing of a variety of fluids and substances, including hydraulic fracturing fluids, such as produced water, and other regulated substances, air emissions, and wastewater discharges exposes Innovex’s customers to some risk of environmental liability, including the release of pollutants from oil and natural gas wells and associated equipment to the environment. Failure of Innovex’s customers to properly handle, transport or dispose of these materials or otherwise conduct its operations in accordance with environmental, health and safety laws could expose such customers to substantial liability for administrative, civil and criminal penalties, cleanup and site restoration costs and liability associated with the release of such materials, damages to natural resources and other damages, which could have an adverse effect on Innovex’s business, results of operations and cash flows. Innovex is also subject to laws and regulations associated with equipment manufacturing operations, including the processing, and the related storage, handling, transportation and disposal of raw materials, products and wastes. The cost of compliance with these laws can be significant.

Additionally, environmental, health and safety laws and regulations have changed in the past, and they may change in the future and become more stringent. Current and future claims and liabilities with respect to environmental, health and safety laws may have a material adverse effect on both Innovex and its customers because of potential adverse outcomes, defense costs, diversion of management resources, unavailability of insurance coverage and other factors. If existing environmental, health and safety requirements or enforcement policies change, Innovex may be required to make significant unanticipated operating expenditures.

Innovex’s operations, and those of its customers, are subject to a series of risks arising from climate change.

Climate change continues to attract considerable public and scientific attention. As a result, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state

 

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levels of government to monitor and limit emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”). These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources.

In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, President Biden has established addressing climate change as a priority of his administration and has issued several executive orders addressing climate change. Additionally, in 2021 and 2022, President Biden signed into law the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, which contain billions of dollars in incentives and other provisions to advance the investment, development, and deployment of alternative energy sources and technologies. Moreover, following the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the federal Clean Air Act (“CAA”), the U.S. Environmental Protection Agency (the “EPA”) has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, and together with the Department of Transportation, set GHG emissions and fuel economy standards for vehicles in the United States. The regulation of methane from oil and natural gas facilities has been subject to uncertainty in recent years. The EPA previously had promulgated new source performance standards (“NSPS”) imposing limitations on methane emissions from sources in the oil and natural gas sector. Subsequently, in September 2020, the Trump Administration rescinded those methane standards and removed the transmission and storage segments from the oil and natural gas source category under the CAA’s NSPS. However, in June 2021, President Biden signed a resolution passed by the U.S. Congress under the Congressional Review Act nullifying the September 2020 rule, effectively reinstating the prior standards. In December 2023, the EPA announced new, final regulations to expand NSPS requirements for oil and natural gas sector sources and establish comprehensive standards of performance and emission guidelines for methane and volatile organic compound emissions from existing operations in the oil and natural gas sector, including the exploration and production, transmission, processing, and storage segments. Once finalized, the regulations are likely to be subject to legal challenge and will also need to be incorporated into the states’ implementation plans, which will need to be approved by the EPA in individual rulemakings that could also be subject to legal challenge. These new standards, to the extent implemented, could result in increased costs for Innovex customers and consequently adversely affect demand for Innovex products.

Separately, various states and groups of states have adopted or are considering adopting legislation, regulation or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. For example, several states, including Pennsylvania and New Mexico, have proposed or adopted regulations restricting the emission of methane from exploration and production activities. At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting “Paris Agreement” requires member states to submit non-binding, individually determined reduction goals known as “Nationally Determined Contributions” every five years after 2020. In April 2021, President Biden announced a goal of reducing the U.S.’s emissions by 50-52% below 2005 levels by 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas emissions, including reducing global methane emissions by at least 30% by 2030 from 2020 levels. More than 150 countries have now signed on to this pledge. Most recently, at the 28th Conference of the Parties in the United Arab Emirates, world leaders agreed to transition away from fossil fuels in a just, orderly and equitable manner and to triple renewables and double energy efficiency globally by 2030. The impacts of these orders, pledges, agreements, and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, cannot be predicted at this time.

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including climate change related pledges made by certain candidates now in public office. On January 27, 2021, President Biden issued an executive order that calls

 

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for substantial action on climate change, including, among other things, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across government agencies and economic sectors. The Biden Administration has also issued orders temporarily suspending the issuance of authorizations, and suspending the issuance of new leases pending a study, for oil and natural gas development on federal lands. As a result, Innovex cannot predict the full impact of these developments or whether the Biden Administration may pursue further restrictions. Other actions that could be pursued by the Biden Administration may include the imposition of more restrictive requirements for the establishment of pipeline infrastructure or the permitting of liquefied natural gas (“LNG”) export facilities, as well as more restrictive GHG emission limitations for oil and natural gas facilities. Litigation risks are also increasing as a number of entities have sought to bring suit against various oil and natural gas companies in state or federal court, alleging among other things, that such companies created public nuisances by producing fuels that contributed to climate change or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts.

There are also increasing financial risks for fossil fuel producers as stockholders currently invested in fossil fuel energy companies may elect in the future to shift some or all of their investments into non-fossil fuel related sectors. Institutional lenders who provide financing to fossil fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. Additionally, the SEC recently proposed new rules relating to the disclosure of a range of climate-related risks. Innovex is currently assessing this rule but at this time it cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. To the extent this rule is finalized as proposed, Innovex or its customers could incur increased costs related to the assessment and disclosure of climate-related risks. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to its investments in certain carbon intensive sectors.

The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate the GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce demand for Innovex’s products. Additionally, litigation and financial risks may result in Innovex customers restricting or cancelling production activities, incurring liability for infrastructure damages as a result of climatic changes, or impairing its ability to continue to operate in an economic manner, which also could reduce the demand for its products. One or more of these developments could have a material adverse effect on Innovex’s business, financial condition and results of operations.

Finally, many scientists have concluded that increasing concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climate events that could have an adverse effect on Innovex’s and its customers’ operations.

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing as well as governmental reviews and investment practices for such activities may serve to limit future oil and natural gas exploration and production activities and could have a material adverse effect on Innovex’s results of operations and business.

Various federal, state and local legislative and regulatory initiatives have been, or could be undertaken which could result in additional requirements or restrictions being imposed on hydraulic fracturing operations.

 

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Currently, hydraulic fracturing is generally exempt from federal regulation under the Safe Drinking Water Act Underground Injection Control (the “SDWA UIC”) program and is typically regulated by state oil and natural gas commissions or similar agencies. However, certain federal agencies have increased scrutiny and regulation. For example, in late 2016, the EPA released a final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain limited circumstances. Additionally, the EPA has asserted regulatory authority pursuant to the SDWA UIC program over hydraulic fracturing activities involving the use of diesel fuel in the fracturing fluid and issued guidance of such activities. Furthermore, the U.S. Bureau of Land Management (the “BLM”) published a final rule in 2015 that established stringent standards relating to hydraulic fracturing on federal and Native American lands. The rule was rescinded by the BLM under the Trump Administration in 2017, but the rescission is currently on appeal to the U.S. Court of Appeals for the Ninth Circuit and new or more stringent regulations may be promulgated by the Biden administration. Similarly, the EPA has adopted rules on the capture of methane and other emissions released during hydraulic fracturing. In addition to federal regulatory actions, legislation has been introduced, but not enacted, in U.S. Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the hydraulic fracturing process.

Separately, the Biden Administration has taken action to restrict exploration and production activities, including hydraulic fracturing, on public lands. Many states and local governments have also adopted regulations that impose more stringent permitting, disclosure, disposal and well-construction requirements on hydraulic fracturing operations, including states where Innovex or its customers operate, such as Texas, Colorado and North Dakota. States could also elect to place prohibitions on hydraulic fracturing, as several states have already done. In addition, some states have adopted broader sets of requirements related to oil and natural gas development more generally that could impact hydraulic fracturing activities. Separately, state and federal regulatory agencies have at times focused on a possible connection between hydraulic fracturing related activities, including the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity. Regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells or otherwise to assess any relationship between seismicity and the use of such wells. To the extent any new regulations are adopted to restrict hydraulic fracturing activities or the disposal of fluids associated with such activities, it may adversely affect Innovex customers and, as a result, demand for its products.

Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to, and litigation concerning, oil and natural gas production activities using hydraulic fracturing techniques. Additional legislation or regulation could also lead to operational delays for Innovex customers or increased operating costs in the production of oil and natural gas, including from the developing shale plays, or could make it more difficult for Innovex customers to perform hydraulic fracturing. The adoption of any additional laws or regulations regarding hydraulic fracturing or further restrictions on the availability of capital for hydraulic fracturing could potentially cause a decrease in the completion of new oil and natural gas wells, increased compliance costs and time and an associated decrease in demand for Innovex’s products. Such a decrease could have a material adverse effect on Innovex’s liquidity, consolidated results of operations, and consolidated financial condition. Moreover, the increased competitiveness of alternative energy sources (such as wind, solar, geothermal, nuclear, tidal and biofuels) or increased focus on reducing the use of combustion engines in transportation (such as governmental mandates that ban the sale of new gasoline-powered automobiles) could reduce demand for hydrocarbons and therefore for Innovex products, which would lead to a reduction in its revenues and adversely affect its financial performance.

Conservation measures, commercial development and technological advances could reduce demand for oil and natural gas and Innovex’s products.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand

 

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for oil and natural gas, resulting in reduced demand for oilfield services. The impact of the changing demand for oil and natural gas services and products may have a material adverse effect on Innovex’s business, financial condition, results of operations and cash flows.

The commercial development of economically viable alternative energy sources and related products (such as electric vehicles, wind, solar, geothermal, nuclear, tidal, fuel cells and biofuels) could have a similar effect. In addition, certain U.S. federal income tax deductions currently available with respect to oil and natural gas exploration and development, including the allowance of percentage depletion for oil and natural gas properties, may be eliminated as a result of proposed legislation. Any future decreases in the rate at which oil and natural gas reserves are discovered or developed, whether due to the passage of legislation, increased governmental regulation leading to limitations, or prohibitions on exploration and drilling activity, including hydraulic fracturing, or other factors, could have a material adverse effect on Innovex’s business and financial condition, even in a stronger oil and natural gas price environment.

Additional restrictions on drilling activities intended to protect certain species of wildlife may adversely affect Innovex’s ability to conduct completion activities.

In the United States, the Endangered Species Act (the “ESA”) restricts activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act (the “MBTA”). To the extent species that are listed under the ESA or similar state laws, or are protected under the MBTA, inhabit the areas where Innovex customers operate, the operations of its customers could be adversely impacted. Moreover, drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting seasons. The listing of new species under the ESA in the areas where Innovex customers operate similarly has the potential to adversely impact its operations and demand for its products as a result of restrictions on oil and natural gas activities. The U.S. Fish and Wildlife Service and similar state agencies may also designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species. The designation of previously unidentified endangered or threatened species or their habitat could cause the operations of Innovex customers to become subject to operating restrictions or bans, and limit future development activity in affected areas.

Risks Related to Technology Advancement

New technology may cause Innovex to become less competitive.

The oilfield services industry is subject to the introduction of new drilling and completions techniques and services using new technologies, some of which may be subject to patent or other intellectual property protections. Although Innovex believes its products and technologies currently give it a competitive advantage, as competitors and others use or develop new or comparable technologies in the future, Innovex may lose market share or be placed at a competitive disadvantage. Further, Innovex may face competitive pressure to develop, implement or acquire certain new technologies at a substantial cost. Some of Innovex’s competitors have greater financial, technical and personnel resources that may allow them to enjoy various competitive advantages in the development and implementation of new technologies. Innovex cannot be certain that it will be able to continue to develop and implement new technologies or products. Limits on Innovex’s ability to develop, bring to market, effectively use and implement new and emerging technologies may have a material adverse effect on Innovex’s business, results of operations and financial condition, including a reduction in the value of assets replaced by new technologies.

To compete in its industry, Innovex must continue to develop new technologies and products to support its operations, secure and maintain patents related to Innovex’s current and new technologies and products and protect and enforce Innovex’s intellectual property rights.

The markets for Innovex’s products are characterized by continual technological developments. Innovex may face competition in the future from companies using new technologies and new systems. If Innovex cannot

 

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continue to develop and market innovative technologies to meet customers’ requirements, its business may not expand and grow as planned. For Innovex to keep pace with technological changes and remain competitive, it will need to continue to make significant investments in new technologies and research and development, including to design and launch new products and services. New technologies may also be protected by third party patents or other intellectual property rights and therefore may not be available for Innovex’s use or protection. Further, alternative products and services may be developed which may compete with or displace Innovex’s products. Innovex may not be able to successfully differentiate its products from those of its competitors. Innovex’s clients may not consider its proposed products to be of value to them; or if the proposed products are of a competitive nature, Innovex’s clients may not view them as superior to its competitors’ products. If Innovex is not able to develop commercially competitive products in a timely manner in response, Innovex’s ability to service its customers’ demands may be adversely affected. Innovex’s future ability to develop new products and technologies in order to support its operations depends on Innovex’s ability to design and produce products that allow it to meet the needs of Innovex customers and third parties on an integrated basis and obtain and maintain patent protection.

Innovex may encounter resource constraints, technical barriers, or other difficulties that would delay introduction of new products in the future. Innovex’s competitors may introduce new products or obtain patents before Innovex does and achieves a competitive advantage. Additionally, the time and expense invested in product development may not result in commercial applications. In addition, continuing development or acquisition of new products inherently carries the risk of inventory obsolescence with respect to Innovex’s older products.

While Innovex believes that it is not dependent on any one patent to protect its material technology, obtaining patent protection for Innovex’s products is an important component of its overall competitive business strategy. Innovex holds, as of December 31, 2023, approximately 300 U.S. and international patent properties, which give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents in the applicable country. Patent rights do not necessarily grant the owner of a patent the right to practice the invention claimed in a patent, but merely the right to exclude others from practicing the invention claimed in the patent. Patent laws and their implementation vary throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as U.S. laws. Further, policing the unauthorized use of Innovex’s intellectual property in foreign jurisdictions may be difficult. Therefore, Innovex’s intellectual property rights may not be as strong or as easily enforced outside of the United States. It may also be possible for a third party to design around Innovex’s patents. Furthermore, patent rights have territorial limits. Some of Innovex’s work will be conducted in international waters and would, therefore, not fall within the scope of any country’s patent jurisdiction. Innovex may not be able to enforce its patents against infringement occurring in international waters and other “non-covered” territories. Also, Innovex does not have patents in every jurisdiction in which it conducts business and its patent portfolio will not protect all aspects of its business and may relate to obsolete or unusual methods, which would not prevent third parties from entering the same market.

Innovex’s attempt to limit access to and distribution of its technology and trade secrets by customarily entering into confidentiality agreements with Innovex’s employees, customers and potential customers and suppliers. However, Innovex’s rights in its confidential information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar information. Publicly available information (for example, information in expired issued patents, published patent applications, and scientific literature) can also be used by third parties to independently develop technology. Innovex cannot provide assurance that this independently developed technology will not be equivalent or superior to Innovex’s proprietary technology.

In addition, Innovex may become involved in legal proceedings from time to time to protect and enforce its intellectual property rights. Further, Innovex’s intellectual property rights may not have the value that management believes it to have and such value may change over time as Innovex and others develop new product designs and improvements.

 

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If Innovex is unable to obtain patents, licenses and other intellectual property rights covering its products, Innovex’s operating results may be adversely affected.

Innovex’s success depends, in part, on Innovex’s ability to obtain patents, licenses and other intellectual property rights covering its products. To that end, Innovex has obtained certain patents and intends to continue to seek patents on some of its inventions, technologies and products. While Innovex has patented some of its key technologies, it does not patent all of its proprietary technology, even when regarded as patentable. The process of seeking patent protection can be long and expensive. Further, there can be no assurance that patents will be issued from currently pending or future applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to Innovex. In addition, effective copyright and trade secret protection may be unavailable or limited in certain countries. Litigation, which could demand significant financial and management resources, may be necessary to enforce Innovex’s patents or other intellectual property rights. Also, there can be no assurance that Innovex can obtain licenses or other rights to necessary intellectual property on acceptable terms. Failure to secure adequate protection for Innovex’s intellectual property rights could result in its competitors offering similar services and products, potentially resulting in the loss of some of Innovex’s competitive advantage, which could adversely affect its business, prospects, financial condition and operating results.

Technology disputes could negatively impact Innovex’s operations or increase its costs.

Innovex’s products use proprietary technology and equipment, which can involve potential infringement of a third party’s rights, or a third party’s infringement of Innovex’s rights, including patent rights. The majority of the intellectual property rights relating to Innovex’s products are owned by Innovex. However, in the event that Innovex or one of its customers becomes involved in a dispute over infringement of intellectual property rights relating to equipment or technology owned or used by Innovex, services performed by Innovex or products provided by Innovex, it may lose access to important equipment or technology or its ability to provide its products, or it could be required to cease use of some equipment or technology or forced to modify Innovex’s equipment, technology or products. Innovex could also be required to pay license fees or royalties for the use of equipment or technology or products. In addition, Innovex may lose a competitive advantage in the event it is unsuccessful in enforcing its rights against third parties. Regardless of the merits, any such claims may result in significant legal and other costs, including reputational harm, and may strain Innovex’s resources. Some of Innovex’s competitors and current and potential vendors have a substantial amount of intellectual property related to new equipment and technologies. Innovex cannot guarantee that its equipment, technology or products will not be determined to infringe currently issued or future issued patents or other intellectual property rights belonging to others, including, without limitation, situations in which Innovex’s equipment, technology or products may be covered by patent applications filed by other parties. Technology disputes involving Innovex or its customers or supplying vendors could have a material adverse impact on Innovex’s business, financial condition, cash flows and results of operations.

Innovex’s failure to protect its proprietary information and any successful intellectual property challenges against Innovex could materially and adversely affect Innovex’s competitive position.

The protection of Innovex’s intellectual property rights is essential to maintaining Innovex’s competitive position and recognizing the value of Innovex’s investments in technology and intellectual property in its existing and future products. Innovex relies on patent and trade secret protection for certain aspects of Innovex’s technology, in part through confidentiality and other written agreements with Innovex’s employees, consultants and third parties. Through these and other written agreements, Innovex attempts to control access to and distribution of its intellectual property documentation and other proprietary technology information. Despite Innovex’s efforts to protect its proprietary rights, former employees, consultants or third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute Innovex’s intellectual property rights or technology or otherwise develop a product with the same functionality as Innovex’s technology. Policing unauthorized use of Innovex’s intellectual property rights is difficult, and nearly impossible

 

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on a worldwide basis. Therefore, Innovex cannot be certain that the steps it has taken or will take in the future will prevent misappropriation of its technology or intellectual property rights.

Innovex also actively pursues patent protection for its proprietary technology and intellectual property. The process of seeking patent protection can be long and expensive and Innovex cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be respected by third parties. In addition, Innovex’s competitors may be able to develop technology independently that is similar to Innovex’s without infringing on Innovex’s patents or gaining access to Innovex’s trade secrets, and this could have a similar effect on Innovex’s competitive position.

Intellectual property litigation and threats of litigation are becoming more common in the oilfield services industry. Innovex may in the future be involved in litigation, in the United States or abroad, to enforce Innovex’s patents or other intellectual property rights or to protect its trade secrets and know-how. These actions can require multiple years to come to resolution or settlement, and even if Innovex ultimately prevails, it may be unable to realize adequate protection of Innovex’s competitive position. In addition, these actions commonly result in counteractions by the affected third parties to attack the validity of Innovex’s patents. While Innovex intends to prosecute these actions vigorously, there is no guarantee of success, and such effort takes significant financial and management resources from Innovex. In the event that one or more of Innovex’s patents are challenged, a court or the United States Patent and Trademark Office (“USPTO”) may invalidate the patent(s) or determine that the patent(s) is not enforceable, which could harm Innovex’s competitive position. If Innovex’s patents are invalidated, or if the scope of the claims in any of these patents is limited by a court or USPTO decision, Innovex could be prevented from pursuing certain litigation matters or licensing the invalidated or limited portion of such patents. Such adverse decisions could negatively impact Innovex’s future, expected revenue. Patent litigation, if necessary or when instituted against Innovex, could result in substantial costs and divert Innovex’s management’s attention and resources.

Innovex may be subject to claims that its employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of its current or former employers or claims asserting ownership of what Innovex regard as its own intellectual property.

Many of Innovex’s employees and consultants are currently or were previously employed at other companies in Innovex’s field, including its competitors or potential competitors. Although Innovex tries to ensure that its employees and consultants do not use the proprietary information or know-how of others in their work for Innovex, Innovex may be subject to claims that it or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If Innovex fails in defending any such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel. Even if Innovex is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while it is Innovex’s policy to require its employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to Innovex, Innovex may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that it regards as its own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and Innovex may be forced to bring claims against third parties or defend claims that they may bring against it to determine the ownership of what Innovex regards as its intellectual property. Any of the foregoing could have a material adverse effect on Innovex’s business, financial condition, results of operations and prospects.

Innovex may be adversely affected by disputes regarding intellectual property rights of third parties.

Third parties from time to time may initiate litigation against Innovex by asserting that the conduct of Innovex’s business infringes, misappropriates or otherwise violates intellectual property rights. Innovex may not

 

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prevail in any such legal proceedings related to such claims, and Innovex’s products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. If Innovex is sued for infringement and loses, it could be required to pay substantial damages and/ or be enjoined from using or selling the infringing products or technology. Any legal proceeding concerning intellectual property could be protracted and costly regardless of the merits of any claim and is inherently unpredictable and could have a material adverse effect on Innovex’s financial condition, regardless of its outcome.

If Innovex was to discover that its technologies or products infringe valid intellectual property rights of third parties, it may need to obtain licenses from these parties or substantially re-engineer Innovex’s products in order to avoid infringement. Innovex may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer Innovex’s products successfully. If Innovex’s inability to obtain required licenses for Innovex’s technologies or products prevents it from selling Innovex’s products, that could adversely impact Innovex’s financial condition and results of operations.

Additionally, Innovex currently licenses certain third-party intellectual property in connection with Innovex’s business, and the loss of any such license could adversely impact Innovex’s financial condition and results of operations.

If Innovex is not able to design, develop, and produce commercially competitive products, Innovex’s business and consolidated results of operations and the value of Innovex’s intellectual property could be materially and adversely affected.

The market for Innovex’s products is characterized by continual technological developments to provide better and more reliable performance and enhanced product offerings. If Innovex is not able to design, develop, and produce commercially competitive products in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, Innovex’s business and consolidated results of operations and the value of Innovex’s intellectual property could be materially and adversely affected. Likewise, if Innovex’s proprietary technologies, equipment, facilities, or work processes become obsolete, Innovex’s business may no longer be competitive, and Innovex’s consolidated results of operations could be materially and adversely affected.

Innovex is subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing activities. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Innovex’s technologies, systems and networks, and those of Innovex’s customers, vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of Innovex’s business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Innovex’s systems for protecting against cyber security risks may not be sufficient. As cyber incidents continue to evolve, Innovex may be required to expend additional resources to continue to modify or enhance Innovex’s protective measures or to investigate and remediate any vulnerability to cyber incidents.

Innovex has experienced IT system disruptions and cyberattacks in the past, and a failure of Innovex’s IT infrastructure and cyberattacks could adversely impact it in the future.

Innovex depends on its IT systems for the efficient operation of its business. Accordingly, Innovex relies upon the capacity, reliability and security of Innovex’s IT hardware and software infrastructure and Innovex’s ability to expand and update this infrastructure in response to Innovex’s changing needs. Despite Innovex’s

 

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implementation of security measures, Innovex’s systems are vulnerable to damage from computer viruses, natural disasters, incursions by intruders or hackers, failures in hardware or software, power fluctuations, cyber terrorists and other similar disruptions. Additionally, Innovex relies on third parties to support the operation of its IT hardware and software infrastructure, and in certain instances, utilize web-based applications. Innovex routinely monitors its systems for IT disruptions and cyberattacks and has processes in place to detect and remediate vulnerabilities. Nevertheless, Innovex has experienced occasional IT disruptions, cyberattacks and attempted breaches, including attacks resulting from phishing emails. Innovex responded to and mitigated the impact of these incidents. The failure of Innovex’s IT systems or those of its vendors to perform as anticipated for any reason or any significant breach of security could disrupt Innovex’s business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, inappropriate disclosure of confidential and proprietary information, reputational harm, increased overhead costs, loss of important information, theft or misappropriation of funds, violation of privacy or other laws, and exposure to litigation or indemnity claims, including resulting from customer-imposed cybersecurity controls or other related contractual obligations, which could have a material adverse effect on Innovex’s business and results of operations. In addition, Innovex may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

 

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SPECIAL MEETING

General

This proxy statement/prospectus is being provided to Dril-Quip stockholders as part of a solicitation of proxies by the Dril-Quip Board for use at the special meeting. This proxy statement/prospectus provides Dril-Quip stockholders with important information about the special meeting and should be read carefully in its entirety.

Date, Time and Place of the Special Meeting

The special meeting of Dril-Quip stockholders will be held at Dril-Quip’s executive offices at 2050 West Sam Houston Parkway S., Suite 1100, Houston, Texas 77042, on     , 2024, at     , local time.

Purpose of the Special Meeting

The special meeting of Dril-Quip stockholders is being held to consider and vote on:

 

  1.

a proposal to approve the issuance of shares of Dril-Quip common stock to Innovex stockholders in the mergers contemplated by the merger agreement for purposes of complying with Section 312.03(c) of the NYSE’s Listed Company Manual and, in the event such issuance constitutes a change of control, Section 312.03(d) of the NYSE’s Listed Company Manual;

 

  2.

a proposal to approve an amendment of Dril-Quip’s certificate of incorporation;

 

  3.

a non-binding advisory basis, upon six separately presented proposals to approve certain governance provisions in the charter amendment to, among other things, (i) increase the number of authorized shares of Dril-Quip’s common stock from 100 million to 200 million, (ii) limit the personal liability of corporate officers for money damages for breaches of their fiduciary duty of care in accordance with Section 102(b)(7) of the DGCL and (iii) waive corporate opportunities obligations, with respect to Amberjack and certain of its affiliates;

 

  4.

a proposal to approve the Innovex 2024 long-term incentive plan;

 

  5.

a non-binding advisory basis, the compensation that may be paid or become payable to Dril-Quip’s named executive officers that is based on or otherwise relates to the mergers; and

 

  6.

a proposal to approve the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the merger proposals.

Completion of the mergers is conditioned on approval by Dril-Quip stockholders of the merger proposals, but not the 2024 LTIP proposal, the non-binding compensation proposal or the adjournment proposal.

Recommendation of the Dril-Quip Board

The Dril-Quip Board unanimously recommends that Dril-Quip stockholders vote “FOR” the stock issuance proposal, “FOR” the charter amendment proposal, “FOR” the non-binding governance proposals, “FOR” the 2024 LTIP proposal, “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal.

This proxy statement/prospectus contains important information regarding the merger proposals, the 2024 LTIP proposal, the non-binding compensation proposal and the adjournment proposal and factors that Dril-Quip stockholders should consider when deciding how to cast their votes. Dril-Quip stockholders are encouraged to read the entire document carefully, including the annexes to and documents incorporated by reference into this proxy statement/prospectus, for more detailed information regarding the merger agreement, including the mergers and other transactions contemplated by the merger agreement, and the merger proposals, the non-binding compensation proposal and the adjournment proposal.

 

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Voting by Directors and Executive Officers

On the record date, Dril-Quip directors and executive officers, as a group, beneficially owned and were entitled to vote      shares of Dril-Quip common stock, or approximately  % of the issued and outstanding shares of Dril-Quip common stock. Although none of them has entered into any agreement obligating them to do so as a director or executive officer of Dril-Quip, Dril-Quip currently expects that all of its directors and executive officers will vote their shares “FOR” the stock issuance proposal, “FOR” the charter amendment proposal, “FOR” the non-binding governance proposals, “FOR” the 2024 LTIP proposal, “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal.

Record Date

The Dril-Quip Board has fixed the close of business on     , 2024 as the record date for the determination of the Dril-Quip stockholders entitled to receive notice of, and to vote at, the special meeting. The Dril-Quip stockholders of record on the record date are the only Dril-Quip stockholders that are entitled to receive notice of, and to vote at, the special meeting.

Outstanding Shares and Voting Rights of Dril-Quip Stockholders

At the close of business on the record date,     shares of Dril-Quip common stock were issued and outstanding, held of record by     holders. Each share of Dril-Quip common stock outstanding on the record date is entitled to one vote on each proposal and any other matter coming before the special meeting.

Stockholder List

A list of the Dril-Quip stockholders of record who are entitled to vote at the special meeting will be available at the special meeting for examination by any stockholder present at such meeting.

Quorum

No business may be transacted at the special meeting unless a quorum is present. Holders of shares of Dril-Quip common stock entitling them to exercise a majority of the voting power of Dril-Quip entitled to vote at the special meeting, present in person or represented by proxy, will constitute a quorum for the transaction of business to be considered at such meeting. Abstentions and broker non-votes will be included in determining whether a quorum is present at the special meeting. A “broker non-vote” occurs when a nominee (such as a broker) holding shares for a beneficial owner abstains from voting on a particular proposal because the nominee does not have discretionary voting power for that proposal and has not received instructions from the beneficial owner on how to vote those shares.

Adjournment

The special meeting may be adjourned from time to time by the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock, present in person or represented by proxy at the special meeting and entitled to vote thereon, regardless of whether there is a quorum, without further notice other than by an announcement made at the special meeting. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the merger proposals, then Dril-Quip stockholders may be asked to approve the adjournment proposal to adjourn the special meeting in order to permit the further solicitation of proxies. Regardless of whether there is a quorum, the Chairperson of the special meeting may also adjourn the special meeting.

No notice of the reconvened meeting is required to be given if the date, time and place are announced at the special meeting unless the reconvened meeting is more than 30 days after the date for which notice was

 

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originally given. At any reconvened special meeting at which a quorum is present, (i) any business may be transacted that may have been transacted at the special meeting had a quorum been present and (ii) all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent meeting.

Vote Required

The required votes to approve the proposals are as follows:

 

   

The stock issuance proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for this proposal.

 

   

The charter amendment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have the same effect as a vote “AGAINST” the approval of such proposal.

 

   

The non-binding governance proposals requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for such proposal.

 

   

The 2024 LTIP proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for this proposal.

 

   

The non-binding compensation proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for this proposal.

 

   

The adjournment proposal requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of the outstanding shares of Dril-Quip common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, regardless of whether there is a quorum. Shares that are not present in person or by proxy and broker non-votes (if any) will have no effect on the vote for this proposal; however, abstentions will have the same effect as a vote “AGAINST” the approval of such proposal.

Voting of Proxies by Holders of Record

If you were a record holder of Dril-Quip common stock at the close of business on the record date for the special meeting, a proxy card is enclosed for your use. Dril-Quip requests that you vote your shares as promptly as possible by (i) accessing the internet site listed on the Dril-Quip proxy card, (ii) calling the toll-free number listed on the Dril-Quip proxy card or (iii) submitting your Dril-Quip proxy card by mail by using the provided self-addressed, stamped envelope. Information and applicable deadlines for voting through the internet or by telephone are set forth on the enclosed proxy card. When the accompanying proxy is returned properly executed, the shares of Dril-Quip common stock represented by it will be voted at the special meeting in accordance with the instructions contained in the proxy card. Your internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card.

If a proxy is returned without an indication as to how the shares of Dril-Quip common stock represented are to be voted with regard to a particular proposal, the Dril-Quip common stock represented by the proxy will be

 

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voted in accordance with the recommendation of the Dril-Quip Board of directors and, therefore, “FOR” the stock issuance proposal, “FOR” the charter amendment proposal, “FOR” the non-binding governance proposals, FOR” the 2024 LTIP proposal, “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal.

At the date hereof, the Dril-Quip Board of directors has no knowledge of any business that will be presented for consideration at the special meeting and that would be required to be set forth in this proxy statement/prospectus or the related proxy card other than the matters set forth in Dril-Quip’s notice of special meeting of stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

Your vote is important. Accordingly, if you were a record holder of Dril-Quip common stock on the record date for the special meeting, please sign and return the enclosed proxy card or vote via the internet or telephone regardless of whether you plan to attend the special meeting in person. Proxies submitted through the specified internet website or by phone must be received by     , eastern time, on     , 2024 to ensure that the proxies are voted.

Shares Held in Street Name

If you hold shares of Dril-Quip common stock through a broker, bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you, and you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Dril-Quip or by voting in person at the special meeting unless you have a “legal proxy,” which you must obtain from your broker, bank or other nominee. Furthermore, brokers, banks or other nominees who hold shares of Dril-Quip common stock on behalf of their customers may not give a proxy to Dril-Quip to vote those shares without specific instructions from their customers.

If you are a Dril-Quip stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee may not vote your shares on any of the proposals.

Voting in Person

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. If you are a registered stockholder, please be prepared to provide proper identification, such as a driver’s license, at the special meeting. If your shares are held in “street name,” you must bring to the special meeting a proxy executed in your favor from the record holder (your broker, bank or other nominee) of the shares authorizing you to vote at the special meeting.

Proxies and Revocation

Dril-Quip stockholders of record may revoke their proxies at any time before their shares of Dril-Quip common stock are voted at the special meeting in any of the following ways:

 

   

delivering written notice of revocation of the proxy to Dril-Quip’s corporate secretary at Dril-Quip’s principal executive offices at 2050 West Sam Houston Pkwy S., Suite 1100, Houston, Texas 77042, by no later than 10:59 pm local time on     , 2024;

 

   

delivering another proxy with a later date to Dril-Quip’s corporate secretary at Dril-Quip’s principal executive offices at 2050 West Sam Houston Pkwy S., Suite 1100, Houston, Texas 77042, by no later than 10:59 pm local time on    , 2024 (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

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submitting another proxy again via the internet or by telephone at a later date, by no later than 10:59 pm local time on    , 2024 (in which case only the later-dated proxy is counted and the earlier proxy is revoked); or

 

   

attending the special meeting in person and voting his, her or its shares during the meeting; attendance at the special meeting will not, in and of itself, revoke a valid proxy that was previously delivered unless you give written notice of revocation to the Dril-Quip corporate secretary before the proxy is exercised or unless you vote your shares in person during the special meeting.

If your shares are held in “street name” through a broker, bank or other nominee and deliver voting instructions to the record holder of those shares, you may only revoke the voting of those shares in accordance with your instruction if the record holder revokes the original proxy as directed above and either resubmits a proxy reflecting your voting instructions or delivers to you a legal proxy giving you the right to vote the shares.

Solicitation of Proxies

Dril-Quip will pay for the proxy solicitation costs related to the special meeting. In addition to sending and making available these materials, some of Dril-Quip’s directors, officers and other employees may solicit proxies by contacting Dril-Quip stockholders by telephone, by mail, by e-mail or online. Dril-Quip stockholders may also be solicited by, among others, news releases issued by Dril-Quip and/or Innovex, postings on Dril-Quip’s or Innovex’s websites and social media accounts and advertisements in periodicals. None of Dril-Quip’s directors, officers or employees will receive any extra compensation for their solicitation services. Dril-Quip has also retained Morrow Sodali LLC as its proxy solicitor to assist in the solicitation of proxies. For these proxy solicitation services, Morrow Sodali LLC will receive an estimated fee of approximately $20,000, plus reasonable out-of-pocket expenses and fees for any additional services. Dril-Quip will also reimburse banks, brokers, and other nominees for their expenses in sending proxy solicitation materials to the beneficial owners of shares of Dril-Quip common stock and obtaining their proxies.

Other Matters

At this time, Dril-Quip knows of no other matters to be submitted at the special meeting.

Questions and Additional Information

Dril-Quip stockholders may contact Dril-Quip’s proxy solicitor with any questions about the merger proposals or how to vote or to request additional copies of any materials at:

Morrow Sodali LLC

333 Ludlow Street, 5th Floor, South Tower

Stamford, Connecticut 06902

Stockholders may call toll-free: (800) 662-5200

Banks and brokers may call collect: (203) 658-9400

 

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THE STOCK ISSUANCE PROPOSAL

This proxy statement/prospectus is being furnished to you as a stockholder of Dril-Quip as part of the solicitation of proxies by the Dril-Quip Board for use at the special meeting to consider and vote upon a proposal to approve the issuance of shares of Dril-Quip common stock in the mergers pursuant to the terms of the merger agreement, which is attached as Annex A to this proxy statement/prospectus.

Under the NYSE rules, a company listed on the NYSE is required to obtain stockholder approval prior to the issuance of common stock if (i) the number of shares of common stock to be issued in such transaction is equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the common stock under Section 312.03(c) of the NYSE’s Listed Company Manual or (ii) such issuance constitutes a change of control under Section 312.03(d) of the NYSE’s Listed Company Manual. If the mergers are completed, it is currently estimated that Dril-Quip will issue approximately      million shares of Dril-Quip common stock in the mergers (including approximately     million shares of Dril-Quip common stock to Amberjack and its affiliates), which will exceed 20% of the shares of Dril-Quip common stock outstanding before such issuance, and such issuance may also constitute a change of control, and for these reasons Dril-Quip must obtain the approval of Dril-Quip stockholders for that issuance. The actual number of shares of Dril-Quip common stock to be issued pursuant to the merger agreement will be determined at the completion of the mergers based on the number of shares of Dril-Quip common stock outstanding immediately prior to such time, calculated on a fully diluted basis and the number of shares of Innovex common stock issued and outstanding immediately prior to such time, calculated on a fully diluted basis.

In the event the stock issuance proposal is approved by the Dril-Quip stockholders, but the merger agreement is terminated (without the mergers being completed) prior to the issuance of shares of Dril-Quip common stock pursuant to the merger agreement, Dril-Quip will not issue any shares of Dril-Quip common stock as a result of the approval of the stock issuance proposal.

 

 

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE STOCK ISSUANCE PROPOSAL.

 

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THE CHARTER AMENDMENT PROPOSAL

Dril-Quip stockholders are being asked at the special meeting to consider and vote upon a proposal to approve an amendment to Dril-Quip’s certificate of incorporation. If adopted by the Dril-Quip stockholders, the amendment would become effective upon filing of an appropriate certificate of amendment with the Secretary of State of the State of Delaware. The following is a summary of the key changes effected by the charter amendment, but this summary is qualified in its entirety by reference to the full text of the charter amendment, a copy of which is included as Annex C:

 

   

Increase to Authorized Capital Stock—Dril-Quip’s certificate of incorporation authorizes Dril-Quip to issue 110,000,000 shares of capital stock, consisting of (i) 100,000,000 shares of common stock, par value $0.01 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share. The charter amendment authorizes the issuance of 210,000,000 shares of capital stock of the combined company, divided into 200,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. See “Comparison of Stockholders Rights—Authorized Capital Stock” for additional information.

 

   

Composition of the Board of Directors—Dril-Quip’s certificate of incorporation provides that the number of directors of the Dril-Quip Board will not be less than three nor more than twelve. The charter amendment provides that the number of directors of the combined company board will not be less than three nor more than nine and requires that, so long as Amberjack has the right to designate one or more individuals for nomination to the combined company board (an “Amberjack Designee”), it shall be a director qualification that one of the members of the combined company board will be the person who is then serving as the Chief Executive Officer of the combined company (the “CEO Director”). See “Comparison of Stockholders Rights—Number of Directors and Size of Board” for additional information.

 

   

Vacancies—Dril-Quip’s certificate of incorporation provides that newly created directorships resulting from any increase in the number of directors and any vacancies on the Dril-Quip Board resulting from death, disability, retirement, resignation, removal or other cause will be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Dril-Quip Board. The charter amendment provides that, so long as Amberjack has the right to designate at least one individual for nomination to the combined company board and a vacancy is created by the death, disability, retirement, resignation, removal or other cause of any designee of Amberjack, then such vacancy will be filled by the affirmative vote of a majority of the voting power of the directors then in office, even though less than a quorum of the combined company board, with each Amberjack Designee then in office entitled to cast a number of votes (or fractions thereof) equal to a majority of the votes entitled to be cast by all then serving members of the combined company board divided by the number of Amberjack Designees then in office; provided that if no Amberjack Designees are then in office, Amberjack shall have the right to fill such vacancy (i) at a meeting, special or otherwise, of the stockholders of the combined company or (ii) by written consent. See “Comparison of Stockholders Rights—Vacancies” for additional information.

 

   

Restrictions on Amendments—The charter amendment provides that, so long as Amberjack has the right to designate at least one individual for nomination to the combined company board, the combined company may not (i) amend the combined company’s certificate of incorporation or the combined company’s bylaws in any manner that would disproportionately and adversely affect the rights of Amberjack or certain of its affiliates, (ii) amend clause (b) of Article FIFTH, clause (d) of Article FIFTH, clause (b) of Article NINTH, Article ELEVENTH or Article TWELFTH of the combined company’s certificate of incorporation or Sections 3.1, 3.3, 3.4, 3.6, 3.14, 4.3, 7.1 or 7.9 or Article VI or Article VIII of the combined company’s bylaws, or (iii) form any new committee of the combined company board involving a material delegation of authority from the combined company board or amend the charter of any committee of the combined company, in either case, in a manner that would disproportionately and adversely affect the rights of the Amberjack or certain of its affiliates. See

 

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Comparison of Stockholders Rights—Amendment of Governing Documents” for additional information.

 

   

Officer Exculpation—The charter amendment would add a provision exculpating certain of the combined company’s officers from liability in specific circumstances, as permitted by Delaware law. See “Comparison of Stockholders Rights—Limitation of Liability of Officers” for additional information.

 

   

Renouncement of Corporate Opportunities—The charter amendment provides that Amberjack and its affiliates (including those who may serve as directors, officers or agents of the combined company) will not have any duty to refrain from directly or indirectly (i) engaging in the same or similar business activities or lines of business in which the combined company or any of its affiliates now engages or proposes to engage or (ii) otherwise competing with the combined company or any of its affiliates, including: (a) investing in, carrying on and conducting any business of any kind, nature or description, whether or not such business is competitive with or in the same or similar lines of business as the combined company or any of its subsidiaries, (b) doing business with any client, customer, vendor or lessor of any of the combined company or its affiliates or (c) making investments in any kind of property in which the combined company or its subsidiaries may make investments. The combined company will, to the fullest extent permitted by applicable law, indemnify Amberjack and its affiliates against any claim for breach of any fiduciary duty or otherwise solely by reason of the fact that Amberjack or its affiliates take any of the foregoing actions. See “Comparison of Stockholders Rights—Renouncement of Corporate Opportunities” for additional information.

Reasons for the Charter Amendment

Increase to Authorized Capital Stock

As of    , 2024, Dril-Quip had 100 million authorized shares of Dril-Quip common stock, with approximately    million shares of Dril-Quip common stock outstanding, approximately    million shares of Dril-Quip common stock held as treasury shares, and approximately    million shares of Dril-Quip common stock either underlying awards outstanding or still available for grant under Dril-Quip’s equity incentive plans. In addition, if the mergers are completed, it is currently estimated that Dril-Quip will issue approximately     million shares of Dril-Quip common stock in the mergers.

Approval of the charter amendment proposal is a condition to the completion of the mergers. The Dril-Quip Board believes that the increased number of authorized shares of common stock of the combined company contemplated by the charter amendment proposal is important to the combined company in order for additional shares to be available for issuance from time to time, without further action or authorization by the combined company stockholders (except as required by applicable law or NYSE rules), for such corporate purposes as may be determined by the combined company board, including, but not limited to, financings, potential strategic transactions, including mergers, acquisitions and business combinations, grants under equity compensation plans, stock dividends, and stock splits, as well as other general corporate purposes. The additional 100 million shares authorized would be a part of the existing class of Dril-Quip common stock and, if issued, would have the same rights and privileges as the shares of Dril-Quip common stock presently issued and outstanding.

Other than payment of the merger consideration, the issuance of shares available for grant under Dril-Quip’s equity incentive plans, Dril-Quip has no current plan, commitment, arrangement, understanding or agreement regarding the issuance of the additional shares of Dril-Quip common stock that will result from Dril-Quip’s adoption of the proposed charter amendment. While adoption of the proposed charter amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of Dril-Quip’s existing stockholders, any future issuance of additional authorized shares of Dril-Quip common stock may, among other things, dilute the earnings per share of the Dril-Quip common stock and the equity and voting rights of those holding Dril-Quip common stock at the time the additional shares are issued.

 

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In addition to the corporate purposes mentioned above, an increase in the number of authorized shares of Dril-Quip common stock may make it more difficult to, or discourage an attempt to, obtain control of Dril-Quip by means of a takeover bid that the Dril-Quip Board determines is not in the best interest of Dril-Quip and its stockholders. However, the Dril-Quip Board does not intend or view the proposed increase in the number of authorized shares of Dril-Quip common stock as an anti-takeover measure and is not aware of any attempt or plan to obtain control of Dril-Quip.

Composition of Board of Directors

The combined company board will have nine members, including (a) four Dril-Quip designees, (b) four Innovex designees and (c) the Chief Executive Officer of Innovex as of immediately prior to the effective time and the proposed charter amendment changes the maximum number of directors that constitute the entire board to align with the number of directors on the combined company board. This proposed amendment was a negotiated governance right in connection with the mergers.

Vacancies

Amberjack and its affiliates will own substantial equity interests in the combined company following the mergers, and Amberjack will have certain rights to fill a vacancy on the combined company board created by the death, disability, retirement, resignation, removal or other cause of any designee of Amberjack, provided that their ownership percentages are maintained pursuant to the terms of the stockholders agreement. See “Agreements Related to the Mergers—Stockholders Agreement” for additional information.

This proposed charter amendment was a negotiated governance right in connection with the mergers.

Restrictions on Amendments

Amberjack and its affiliates will own substantial equity interests in the combined company following the mergers, and amendments to the combined company’s charter, bylaws or committees of the combined company board that would disproportionately and adversely affect the rights of Amberjack or its affiliates will generally require their approval, provided that their ownership percentages are maintained pursuant to the terms of the stockholders agreement. See “Agreements Related to the Mergers—Stockholders Agreement” for additional information.

This proposed charter amendment was a negotiated governance right in connection with the mergers. The charter amendment does not affect the Dril-Quip stockholders’ right to remove a director from office for cause as provided in Dril-Quip’s certificate of incorporation.

Officer Exculpation

The Dril-Quip Board believes that it is important to extend exculpation protection to officers, to the fullest extent permitted by Delaware law, in order to better position the combined company to attract and retain qualified and experienced officers. In the absence of such protection, such individuals might be deterred from serving as officers due to exposure to personal liability and the risk of incurring substantial expense in defending lawsuits, regardless of merit. The nature of their role often requires officers to make decisions on crucial matters and frequently in response to time-sensitive opportunities and challenges, which can create substantial risk of lawsuits seeking to impose liability with the benefit of hindsight and regardless of merit. Aligning the protections available to the combined company’s officers with those available to our directors to the extent permitted by Delaware law would empower officers to exercise their business judgment in furtherance of stockholder interests without the potential for distraction posed by the risk of personal liability.

The Dril-Quip Board also believes that the charter amendment would strike the appropriate balance between furthering the combined company’s goals of attracting and retaining quality officers with promoting stockholder

 

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accountability because, consistent with the update to Delaware law, the charter amendment would only permit, exculpation for direct claims (as opposed to derivative claims made by stockholders on behalf of the corporation) and would not apply to breaches of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or any transaction in which the officer derived an improper personal benefit.

Taking into account the narrow class and type of claims for which officers’ liability would be exculpated, and the benefits we believe would accrue to the combined company and its stockholders in the form of an enhanced ability to attract and retain talented officers, the Dril-Quip Board believes that it is in the best interests of Dril-Quip and its stockholders to amend the Dril-Quip certificate of incorporation as described above.

Renouncement of Corporate Opportunities

Amberjack and its affiliates (including those who may serve as directors, officers or agents of the combined company) own and will own substantial equity interests in other entities (existing and future) that participate in the energy industry (“portfolio companies”) and may make investments and enter into advisory service agreements and other agreements from time to time with those portfolio companies. Certain members of the Dril-Quip Board may also serve as directors, principals, members, officers, associated funds, employees or other representatives of Amberjack, its affiliates or any of their respective portfolio companies and, at any given time, Amberjack, its affiliates or their respective portfolio companies may be in direct or indirect competition with the combined company and/or its subsidiaries.

This proposed charter amendment was a negotiated governance right in connection with the mergers.

The effect of the charter amendment would be that the combined company would waive, to the maximum extent permitted by law, the application of the doctrine of corporate opportunity (or any analogous doctrine) with respect to the combined company, to Amberjack and its affiliates, or any of their respective portfolio companies or any directors or officers of the combined company who are also directors, principals, members, officers, associated funds, employees or other representatives of any of Amberjack, its affiliates or their respective portfolio companies.

In the event the charter amendment proposal is approved by the Dril-Quip stockholders, but the merger agreement is terminated (without the mergers being completed) prior to the issuance of shares of Dril-Quip common stock pursuant to the merger agreement, Dril-Quip will not file the certificate of amendment with the Secretary of State of the State of Delaware as a result of the approval of the charter amendment proposal and will abandon the charter amendment.

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CHARTER AMENDMENT PROPOSAL.

 

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THE NON-BINDING GOVERNANCE PROPOSALS

Dril-Quip stockholders are also being asked to vote on a separate proposal with respect to certain governance provisions in the charter amendment, which are separately being presented in accordance with SEC guidance and which will be voted upon on a non-binding advisory basis. Dril-Quip believes these provisions are necessary to adequately address the needs of the combined company. Accordingly, regardless of the outcome of the non-binding advisory vote on these proposals, Dril-Quip and Innovex intend that the charter amendment in the form set forth on Annex C will take effect at consummation of the mergers, assuming adoption of the charter amendment proposal. All stockholders are encouraged to read the section entitled “Comparison of Stockholders’ Rights” and the charter amendment in their entirety for a more complete understanding of the proposed changes.

Proposal 4A: Changes to Authorized Capital Stock

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Increase to Authorized Capital Stock” for a description and reasons for the amendment.

Proposal 4B: Composition of Board of Directors

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Composition of Board of Directors” for a description and reasons for the amendment.

Proposal 4C: Vacancies

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Vacancies” for a description and reasons for the amendment.

Proposal 4D: Restrictions on Amendments

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Restrictions on Amendments” for a description and reasons for the amendment.

Proposal 4E: Officer Exculpation

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Officer Exculpation” for a description and reasons for the amendment.

Proposal 4F: Renouncement of Corporate Opportunities

See “The Charter Amendment Proposal—Reasons for the Charter Amendment—Renouncement of Corporate Opportunities” for a description and reasons for the amendment.

Vote Required for Approval

If the stock issuance proposal is not approved, the non-binding governance proposals will not be presented at the special meeting. Approval of the non-binding governance proposals requires the affirmative vote of the holders of shares of Dril-Quip common stock representing a majority of votes properly cast on such proposal. Assuming a quorum is present, shares that are not present in person or by proxy, abstentions and broker non-votes (if any) will have no effect on the vote for such proposal.

The mergers are not conditioned upon the approval of the non-binding governance proposals. Notwithstanding the approval of the non-binding governance proposals, if the mergers are not consummated for any reason, the actions contemplated by the non-binding governance proposals will not be effected.

 

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Resolution

The full text of the resolution to be passed is as follows:

“RESOLVED, that the charter amendment, attached to the joint proxy statement/consent solicitation statement/prospectus as Annex C, as set forth in Proposals No. 4A through 4F, respectively, and the amendments set forth therein, are hereby approved.”

Recommendation of the Board of Directors

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF EACH OF THE NON-BINDING GOVERNANCE PROPOSALS.

 

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THE 2024 LTIP PROPOSAL

We are seeking stockholder approval for the adoption of the 2024 LTIP, which provides for the issuance of up to a number of shares of common stock of the combined company equal to 5% of the fully-diluted shares of common stock of the combined company outstanding at the time the 2024 LTIP becomes effective. The purpose of the 2024 LTIP is to promote and closely align the interests of our employees, officers, directors, and consultants and our stockholders by providing stock-based compensation and other incentive compensation. The Dril-Quip Board believes that the 2024 LTIP will allow the combined company to remain competitive among its peers and to continue to promote these interests. The 2024 LTIP was approved by the Dril-Quip Board on March 17, 2024, subject to approval by stockholders at the Special Meeting. If approved by the Dril-Quip stockholders, the 2024 LTIP would become effective on    , 2024 (the “LTIP Effective Date”).

Reasons to Vote for the Proposal

Long-term equity is a key component of our compensation programs. The Dril-Quip Board believes that equity awards help to attract, motivate, and retain talented employees and directors.

Equity awards align participant and stockholder interests. Equity awards, whose value depends on our stock performance and which require continued service over time before any value can be realized, link participant compensation to company performance, maintain a culture based on employee stock ownership, and retain talented employees in a highly competitive labor market.

Limitations on our ability to grant equity awards would have significant negative consequences to us and our stockholders. One alternative to using equity awards would be to significantly increase cash compensation. Any significant increase in cash compensation in lieu of equity awards would reduce the cash otherwise available for operations and investment in our business and would negatively impact our ability to attract, motivate, and retain employees and directors, in addition to weakening the link between the incentives of our equity award recipients and our stockholders.

We manage our equity compensation program thoughtfully. We manage our long-term stockholder dilution by limiting the number of equity awards granted annually and limiting what we grant to what we believe is an appropriate amount of equity necessary to attract, reward, and retain employees.

Description of the 2024 LTIP

A summary description of the material features of the 2024 LTIP is set forth below. This summary does not purport to be a complete description of all the provisions of the 2024 LTIP and is qualified in its entirety by reference to the 2024 LTIP, which is attached as Appendix G to the joint proxy statement/prospectus and incorporated by reference herein. The purpose of the 2024 LTIP is to provide incentives to our employees, directors and consultants in order to induce them to work for the benefit of, and to promote the success of, the combined company and its affiliates and to attract, reward and retain key personnel.

2024 LTIP Share Limits

If approved by stockholders, a total number of shares of common stock of the combined company equal to 5% of the fully-diluted shares of outstanding combined company common stock when 2024 LTIP is adopted would be available for awards under the 2024 LTIP (the “2024 LTIP Shares”). It is anticipated that as of the LTIP Effective Date, a total of    shares of common stock of the combined company will be outstanding. As a result, if approved, the 2024 LTIP will increase dilution by approximately 5%. Shares issued under the 2024 LTIP may consist, in whole or in part, of previously unissued shares, treasury shares or shares purchased on the open market. As of    , 2024, the closing price per share of Dril-Quip common stock as reported on the New York Stock Exchange was $    . The number of 2024 LTIP Shares will not be reduced by shares

 

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issued pursuant to awards issued or assumed in connection with the mergers. In addition, the following shares will again be available for grant or issuance under the 2024 LTIP: (i) shares subject to awards granted under the 2024 LTIP that are required to be paid in cash pursuant to their terms; (ii) shares subject to awards granted under the 2024 LTIP that terminate, expire, or are cash-settled, canceled, forfeited, exchanged, or surrendered without having been exercised, vested or settled; (iii) shares tendered by participants or withheld by the combined company as full or partial payment to the combined company upon exercise of options; (iv) shares reserved for issuance upon the grant of stock appreciation rights (“SARs”), to the extent the number of reserved shares exceeds the number of shares actually issued upon the exercise of the SARs; and (v) shares of common stock of the combined company withheld or otherwise remitted to the combined company to satisfy withholding obligation upon the exercise, lapse of restrictions or settlement of awards.

Under the 2024 LTIP, the aggregate dollar value of all cash and equity-based compensation (whether granted under the 2024 LTIP or otherwise) to non-employee directors of the combined company for services in such capacity may not exceed $1,000,000 during any calendar year.

If the Dril-Quip stockholders approve the 2024 LTIP, the combined company intend to promptly file, pursuant to the Securities Act of 1933, as amended (the “Securities Act”), a registration statement on Form S-8 to register the 2024 LTIP Shares.

Administration

The 2024 LTIP is administered by the combined company board, the Compensation Committee, or such other committee designated by the combined company board to administer the plan, which we refer to herein as the “Administrator”. The Administrator has broad authority, subject to the provisions of the 2024 LTIP, to administer and interpret the 2024 LTIP and awards granted thereunder. All decisions and actions of the Administrator are final. The Administrator may also accelerate the vesting or exercise of any award and make all other determinations and take all other actions necessary or advisable for the administration of the 2024 LTIP.

Eligibility

Any individual who is our officer or employee or an officer or employee of any of our affiliates, any individual who has been offered employment by us or any of our affiliates, and any other person who provides services to us or our affiliates, including members of the combined company board, are eligible to receive awards under the 2024 LTIP at the discretion of the Administrator. Following the consummation of the mergers, we expect the combined company to have approximately 2,700 officers and employees, nine members of the combined company board and 20 consultants who will be eligible to receive awards under the 2024 LTIP.

Types of Awards

The 2024 LTIP provides for the grant of stock options, restricted stock, restricted stock units (“RSUs”), SARs and other stock-based awards. All awards under the 2024 LTIP will be set forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows:

Stock Options. The award agreement evidencing the stock options will provide, among other things, whether the option is intended to be an incentive stock option or a non-qualified stock option, the number of shares subject to the stock option, the exercise price, exercisability (or vesting), the term of the stock option, which may not generally exceed 10 years, and other terms and conditions. Subject to the express provisions of the 2024 LTIP, stock options generally may be exercised over such period, in installments or otherwise, as the Administrator may determine. The exercise price for any stock option granted may not generally be less than the fair market value of the common stock subject to that stock option on the grant date. The exercise price may be paid in cash or such other method as determined by the Administrator, including an irrevocable commitment by a

 

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broker to pay over such amount from a sale of the shares issuable under a stock option, the delivery of previously owned shares or withholding of shares deliverable upon exercise. Other than in connection with a change in our capitalization, we will not, without stockholder approval, reduce the exercise price of a previously awarded stock option, and at any time when the exercise price of a previously awarded stock option is above the fair market value of a share of common stock, we will not, without stockholder approval, cancel and re-grant or exchange such stock option for cash or a new award with a lower (or no) exercise price. No dividend or dividend equivalent rights shall be paid out on stock options.

Restricted Stock and RSUs. Awards of restricted stock consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. RSUs are notional units representing the right to receive one share of our common stock (or the cash value of one share of our common stock) on a specified settlement date only after specified conditions are satisfied. The Administrator will determine the restrictions and conditions applicable to each award of restricted stock or RSUs, which may include performance vesting conditions.

Stock Appreciation Rights. The Administrator will determine the restrictions and conditions applicable to each award of SARs. Upon exercising a SAR, the participant is entitled to receive the amount by which the fair market value of the common stock at the time of exercise exceeds the exercise price of the SAR. This amount is payable in common stock, cash, or as otherwise specified in the SAR agreement or determined by the Administrator. No dividends or dividend equivalents shall be paid on SARs.

Other Stock-Based Awards. Subject to limitations under applicable law and the terms of the 2024 LTIP, the Administrator may grant awards denominated in or payable in, valued in whole or in part by reference to, or otherwise based on or related to, the value of common stock. The Administrator may also grant common stock as a bonus and grant awards in lieu of our or our affiliates obligations to pay cash or deliver property under the 2024 LTIP or other plans or compensatory arrangements.

Adjustment; Change in Control

In the event of changes in the outstanding common stock or in the capital structure of the combined company by reason of stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in capitalization, in connection with any extraordinary dividend declared and paid in respect of shares of common stock, in the event of any change in applicable laws or circumstances or as otherwise set forth in the 2024 LTIP, in each case, that results in or could result in, in either case, as determined by the Administrator in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, participants in the 2024 LTIP, awards shall be equitably and proportionally adjusted or substituted, as determined by the Administrator, in its sole discretion, as to the number, price, or kind of a share of common stock, other securities or other consideration subject to such awards.

Generally, except as otherwise provided by the Administrator in an award agreement or otherwise, in connection with certain corporate events, including but not limited to a “change in control” (as defined in the 2024 LTIP), the Administrator may provide for any one or more of the following (i) the assumption or substitution of any or all awards in connection therewith, with awards that vest based on performance criteria being deemed earned at the target level (or if no target is specified, the maximum level) and converted into solely service-based vesting awards, (ii) the acceleration of vesting of any or all awards not assumed or substituted in connection with the corporate event (with vesting of performance-based awards deemed earned at the target level (or if no target is specified, the maximum level), unless otherwise specified in the applicable award agreement), (iii) the cancellation of any or all awards not assumed or substituted in connection with such corporate event (whether vested or unvested) together with the payment to participants holding vested awards so canceled of an amount in respect of cancellation based on the per-share consideration being paid for our common stock in connection with such corporate event, (iv) the cancellation or any or all options, SARs, and other awards subject

 

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to exercise not assumed or substituted in connection with any such corporate event (whether vested or unvested) after providing the holder thereof with a period of at least 10 days to exercise such awards, and (v) the replacement of any and all awards (subject to certain limitations) with a cash incentive program that preserves the value of the awards so replaced.

Clawback

All awards granted under the 2024 LTIP are subject to recoupment in accordance with any written clawback policy that the combined company adopts or is required to adopt, including the Dril-Quip, Inc. Clawback Policy adopted in 2023 pursuant to the requirements of Rule 10D-1 promulgated under the Exchange Act and the applicable NYSE listing standards. No recovery of compensation under any clawback policy will be an event giving rise to a right to resign for “good reason” or be deemed a “constructive termination” (or any similar term) as such terms are used in any agreement between any participant and the combined company.

Amendment and Termination

Unless earlier terminated by the combined company board, the 2024 LTIP will automatically expire on the day before the tenth anniversary of the LTIP Effective Date. The combined company board has the right to amend, alter, suspend or terminate the 2024 LTIP at any time, provided that no amendment or alteration to the 2024 LTIP or an award or award agreement will be made that would materially impair the rights of the holder, without such holder’s consent. No awards may be granted under the 2024 LTIP while it is suspended.

U.S. Federal Income Tax Consequences

The following discussion is for general information only and is intended to summarize briefly the United States federal income tax consequences to participants arising from participation in the 2024 LTIP. This description is based on current law, which is subject to change (possibly retroactively). The tax treatment of a participant in the 2024 LTIP may vary depending on the participant’s particular situation and may, therefore, be subject to special rules not discussed below. No attempt has been made to discuss any potential foreign, state, or local tax consequences. In addition, nonqualified stock options and SARs with an exercise price less than the fair market value of shares of common stock on the date of grant, SARs payable in cash, restricted stock units, and certain other awards that may be granted pursuant to the 2024 LTIP, could be subject to additional taxes unless they are designed to comply with certain restrictions set forth in Section 409A of the Code and guidance promulgated thereunder. Therefore, each participant is urged to consult a tax advisor before exercising any award or before disposing of any shares acquired under the 2024 LTIP.

Incentive Stock Options

Options granted under the 2024 LTIP may be either incentive stock options, which satisfy the requirements of Section 422 of the Code, or non-qualified stock options, which are not intended to meet such requirements.

No taxable income is recognized by the participant at the time of the option grant, and no taxable income is recognized for ordinary income tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. Unless there is a “disqualifying disposition,” as described below, the participant will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. A disqualifying disposition occurs if the disposition is less than two years after the date of grant or less than one year after the exercise date. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the participant. Any additional gain or loss recognized upon the disposition will be a capital gain or loss.

 

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If the participant makes a disqualifying disposition of the purchased shares, then Dril-Quip will be entitled to an income tax deduction for the taxable year in which such disposition occurs equal to the amount of ordinary income recognized by the participant as a result of the disposition. Dril-Quip will not be entitled to any income tax deduction if the participant makes a qualifying disposition of the shares.

Nonqualified Stock Options

No taxable income is recognized by a participant upon the grant of a non-qualified stock option. The participant in general will recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the participant will be required to satisfy the tax withholding requirements applicable to such income. Dril-Quip will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant with respect to the exercised non-qualified stock option.

Stock Appreciation Rights

No taxable income is recognized upon receipt of a SAR. The participant will recognize ordinary income in the year in which the SAR is exercised, in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the exercise price in effect for the exercised right, and the participant will be required to satisfy the tax withholding requirements applicable to such income. Dril-Quip will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant in connection with the exercise of the SAR.

Restricted Stock Awards

A participant who receives unvested shares of common stock will not recognize any taxable income at the time those shares are granted but will have to report as ordinary income, as and when those shares subsequently vest, an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the cash consideration (if any) paid for the shares. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year the unvested shares are issued an amount equal to the excess of (a) the fair market value of those shares on the issue date over (b) the cash consideration (if any) paid for such shares. If the Section 83(b) election is made, the participant will not recognize any additional income as and when the shares subsequently vest. Dril-Quip will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time such ordinary income is recognized by the participant.

Restricted Stock Units and Other Stock-Based or Cash-Based Awards

Generally, no taxable income is recognized upon the grant of RSUs or other-stock based or cash-based awards. The participant will recognize ordinary income in the year in which the award is settled in shares or cash. The amount of that income will be equal to the fair market value of the shares on the date of issuance or the amount of the cash paid in settlement of the award, and the participant will be required to satisfy the tax withholding requirements applicable to the income. Dril-Quip will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued or the cash amount is paid.

Deductibility of Executive Compensation

Section 162(m) of the Code limits the deductibility for federal income tax purposes of certain compensation paid to any “covered employee” in excess of $1 million. For purposes of Section 162(m), the term “covered employee” includes any individual who serves as chief executive officer, chief financial officer, or one of the other three most highly compensated executive officers for any calendar year. It is expected that compensation deductions for any covered employee with respect to awards granted under the 2024 LTIP will be subject to the

 

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$1 million annual deduction limitation. The Administrator may grant awards under the 2024 LTIP that are or may become non-deductible when it believes doing so is in the best interests of Dril-Quip and the Dril-Quip stockholders.

New Plan Benefits

Because awards granted under the 2024 LTIP are at the discretion of the Administrator, it is not possible to determine the benefits or amounts that will be received by or allocated to participants under the 2024 LTIP. Therefore, the New Plan Benefits Table is not provided.

Accordingly, the Dril-Quip Board unanimously recommends that the Dril-Quip stockholders to vote “FOR” the adoption of the following resolution.

“RESOLVED, that Dril-Quip stockholders approve the 2024 LTIP, which is attached as Appendix G to the joint proxy statement/prospectus.”

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE 2024 LTIP PROPOSAL.

 

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THE NON-BINDING COMPENSATION PROPOSAL

Pursuant to Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, Dril-Quip is seeking a non-binding advisory approval of the compensation of Dril-Quip’s named executive officers that is based on or otherwise relates to the mergers as disclosed in “The Mergers—Interests of Dril-Quip Directors and Executive Officers in the Mergers.” The non-binding compensation proposal gives the Dril-Quip stockholders the opportunity to express their views on the merger-related compensation of Dril-Quip’s named executive officers.

Accordingly, the Dril-Quip Board unanimously recommends that the Dril-Quip stockholders vote “FOR” the adoption of the following resolution, on an advisory (non-binding) basis:

“RESOLVED, that Dril-Quip stockholders approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Dril-Quip’s named executive officers in connection with the mergers, as disclosed pursuant to Item 402(t) of Regulation S-K under “The Mergers—Interests of Dril-Quip Directors and Executive Officers in the Merger” of the joint proxy statement/prospectus (which disclosure includes the compensation table and related narrative named executive officer compensation disclosures required pursuant to Item 402(t) of Regulation S-K).”

The vote on the advisory non-binding compensation proposal is a vote separate and apart from the vote to approve the merger proposals. Accordingly, the Dril-Quip stockholders of record may vote for the approval of the merger proposals and against the approval of the non-binding compensation proposal, and vice versa. If the mergers are completed, the merger-related compensation may be paid to Dril-Quip’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if the Dril-Quip stockholders vote against the approval of the advisory vote regarding merger-related compensation.

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE NON-BINDING COMPENSATION PROPOSAL.

 

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THE ADJOURNMENT PROPOSAL

Dril-Quip stockholders are being asked at the special meeting to consider and vote upon a proposal to adjourn the special meeting to another time and place if necessary to permit solicitation of additional proxies if there are not sufficient votes to approve the merger proposals.

 

 

THE DRIL-QUIP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADJOURNMENT PROPOSAL.

 

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THE MERGERS

This section of the proxy statement/prospectus describes the material aspects of the proposed mergers. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus, including the full text of the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, for a more complete understanding of the proposed mergers and the transactions related thereto. In addition, important business and financial information about each of Dril-Quip and Innovex is included in or incorporated by reference into this proxy statement/prospectus. Please see “Where You Can Find More Information.”

Background of the Mergers

The terms of the merger agreement are the result of arm’s-length negotiations between representatives of Dril-Quip and Innovex. The following is a summary of the events leading up to the signing of the merger agreement and key meetings, negotiations, discussions and actions taken among Dril-Quip, Innovex and their respective advisors that preceded the public announcement of the mergers; it does not purport to catalogue every conversation or interaction among representatives of Dril-Quip, Innovex and other parties.

The Dril-Quip Board and Dril-Quip’s management team regularly review Dril-Quip’s operating results, capital structure, future growth opportunities and competitive position in the oilfield services industry. These reviews have included consideration by the Dril-Quip Board and Dril-Quip’s management team and, from time to time, discussions with outside financial advisors and other industry participants of potential strategic transactions, including acquisitions and divestitures, joint ventures, business combinations and other transactions, as well as ongoing initiatives aimed at enhancing stockholder value, strengthening Dril-Quip’s financial and liquidity position, increasing its cash flows and growing its business organically, to prepare for and respond to changing market forces and resulting business risks and uncertainties in the oilfield services industry. These regular reviews have included evaluation of potential strategic combinations and acquisition opportunities in oilfield services, energy transition and related industries.

On February 4, 2022 and October 18, 2022, Kyle McClure, Vice President and Chief Financial Officer of Dril-Quip, met with Adam Anderson, Chief Executive Officer of Innovex, at Mr. Anderson’s request. Mr. Anderson presented the idea of a potential combination between Dril-Quip and Innovex and the rationale for the combination, including the complementary downhole tool platform and U.S. land exposure provided by Innovex. After each of these meetings, Mr. McClure discussed the meetings with Jeff Bird, Chief Executive Officer of Dril-Quip, and James Webster, Vice President, General Counsel and Secretary of Dril-Quip.

On November 2, 2022, Messrs. Bird, McClure and Webster met with Mr. Anderson and Patrick Connelly, Chairman of the Board of Directors of Innovex and Co-Managing Partner of Amberjack, and discussed a potential business combination. Messrs. Anderson and Connelly also discussed the interest of Amberjack, the largest stockholder of Innovex, in growing the assets and shaping the strategy of the combined company.

On November 9, 2022, members of the management team of Dril-Quip contacted Morgan Stanley, a financial advisor to Dril-Quip on prior transactions, to discuss the proposed business combination with Innovex.

On November 15, 2022, at a regularly scheduled meeting of the Dril-Quip Board, Dril-Quip management provided overviews of, and discussed the background and rationale for, potential acquisition targets, one of which was Innovex. The Dril-Quip Board directed Dril-Quip management to continue to pursue the acquisition targets.

On November 17, 2022, Mr. McClure sent a draft confidentiality agreement to Mr. Anderson. The draft confidentiality agreement included customary mutual non-disclosure and non-use provisions and did not include a “standstill” provision. The parties executed the confidentiality agreement as of November 17, 2022.

 

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On November 29, 2022, Messrs. Bird, McClure and Webster and representatives of Morgan Stanley met with Mr. Anderson and Kendal Reed, Chief Financial Officer of Innovex, to discuss the products and business of Innovex.

On December 15, 2022, Dril-Quip management and representatives of Morgan Stanley met with John V. Lovoi, Chairman of the Dril-Quip Board, to discuss a potential business combination with Innovex.

On December 19, 2022, the Dril-Quip Board held a special meeting, with members of Dril-Quip management and representatives of Morgan Stanley in attendance, to discuss the proposed business combination with Innovex, including a review of the strategic rationale for the proposed business combination and a proposed range for a potential indicative proposal.

On December 21, 2022, Messrs. Bird and McClure met with Messrs. Anderson and Connelly to discuss Dril-Quip’s preliminary indicative proposal for a potential business combination with Innovex. Later that day, Mr. McClure sent a preliminary term sheet to Messrs. Anderson and Connelly with a non-binding proposal to acquire Innovex for $600 to $650 million, consisting of $100 to $150 million in cash and the remainder of the consideration in Dril-Quip common stock, resulting in Innovex stockholders owning approximately 35% of the combined company. The closing price of Dril-Quip common stock on December 20, 2022 was $25.15 per share.

On December 22, 2022, at Mr. Anderson’s request, Mr. McClure met with Mr. Anderson to discuss Dril-Quip’s non-binding proposal.

On January 5, 2023, Mr. Anderson sent a counterproposal to the Dril-Quip Board proposing a valuation for Innovex of $900 million, with 90% of the consideration in Dril-Quip common stock and 10% in cash. The proposal was based on various operational and financial metrics, including but not limited to an estimated 2023 Adjusted EBITDA and Adjusted EBITDA—Capex for Innovex of approximately $116 million and $100 million, respectively (based on Innovex management’s then current estimates) and approximately $40 million and $18 million for Dril-Quip, respectively (based on consensus equity research estimates available to Innovex management). The closing price of Dril-Quip common stock on January 5, 2023 was $26.46 per share.

On January 9, 2023, Mr. Anderson met with Mr. McClure to discuss the Innovex counterproposal.

On January 18, 2023, Mr. Bird met with Mr. Connelly to discuss the Innovex counterproposal. Mr. Bird also met with Mr. Lovoi to discuss the Innovex counterproposal.

On January 26, 2023, Messrs. Bird and McClure met with Messrs. Anderson and Connelly to discuss the Innovex counterproposal, Innovex’s approach to valuation, which incorporated Innovex management’s five-year plan for the company, and the then current equity research consensus estimates for Dril-Quip available to Innovex management, among other factors. Mr. Connelly requested a multi-year projection from Dril-Quip. Later that day, Mr. McClure sent Messrs. Anderson and Connelly a revised non-binding proposal to acquire Innovex for $650 to $700 million. The closing price of Dril-Quip common stock on January 25, 2023 was $29.47 per share.

On February 13, 2023, Mr. Lovoi had an introductory meeting with Mr. Connelly, at Mr. Connelly’s request. Mr. Connelly discussed Amberjack’s and Innovex’s interest in a business combination between Dril-Quip and Innovex and Dril-Quip’s latest non-binding proposal.

On February 22, 2023, Mr. Connelly sent a non-binding letter of intent to Mr. Lovoi proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 41% of the combined company. The proposal was based on various operational and financial metrics, including but not limited to an estimated 2023 Adjusted EBITDA and Adjusted EBITDA—Capex for Innovex of $122 million and $104 million, respectively (based on Innovex management’s then current estimates) and approximately

 

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$46 million and $23 million for Dril-Quip, respectively (based on consensus equity research estimates available to Innovex management). The Innovex Adjusted EBITDA was pro forma for the pending minority investment by Innovex in Downhole Well Solutions, LLC (“DWS”). The letter of intent also proposed that Mr. Anderson would serve as the chief executive officer of the combined company. The closing price of Dril-Quip common stock on February 21, 2023 was $28.60 per share.

On February 24, 2023, at a regularly scheduled meeting of the Dril-Quip Board, with members of Dril-Quip management and representatives of Citi in attendance, Dril-Quip management provided an update on the discussions with Innovex regarding a potential business combination. At the invitation of Mr. Lovoi, Citi discussed with the independent members of the Dril-Quip Board the oilfield services industry landscape.

On or about February 27, 2023, Mr. Lovoi called Mr. Connelly to discuss the February 22, 2023 Innovex non-binding letter of intent.

On March 2, 2023, Mr. Connelly sent a non-binding letter of intent dated February 28, 2023 to Mr. Bird proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 38% of the combined company. The closing price of Dril-Quip common stock on March 1, 2023 was $33.94 per share. A presentation included with the letter of intent proposed that Amberjack, as the largest stockholder of the combined company, would maintain a level of governance involvement and the ability to provide strategic guidance commensurate with its ownership. The letter of intent and presentation did not specify who would serve as the chief executive officer of the combined company.

Also on March 2, 2023, Mr. Connelly and Mr. Bird discussed the differing views of Innovex and Dril-Quip on the valuation of Innovex. Mr. Connelly requested the companies pursue a process whereby the companies set aside questions related to the combined company governance and executive leadership team composition to permit a deeper evaluation of the industrial logic and possible synergies of such a combination.

On March 23, 2023, the members of the Dril-Quip Board met with Morgan Stanley and Dril-Quip management to discuss the latest proposal from Innovex.

On April 3, 2023, Mr. Bird called Mr. Connelly to advise that given the differences between the parties on valuation and the pending investment by Innovex in DWS, Dril-Quip was not planning to make a revised proposal regarding a business combination between Dril-Quip and Innovex. Mr. Bird stated that Dril-Quip would consider re-engaging after Innovex completed its investment in DWS.

On May 11, 2023, Mr. Bird and Mr. Connelly met, at Mr. Connelly’s request, for an update on Innovex. Mr. Connelly described Innovex’s recently completed acquisition of 20% of DWS and a two-year option to purchase the remaining 80% of DWS, the strategic fit of DWS with Innovex’s existing portfolio and updated first quarter 2023 Innovex financials.

On May 17, 2023, Mr. Lovoi met with Mr. Connelly, at Mr. Connelly’s request. Mr. Connelly discussed with Mr. Lovoi the subject matters discussed during his May 11, 2023 meeting with Mr. Bird. Mr. Lovoi agreed that Messrs. Anderson and Connelly could make a presentation to the Dril-Quip Board on the potential business combination.

On June 13, 2023, Mr. Bird met with the chief executive officer of Company A, a public oilfield services company, to explore re-engaging in discussions regarding a potential acquisition by Dril-Quip of Company A. Prior to any engagement with Innovex, as part of evaluating potential strategic alternatives, Dril-Quip had engaged in discussions with Company A regarding a potential acquisition of Company A by Dril-Quip. No agreement was reached on consideration or any other terms of a potential transaction during these prior discussions.

 

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On June 27, 2023, the Dril-Quip Board held a special meeting with representatives of Innovex in attendance at the invitation of the Dril-Quip Board. During this meeting, Messrs. Connelly, Anderson and Reed presented on Innovex’s business and a proposal for a potential business combination between Dril-Quip and Innovex. The Innovex proposal contemplated Innovex acquiring the remaining 80% of DWS that Innovex did not own prior to the business combination with Dril-Quip, resulting in Innovex stockholders owning 48% of the combined company. The proposal was based on various operational and financial metrics, including but not limited to an estimated 2023 Adjusted EBITDA and Adjusted EBITDA—Capex for Innovex of $155 million and $127 million, respectively (based on Innovex management’s then current estimates) and approximately $48 million and $21 million for Dril-Quip, respectively (based on consensus equity research estimates available to Innovex management). The closing price of Dril-Quip common stock on June 26, 2023 was $22.69 per share. After the presentation, Messrs. Connelly, Anderson and Reed left the meeting and Messrs. McClure and Webster, as well as representatives of Morgan Stanley, joined. Representatives of Morgan Stanley discussed the potential business combination between Dril-Quip and Innovex. Dril-Quip management discussed the proposed Innovex valuation and governance considerations raised by Amberjack as the largest stockholder of the combined company. Mr. Bird also discussed other potential transactions, including a potential acquisition of Company A by Dril-Quip.

On June 28, 2023, Mr. Lovoi met with Mr. Connelly to advise that given Dril-Quip’s other strategic activity, Dril-Quip was not planning to re-engage with Innovex on the proposed business combination between Dril-Quip and Innovex until after the Dril-Quip Board meeting on August 16, 2023.

On July 7, 2023, Mr. Bird sent a draft confidentiality agreement to the chief executive officer of Company A. The draft confidentiality agreement included customary mutual nondisclosure and nonuse provisions and contained a standstill provision with a duration of 18 months that prohibited each party, for the duration of the standstill period, from offering to acquire or acquiring the other party, and from taking certain other actions, including soliciting proxies and making any request to amend, waive or terminate the standstill provision, in each case, without the prior consent of the other party, and also included a customary “fall-away” provision rendering the standstill inapplicable to such party following its entry into a definitive agreement relating to an acquisition of a majority of such party’s voting securities or substantially all of its assets, or any third party commencing a tender offer for a majority of such party’s outstanding voting securities. In addition, the confidentiality agreement prohibited the counterparty from requesting a waiver. The parties executed the confidentiality agreement as of July 13, 2023. The standstill provision of the confidentiality agreement was still in force and effect upon entry into the merger agreement.

From July 13, 2023 through September 6, 2023, the respective managements of Dril-Quip and Company A held several meetings and exchanged several communications regarding a potential transaction between the parties.

On July 31, 2023, Dril-Quip acquired Great North Wellhead.

On August 16, 2023, the Dril-Quip Board held a regular meeting. At the meeting, among other things, Mr. Bird discussed with the Dril-Quip Board Dril-Quip’s various strategic activities, including the acquisition of Great North Wellhead and the status of discussions with Company A and Innovex. The Dril-Quip Board requested that Dril-Quip management provide additional information regarding the proposed transactions with Company A and Innovex.

On or about August 17, 2023, Mr. Connelly called Mr. Lovoi to discuss re-engaging on a proposed business combination between Dril-Quip and Innovex.

On September 8, 2023, Mr. Connelly sent a non-binding letter of intent to Mr. Lovoi proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 50% of the combined company. The proposal was based on various operational and financial metrics, including but not

 

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limited to an estimated 2023 Adjusted EBITDA and Adjusted EBITDA—Capex for Innovex of $155 million and $127 million, respectively (based on Innovex management’s then current estimates and assuming an estimated pro forma impact of the remaining 80% of DWS) and approximately $75 million and $41 million for Dril-Quip, respectively (based on consensus equity research estimates available to Innovex management and assuming an estimated pro forma impact of Great North Wellhead). The proposal also assumed that Innovex would deliver a balance sheet at the closing of a merger that would have no more than 1.0x leverage (net debt divided by adjusted EBITDA). The Innovex proposal contemplated Innovex acquiring the remaining 80% of DWS that Innovex did not own prior to the closing of the merger with Dril-Quip. The closing price of Dril-Quip common stock on September 7, 2023 was $29.32 per share.

From September 24, 2023 through October 5, 2023, management of Dril-Quip and management of Innovex and Mr. Connelly held several meetings and exchanged several communications regarding the potential transaction between the parties, including the strategic fit and potential benefits of the proposed combination and information requests. These meetings focused on an operational business line and facilities information exchange.

On September 29, 2023, Mr. Lovoi and Mr. Connelly met to discuss the status of the proposed business combination.

On October 24, 2023, the Dril-Quip Board held a special meeting, with members of Dril-Quip management and representatives of Morgan Stanley in attendance. At the meeting, Mr. Bird reviewed the potential transactions with Innovex and Company A, including the operations and strategic fit of Dril-Quip, on the one hand, and Innovex and Company A, respectively, on the other hand, and the potential benefits that might result from, and other considerations regarding, such potential transactions. Representatives of Morgan Stanley then discussed each transaction from a financial perspective, including potential valuation considerations. During the meeting, members of Dril-Quip management and representatives of Morgan Stanley presented preliminary views regarding certain financial aspects of each of the proposed transactions, including the current industry landscape, transaction rationale, potential synergies, value creation opportunities and other considerations.

On October 27, 2023, Mr. Lovoi and Carri Lockhart, a member of the Dril-Quip Board, met with Messrs. Connelly, Anderson and Reed at the offices of Innovex. Mr. Anderson presented an update on the financial performance of Innovex and preliminary views on potential synergies from the proposed business combination. The group also discussed the inclusion in the business combination proposal of a provision regarding the acquisition of the remaining 80% of DWS that Innovex did not own prior to the closing of the merger with Dril-Quip. Finally, the group also discussed illustrative forecasts for the two companies as well as the relative financial performance of the two companies.

On October 30, 2023, Mr. Connelly sent a non-binding letter of intent to Mr. Lovoi proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 50% of the combined company. The Innovex proposal no longer contemplated Innovex acquiring the remaining 80% of DWS that Innovex did not own prior to the closing of the merger with Dril-Quip. In addition, the Innovex proposal recommended that managements of Innovex and Dril-Quip update their respective outlooks for 2023 and 2024. The closing price of Dril-Quip common stock on October 27, 2023 was $22.78 per share.

On November 7, 2023, the Dril-Quip Board held a special meeting, with members of Dril-Quip management as well as a representative of Gibson, Dunn & Crutcher LLP, outside counsel for Dril-Quip (“Gibson Dunn”), in attendance. At the meeting, the Dril-Quip Board discussed the potential transactions with Company A and Innovex. After considering the status of the discussions with Company A and Innovex and various other aspects, including the relative merits and strategic considerations and business rationales for each potential transaction, the Dril-Quip Board directed management to focus on the potential business combination with Innovex. During such meeting, the Dril-Quip Board also considered the potential benefits of forming a strategic transaction committee of the Dril-Quip Board (the “Transaction Committee”) consisting of Mr. Lovoi,

 

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Mr. Newman and Mrs. Lockhart, which would be vested with the power of the Dril-Quip Board to engage and meet with advisors and evaluate and negotiate transaction proposals, subject to Dril-Quip Board approval. Mr. Lovoi, Mr. Newman and Mrs. Lockhart were selected to serve on the Transaction Committee given their financial and business knowledge and transactional experiences. The Dril-Quip Board’s decision to form the Transaction Committee was based entirely on considerations of efficiency and not as a result of any conflict of any Dril-Quip director.

Also on November 7, 2023, Messrs. Connelly and Anderson sent a presentation to Dril-Quip discussing the strategic rationale for the business combination and economic terms included in the October 30, 2023 non-binding letter of intent sent by Mr. Connelly.

In early November 2023, Mr. Lovoi contacted Citi to discuss Dril-Quip’s potential engagement of Citi as an additional financial advisor to Dril-Quip in connection with the potential transaction involving Innovex to obtain additional perspectives on the potential transaction.

On November 13, 2023, the Transaction Committee held a meeting, with members of Dril-Quip management in attendance. After receiving an update on the timeline for negotiations and due diligence with Innovex, Dril-Quip management and the Transaction Committee discussed the preparation of a 2024 forecast. The Transaction Committee determined to engage, and subsequently engaged, Citi as a financial advisor to Dril-Quip in connection with the potential business combination with Innovex based on, among other things, Citi’s reputation and experience and familiarity with the industries in which Dril-Quip and Innovex operate and after consideration of Citi’s lack of conflicts that would restrict Citi from acting in that capacity.

On November 27, 2023, the Transaction Committee held a meeting, with members of Dril-Quip management and the remaining members of the Dril-Quip Board in attendance. Messrs. Bird and McClure, among other things, reviewed management’s draft 2024 forecast and five-year plan prepared in connection with the potential business combination with Innovex.

On December 4, 2023, the Transaction Committee held a meeting, with Messrs. Bird, McClure and Webster in attendance. The Transaction Committee discussed the five-year plan prepared in connection with the potential business combination with Innovex and the upcoming management meetings with Innovex. The Transaction Committee also discussed and determined to formally engage, and subsequently formally engaged, Morgan Stanley as a financial advisor to Dril-Quip in connection with the potential business combination with Innovex based on, among other things, Morgan Stanley’s industry experience and prior work for Dril-Quip and its lack of conflicts that would restrict Morgan Stanley from acting in that capacity.

On December 7, 2023, Messrs. Bird and McClure met with Messrs. Connelly, Anderson and Reed to review the financial forecasts of Innovex and Dril-Quip. Representatives of Citi and Goldman Sachs, Innovex’s financial advisor, also were in attendance. In addition, Mr. Lovoi attended the portion focused on the Innovex forecast.

On December 8, 2023, the Dril-Quip Board held a special meeting, with members of Dril-Quip management and representatives of Gibson Dunn and Citi in attendance. At this meeting, among other things, a representative of Gibson Dunn reviewed with the Dril-Quip Board its fiduciary duties, generally and in the context of business combinations, including the proposed business combination with Innovex, and certain confidentiality considerations. The Transaction Committee updated the Dril-Quip Board on its activities, and members of Dril-Quip management presented preliminary views on the proposed business combination with Innovex, including the strategic fit of the operations and potential benefits and other considerations. Citi discussed with the Dril-Quip Board certain preliminary financial aspects of the proposed transaction and related matters. The Dril-Quip Board also discussed a draft proposed non-binding proposal to Innovex.

On December 9, 2023, Mr. Lovoi sent a non-binding letter of intent to Mr. Connelly proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 50% of

 

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the combined company on a fully diluted basis. The Dril-Quip proposal contemplated a combined company board with four directors nominated by Innovex and five directors, including the chairman, nominated by Dril-Quip. In addition, Dril-Quip proposed certain additional governance terms, including director nomination rights and voting, transfer and standstill restrictions for Amberjack and its affiliates. The closing price of Dril-Quip common stock on December 8, 2023 was $21.52 per share.

On December 10, 2023, Mr. Connelly called Mr. Lovoi to discuss Dril-Quip’s December 9, 2023 non-binding letter of intent. During the call, Mr. Connelly requested several due diligence actions to further evaluate the proposal. Between December 11, 2023 and December 13, 2023, Messrs. Bird and Anderson discussed and exchanged emails regarding the details of these due diligence actions.

Between December 14, 2023 and December 19, 2023, Messrs. Anderson and Reed met with Dril-Quip operational management personnel and Messrs. Bird and McClure.

On December 21, 2023, Mr. Connelly sent to Mr. Lovoi a non-binding response to Dril-Quip’s December 9, 2023 non-binding letter of intent proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 50% of the combined company on a fully diluted basis. In addition, Innovex proposed to deliver a balance sheet with a leverage ratio not in excess of 0.9x net debt/LTM Adjusted EBITDA after making a pre-closing special dividend to its stockholders. The Innovex proposal contemplated a combined company board with four directors nominated by each of Innovex and Dril-Quip, along with the chief executive officer of the combined company to be selected by the boards of Innovex and Dril-Quip. In addition, each party would nominate a co-chairman of the board and Dril-Quip would nominate the chairman of each of the board committees. In addition, Amberjack proposed similar director nomination rights and transfer restrictions for Amberjack and its affiliates to those proposed in the December 9, 2023 Dril-Quip non-binding letter of intent. Amberjack rejected any voting or standstill restrictions and added a right to have a board observer and certain information rights. The closing price of Dril-Quip common stock on December 20, 2023 was $23.07 per share.

On January 4, 2024, the Dril-Quip Board held a special meeting, with members of Dril-Quip management and representatives of Gibson Dunn and Citi in attendance. At this meeting, among other things, Mr. Lovoi updated the Dril-Quip Board on his discussions with Mr. Connelly regarding the latest proposal from Innovex, and Mr. Bird discussed the Dril-Quip operational meetings with Innovex management. Citi discussed with the Dril-Quip Board certain preliminary financial aspects of the latest proposal from Innovex. A representative of Gibson Dunn reviewed the specifics of the governance structure in the latest proposal from Innovex and discussed the Dril-Quip Board’s fiduciary duties in connection with the proposed business combination with Innovex.

From January 4, 2024 through January 15, 2024, Messrs. Lovoi and Connelly held several discussions regarding the latest proposal from Innovex. Representatives of Citi and Goldman Sachs also were in attendance.

On January 9, 2024, Messrs. Lovoi and Connelly discussed the governance structure in the latest proposal from Innovex. Representatives of Citi, Goldman Sachs, Gibson Dunn and Akin Gump Strauss Hauer & Feld LLP, outside counsel for Innovex (“Akin”), also were in attendance.

On January 16, 2024, Mr. Connelly sent a non-binding letter of intent to Mr. Lovoi dated January 14, 2024 proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 49% of the combined company on a fully diluted basis. In addition, Innovex proposed to make a pre-closing special dividend to its stockholders in the amount of $75 million and to deliver a balance sheet with net debt not in excess of $125 million. The Innovex proposal contemplated a combined company board structure, director nomination, board observer and information rights and transfer restrictions consistent with those proposed in its December 21, 2023 response letter and continued to reject any voting restrictions. However, the proposal contemplated that Amberjack would be subject to certain standstill restrictions. The closing price of Dril-Quip common stock on January 12, 2024 was $21.04 per share.

 

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On January 22, 2024, the Dril-Quip Board held a special meeting with members of Dril-Quip management and representatives of Gibson Dunn, Citi and Morgan Stanley in attendance, to discuss the latest proposal from Innovex. At this meeting, among other things, Dril-Quip management discussed its view of the latest proposal from Innovex and the landscape for other transformative transactions. Citi discussed with the Dril-Quip Board certain preliminary financial aspects of the latest proposal from Innovex. A representative of Gibson Dunn reviewed the specifics of the governance structure and discussed a process to contact potential buyers of Dril-Quip prior to signing a merger agreement. The Dril-Quip Board discussed this buyer outreach process, including the timing of the potential buyer outreach and a preliminary list of eight parties that could be contacted on behalf of Dril-Quip, with the assistance of Dril-Quip’s management and advisors.

On January 25, 2024, Mr. Anderson presented to the Dril-Quip independent directors his vision for the combined company. Mr. Connelly was also in attendance as an observer. After Mr. Anderson’s presentation, Mr. Bird joined the Dril-Quip Board for further discussions on the latest proposal from Innovex.

On January 25, 2024, subsequent to the Dril-Quip Board meeting, Mr. Lovoi emailed Mr. Connelly with Dril-Quip’s response to the latest Innovex proposal on governance. Dril-Quip agreed with the governance structure proposed by Innovex, except that Dril-Quip would appoint the Chairman of the combined company board and permit one of the Amberjack Designees to call special meetings of the combined company board, the thresholds for Amberjack’s director nomination and information rights were increased, Amberjack would be required to vote in favor of the directors nominated by the combined company board in 2025 and the right of Amberjack to appoint a board observer was rejected.

On January 26, 2024, Mr. Lovoi met with Mr. Connelly to discuss Dril-Quip’s response. Later that day, Mr. Connelly emailed Mr. Lovoi proposing a merger between Dril-Quip and Innovex with all equity consideration, resulting in Innovex stockholders owning 48% of the combined company on a fully diluted basis. Innovex further proposed to deliver a balance sheet with not more than $125mm of net debt, which was in part intended to facilitate a pre-closing special dividend to its stockholders in the amount of $75 million. Innovex agreed with the governance structure proposed in Dril-Quip’s January 22, 2024 response, except that Amberjack would have the right to four director nominees in 2025 (regardless of its share ownership) and Amberjack would be permitted to request guest attendees for the combined company board meetings. The closing price of Dril-Quip common stock on January 25, 2024 was $21.79 per share.

From January 28, 2024 through March 17, 2024, the parties conducted reciprocal legal, financial and operational due diligence.

On January 31, 2024, Messrs. Connelly, Anderson and Lovoi discussed certain governance matters for the combined company, including executive officers, headquarters location and name. Representatives of Gibson Dunn, Akin, Citi and Goldman Sachs also were in attendance.

On February 13, 2024, Akin provided Gibson Dunn an initial draft of the merger agreement. The draft contemplated, among other things, (a) that certain Innovex stockholders would exercise their drag-along rights in accordance with the Innovex stockholders agreement; (b) that the combined company board would include nine directors in total, with four directors of the combined company board to be designated by Innovex (“Innovex designees”), one director of the combined company board to be the Innovex CEO, and four directors of the combined company board to be designated by Dril-Quip (“Dril-Quip designees”) and that the Chairperson of the combined company board be appointed by Dril-Quip; (c) largely reciprocal representations and warranties and interim operating covenants; (d) no-shop covenants applicable to Dril-Quip and Innovex, with Dril-Quip’s covenant subject to customary fiduciary out exceptions; (e) a termination fee of 4.0% of the equity value of Dril-Quip payable by Dril-Quip in the event the merger agreement was terminated in certain situations; (f) an undetermined outside date for the transaction, with one automatic extension for an undetermined period, if clearance under the HSR Act and all consents, waivers, approvals, licenses, permits, orders or authorizations, if any, required to be obtained under antitrust laws and foreign investment laws had not been obtained on that date,

 

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but all other conditions to the completion of the mergers were then satisfied or waived (or in the case of conditions that were to be satisfied at the closing, were reasonably capable of being satisfied); (g) a provision requiring Dril-Quip to hold a vote of its stockholders regardless of whether the Dril-Quip Board changed its recommendation for the proposed transaction; (h) a condition to closing for the benefit of Dril-Quip that Innovex’s net debt as of closing did not exceed $125,000,000; (i) a covenant providing for a special cash dividend payable by Innovex in an amount not to exceed $75,000,000 prior to closing; and (j) aggregate merger consideration to be issued to the Innovex equity holders equal to a number shares of Dril-Quip common stock (including restricted stock units) equal to 48% of the Dril-Quip fully diluted stock to be outstanding after the closing of the mergers.

On February 15, 2024, the Transaction Committee met, with Dril-Quip management in attendance, for an update on negotiations with Innovex and to further discuss the buyer outreach. Dril-Quip management discussed the initial draft of the merger agreement, the status of due diligence activities and the industry participants that were selected by the Dril-Quip Board for the buyer outreach with input from Dril-Quip management, Citi and Morgan Stanley. Dril-Quip management noted that the list focused on well-capitalized strategic buyers with the potential to achieve meaningful synergies.

On February 16, 2024, representatives of Gibson Dunn sent to Akin initial drafts of the registration rights agreement and stockholders agreement. The draft stockholders agreement provided for the governance rights agreed to by the parties, including director nomination rights, information rights and standstill and transfer restrictions.

From February 20, 2024 to February 25, 2024, at the direction of the Transaction Committee, representatives of Citi and Morgan Stanley commenced, on behalf of Dril-Quip, an outreach to potential third parties regarding a potential transaction involving Dril-Quip.

On February 21, 2024, representatives from Gibson Dunn sent a revised draft of the merger agreement to Akin, which included, among other things, the following changes to the draft of the merger agreement received from Akin on February 13, 2024: (a) that the Chairperson of the combined company’s (i) Audit Committee, (ii) Nomination and Governance Committee and (iii) Compensation Committee be appointed by Dril-Quip; (c) requiring at least two Innovex designees to be independent under applicable rules of the NYSE and SEC; (d) revisions to the treatment of certain equity awards in connection with the proposed transaction; (e) modification to the scope of representations and warranties and interim operating covenants, including restrictions on the ability of each of the parties to engage in certain transactions between signing and closing; (f) a revision to lower the termination fee payable by Dril-Quip in certain circumstances to 2.5% of the equity value of Dril-Quip in addition to revisions as to when such termination fee is payable; (g) changes to the no-shop covenants applicable to Dril-Quip and Innovex; (h) the addition of a covenant requiring Innovex to seek the adoption of the merger agreement by the Innovex stockholders prior to closing other than the Innovex stockholders executing a written consent with respect to the merger agreement; and (i) changes to conditions to closing for the benefit of the respective parties, including a condition to closing for the benefit of Dril-Quip that no stockholder of Innovex would have exercised any dissenters’ rights or rights of appraisal with respect to the mergers.

On February 24, 2024, the Dril-Quip Board held a regular meeting with members of Dril-Quip management and representatives of Gibson Dunn, Citi and Morgan Stanley in attendance. At this meeting, among other things, Citi discussed with the Dril-Quip Board certain preliminary financial information regarding Innovex and representatives of Citi and Morgan Stanley updated the Dril-Quip Board on the buyer outreach. A representative of Gibson Dunn next updated the Dril-Quip Board on the legal due diligence, provided a summary of the merger agreement, the stockholders agreement and the registration rights agreement, along with open commercial items, including the amounts of the termination fee and expense reimbursement and the post-closing name, ticker symbol and headquarters location, and discussed the overall transaction timeline and the timeline for regulatory approvals. Messrs. Bird and McClure then updated the Dril-Quip Board on Dril-Quip’s due diligence review on

 

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Innovex, including site visits, tax and financial due diligence and synergies, along with retention plans and communications strategy.

On February 28, 2024, representatives of Akin sent to Gibson Dunn revised drafts of the registration rights agreement and stockholders agreement, which included, among other things, a corporate opportunity waiver in favor of certain Covered Persons (as defined in the stockholders agreement), the addition of consent rights over certain actions taken by the combined company and changes to the transfer restriction and standstill restriction provisions.

On March 1, 2024, representatives of Akin sent to Gibson Dunn a revised draft of the merger agreement, which included, among other things, the following changes to the draft of the merger agreement received from Gibson Dunn on February 21, 2024: (a) a requirement that all Dril-Quip designees and at least one Innovex designee be independent under applicable rules of the NYSE and SEC; (b) changes to the no-shop covenants applicable to Dril-Quip and Innovex; (c) deletion of the covenant requiring Innovex to seek stockholder approval of the merger agreement from 100% of its stockholders and addition of a covenant requiring Innovex, at the direction of its majority stockholders, to deliver a drag-along notice (as permitted in the Innovex stockholders agreement); (d) deletion of the condition to closing for the benefit of Dril-Quip that no stockholder of Innovex would have exercised any dissenters’ rights or rights of appraisal with respect to the mergers; (e) increasing the termination fee payable by Dril-Quip in certain circumstances to 3.75% of the equity value of Dril-Quip in addition to revisions as to when such termination fee was payable; and (f) modification to the scope of representations and warranties and interim operating covenants, including additional restrictions on the ability of Dril-Quip to engage in certain transactions between signing and closing.

On March 6, 2024, representatives of Gibson Dunn sent to Akin an initial draft of the Dril-Quip disclosure letter under the merger agreement.

On March 8, 2024, representatives of Gibson Dunn sent to Akin a revised draft of the merger agreement, which included, among other things, a revised transaction structure to include two separate mergers, changes to the no-shop covenant applicable to Dril-Quip and a lower termination fee payable by Dril-Quip in certain circumstances equal to 2.75% of the equity value of Dril-Quip in addition to revisions as to when such termination fee was payable.

Also on March 8, 2024, representatives of Akin shared with Gibson Dunn an initial draft of the Innovex disclosure letter under the merger agreement. Between March 8, 2024, and March 17, 2024, representatives of Gibson Dunn and Akin exchanged various revised drafts of the disclosure letters.

On March 13, 2024, representatives of Akin sent to Gibson Dunn a revised draft of the merger agreement, which included, among other things, the following changes to the draft of the merger agreement received from Gibson Dunn on March 8, 2024: (a) an increase in the termination fee payable by Dril-Quip in certain circumstances to 3.95% of the equity value of Dril-Quip in addition to revisions as to when such termination fee was payable; (b) a covenant, and a condition to closing of Innovex that, Dril-Quip adopt the 2024 LTIP, subject to the adoption by the stockholders of the 2024 LTIP proposal (the “2024 LTIP Adoption”); (c) a requirement that Dril-Quip, at the closing, cause certain Innovex designees to be appointed to the Audit Committee, Nomination and Governance Committee and the Compensation Committee of the combined company board; (d) modifications to the scope of representations and warranties; and (e) changes to the no-shop covenant applicable to Dril-Quip.

On March 13, 2024 and March 14, 2024, Gibson Dunn and Akin finalized the terms of the registration rights agreement, the stockholders agreement and other ancillary documentation.

On March 14, 2024, representatives of Gibson Dunn sent to Akin a revised draft of the merger agreement, which included, among other things, a placeholder for the termination fee payable by Dril-Quip in certain

 

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circumstances in addition to revisions as to when such termination fee was payable and the deletion of the requirement to appoint Innovex designees to the Audit Committee of the combined company board.

On March 15, 2024, the Dril-Quip Board held a special meeting with members of Dril-Quip management and representatives of Gibson Dunn, Citi and Morgan Stanley in attendance. At this meeting, Citi reviewed with the Dril-Quip Board Citi’s preliminary financial analysis of the aggregate merger consideration provided for pursuant to the merger agreement. A representative of Gibson Dunn next discussed with the Dril-Quip Board, among other things, the key terms of the merger agreement, including the merger consideration calculation, the proposed combined company board and executive team, along with open commercial items, including the amounts of the termination fee and expense reimbursement, the end date and the post-closing name and ticker symbol. The Gibson Dunn representative also discussed the disclosure letters, stockholders agreement, registration rights agreement, the 2024 LTIP and the amendments to the Dril-Quip certificate of incorporation and bylaws attached to the merger agreement. Representatives of Citi and Morgan Stanley also updated the Dril-Quip Board on the buyer outreach. Of the five contacted parties, three had declined to pursue the opportunity without submitting an indication of interest or executing a confidentiality agreement and the two parties that executed confidentiality agreements and received preliminary information declined to pursue the opportunity. Both of the confidentiality agreements included customary mutual non-disclosure and non-use provisions and contained customary “standstill” provisions with a duration of either six months or one year and included a customary “fall-away” provision rendering the standstill inapplicable to such party following its entry into a definitive agreement relating to an acquisition of a majority of such party’s voting securities or substantially all of its assets, or any third party commencing a tender offer for a majority of such party’s outstanding voting securities. In addition, both confidentiality agreements prohibit the counterparty from requesting a waiver. The standstill provisions of the confidentiality agreements were still in force and effect upon entry into the merger agreement.

On March 15, 2024, representatives of Akin sent to Gibson Dunn a revised draft of the merger agreement, which included, among other things, a termination fee payable by Dril-Quip in certain circumstances equal to 3.75% of the equity value of Dril-Quip, the deletion of the 2024 LTIP Adoption as a condition to closing for the benefit of Innovex, December 18, 2024 as the outside date for completion of the transaction and March 18, 2025 as the end of the automatic extension for HSR Act and other regulatory clearance. Representatives of Gibson Dunn and Akin held various calls to discuss, and exchanged various revised drafts of, the merger agreement between March 15, 2024 and the finalization of the merger agreement on the evening of March 17, 2024.

On March 17, 2024, Citi provided to the Dril-Quip Board certain information regarding Citi’s material investment banking relationships with Dril-Quip, Innovex and Amberjack, which, other than serving as an underwriter for Innovex’s contemplated initial public offering (for which no compensation was received), indicated no material investment banking relationships with such parties during the preceding two-year period.

During the evening on March 17, 2024, the Dril-Quip Board held a special meeting, with members of Dril-Quip management and representatives of Gibson Dunn, Citi and Morgan Stanley in attendance, to consider the final terms of the proposed merger with Innovex. Dril-Quip management noted that the Innovex Board was meeting during the morning of March 18, 2024 to consider approval of the proposed transaction. A representative of Gibson Dunn discussed, among other things, the changes to the merger agreement and other transaction documents since the Dril-Quip Board had last convened, including resolution of the end date, the post-closing name, ticker symbol and the dollar amounts of the termination fee and expense reimbursement. Also at this meeting, Citi reviewed with the Dril-Quip Board Citi’s financial analysis of the aggregate merger consideration provided for pursuant to the merger agreement and rendered an oral opinion, confirmed by delivery of a written opinion dated March 17, 2024 to the Dril-Quip Board, to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi, the aggregate merger consideration provided for pursuant to the merger agreement was fair, from a financial point of view, to Dril-Quip. After further discussion and consideration of the factors described in the section entitled “Recommendation of the Dril-Quip Board and Reasons for the Mergers” by the

 

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Dril-Quip Board, the Dril-Quip Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, Dril-Quip and the Dril-Quip stockholders, (ii) approved and declared advisable the merger agreement, the transactions contemplated thereby and the charter amendment, (iii) directed the merger proposals be submitted to the holders of Dril-Quip common stock for their approval, and (iv) resolved to recommend that the holders of Dril-Quip common stock vote in favor of the merger proposals.

On March 18, 2024, the Innovex Board held a special meeting, with members of Innovex management in attendance to consider and approve the final terms of the proposed merger with Dril-Quip. After discussion and review of such factors that the Innovex Board considered to be relevant to its review of the merger agreement, the Innovex Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of Innovex and its stockholders, (ii) approved and declared advisable the merger agreement and the transactions contemplated thereby, and (iii) resolved to submit and recommend the adoption of the merger agreement by Innovex stockholders and the approval of the consummation of the mergers and the transactions contemplated thereby.

Later on March 18, 2024, the parties executed the merger agreement and Innovex delivered a written consent of Innovex stockholders, signed by the consenting stockholders, approving, among other things, the merger agreement and the transactions contemplated thereby. Immediately after the market close on March 18, 2024, the parties issued a joint press release announcing the transaction and, on the morning of March 19, 2024, held a joint investor conference call.

Recommendation of the Dril-Quip Board and Reasons for the Mergers

At a meeting held on March 17, 2024, the Dril-Quip Board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, Dril-Quip and its stockholders, approved and declared advisable the merger agreement and the charter amendment and the transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth in the merger agreement, directed that the merger proposals be submitted to Dril-Quip stockholders for approval and resolved to recommend that the Dril-Quip stockholders vote in favor of the merger proposals. The Dril-Quip Board unanimously recommends that Dril-Quip stockholders vote “FOR” the stock issuance proposal and “FOR” the charter amendment proposal.

In evaluating the mergers, the Dril-Quip Board consulted with Dril-Quip’s management and legal and financial advisors and, in determining to approve the merger agreement and to recommend that Dril-Quip stockholders approve the merger proposals, the Dril-Quip Board considered a number of factors, many of which support the Dril-Quip Board’s determination that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, Dril-Quip and its stockholders. The Dril-Quip Board considered these factors as a whole without assigning relative weights to each such factor, and overall considered the relevant factors to be favorable to, and in support of, its determinations and recommendations. These factors included:

 

   

the belief that the mergers will be immediately accretive on key financial metrics, including earnings per share and free cash flow per share;

 

   

the belief that the combined company will have an enhanced financial position, with a strong balance sheet capable of enabling opportunities for further innovation and financial flexibility;

 

   

the belief that the mergers will provide Dril-Quip stockholders with the opportunity to benefit from expected annual cost savings of approximately $30 million through operational efficiencies and reductions in sales, general and administrative expenses as well as significant improvements in supply chain and R&D management;

 

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the potential of a higher market valuation of the combined company through greater scale and the creation of a company that would deliver strong EBITDA and free cash flow generation and consistent high return of capital to stockholders;

 

   

the expectation that the mergers will enhance the combined company’s global scale and footprint;

 

   

the structure of the transaction as a merger of equals with terms negotiated in the merger agreement providing that:

 

   

the combined company board will include designees of Dril-Quip and designees of Innovex;

 

   

the Chairman of the Dril-Quip Board prior to the effective time will serve as the chairman of the combined company board as of the effective time;

 

   

the Chair of each committee of the combined company board will include a designee of Dril-Quip;

 

   

that the mergers and the all-stock consideration offered in connection therewith will provide Dril-Quip stockholders with ownership of approximately 52% of the combined company (based on fully diluted shares outstanding of the combined company) and therefore allow Dril-Quip stockholders to participate in the equity value of the combined company, including future growth and the cost synergies expected to result from the mergers;

 

   

the information from and discussions with Dril-Quip’s management and outside legal and financial advisors regarding each of Dril-Quip’s and Innovex’s businesses, assets, financial condition, results of operations, current business strategy and prospects, including the projected long-term financial results of each of Dril-Quip and Innovex as a stand-alone company, the size and breadth of the combined company and the expected pro forma effect of the mergers on the combined company and its ability to achieve future growth and generate additional returns for Dril-Quip stockholders;

 

   

the alignment of complementary cultures and operating philosophies, including, for illustrative purposes, a shared commitment to safety and integrity, employee development, partnerships with blue-chip customers, operating efficiency and service quality and technological innovation;

 

   

the expectation that the combined company will be able to better serve Dril-Quip’s and Innovex’s customers in critical growth markets with a larger footprint and broader service offering;

 

   

the expectation that the breadth of the combined company will provide cost saving opportunities with its current and potential supplier base;

 

   

the expectation that the combined company will share Dril-Quip’s and Innovex’s best practices and leverage its combined team and resources to provide even better services for its customers;

 

   

the opinion, dated March 17, 2024, of Citi to the Dril-Quip Board as to the fairness, from a financial point of view and as of the date of the opinion, to Dril-Quip of the aggregate merger consideration provided for pursuant to the merger agreement, which opinion was based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi as more fully described below under the heading “—Opinion of Dril-Quip’s Financial Advisor.”

 

   

the Dril-Quip Board’s view, after consultation with Dril-Quip’s management and outside counsel, concerning the likelihood that regulatory approvals and clearances necessary to consummate the mergers would be obtained, without the imposition of conditions sufficiently material to preclude the mergers;

 

   

the nature of the closing conditions included in the merger agreement, including the reciprocal exceptions to the events that would constitute a material adverse effect on either Dril-Quip or Innovex for purposes of the merger agreement, and the likelihood of satisfaction of all conditions to completion of the transactions contemplated by the merger agreement;

 

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that Dril-Quip stockholders will have the opportunity to vote on the merger proposals, which are conditions precedent to the mergers;

 

   

that the representations and warranties of Dril-Quip and Innovex in the merger agreement, as well as the interim operating covenants requiring the parties to conduct their respective businesses in the ordinary course prior to completion of the mergers, subject to specific limitations, are generally reciprocal;

 

   

the restrictions in the merger agreement on Innovex’s ability to respond to and negotiate alternative transaction proposals from third parties, the inability of Innovex to terminate the merger agreement to enter into a superior proposal and the receipt of the approval of the Innovex stockholders on March 18, 2024;

 

   

Dril-Quip’s right to engage in negotiations with, and provide information to, a third party that makes an unsolicited written bona fide proposal relating to an alternative proposal, if the Dril-Quip Board has determined in good faith (i) after consultation with Dril-Quip’s outside legal counsel and financial advisor that, based on the information then available, such proposal constitutes or could reasonably be expected to result in a transaction that is superior to the mergers with Innovex and (ii) and after consultation with Dril-Quip’s outside legal counsel, failure to engage in such activities would reasonably be expected to be inconsistent with the Dril-Quip Board’s fiduciary duties under applicable law;

 

   

the results of the buyer outreach process by Dril-Quip;

 

   

the fact that the Dril-Quip Board has the ability to terminate the merger agreement under certain circumstances, including by entering into an agreement relating to a superior proposal, subject to certain conditions (including payment of a termination fee); and

 

   

the right of the Dril-Quip Board to change its recommendation to Dril-Quip stockholders to vote “FOR” the merger proposals if a superior proposal is available or an intervening event has occurred, subject to certain conditions and fee obligations.

The Dril-Quip Board also considered a variety of risks and other potentially negative factors concerning the merger agreement and the related transactions contemplated thereby. These factors included:

 

   

the possibility that the mergers may not be completed or that completion may be unduly delayed for reasons beyond the control of Dril-Quip or Innovex, including the failure to obtain stockholder approval of the merger proposals;

 

   

that there are significant risks inherent in integrating the operations of Innovex with Dril-Quip, including that the expected synergies may not be realized, and that successful integration will require the dedication of significant management resources, which will temporarily detract attention from the day-to-day businesses of the combined company;

 

   

the substantial costs to be incurred in the mergers, including those incurred regardless of whether the mergers are consummated and the costs of integrating the businesses of Dril-Quip and Innovex;

 

   

that the merger agreement provides that, in certain circumstances, Dril-Quip could be required to pay a termination fee of $31,895,000 to Innovex or an expense reimbursement fee of $4,253,000;

 

   

the possibility that the $4,253,000 expense reimbursement fee that Innovex would be required to pay under the merger agreement upon termination of the merger agreement under certain circumstances would be insufficient to compensate Dril-Quip for its costs incurred in connection with the merger agreement;

 

   

that the mergers might not be completed as a result of a failure to satisfy the conditions contained in the merger agreement, including failure to receive necessary regulatory approvals;

 

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the potential for litigation relating to the mergers and the associated costs, burden and inconvenience involved in defending those proceedings;

 

   

that the restrictions on the conduct of Dril-Quip’s business prior to the consummation of the mergers, although believed to be reasonable and not unduly burdensome, may delay or prevent Dril-Quip from undertaking business opportunities that may arise or other actions it would otherwise take with respect to the operations of Dril-Quip pending the consummation of the mergers;

 

   

that the merger agreement restricts Dril-Quip’s ability to entertain other acquisition proposals and to terminate the merger agreement to enter into a superior proposal unless certain conditions are satisfied, and requires that Dril-Quip hold the special meeting even if the Dril-Quip Board changes its recommendation;

 

   

the possibility of losing key employees and skilled workers as a result of the expected consolidation of Dril-Quip’s and Innovex’s personnel when the mergers are completed; and

 

   

other risks of the type and nature described in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

This discussion of the information and factors considered by the Dril-Quip Board in reaching its conclusion and recommendations is intended to include all of the material factors considered by the Dril-Quip Board but is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the Dril-Quip Board in evaluating the merger agreement and the related transactions contemplated thereby, and the complexity of these matters, the Dril-Quip Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the Dril-Quip Board may have given different weight to different factors. The Dril-Quip Board did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall analysis of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the merger agreement and the transactions contemplated thereby.

It should be noted that this explanation of the reasoning of the Dril-Quip Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

Innovex’s Reasons for the Mergers

Innovex considered a number of key factors in entering into the merger agreement, including, among others:

 

   

Innovex’s belief that the breadth and diversity of the combined company’s portfolio of products and services will create the opportunity to cross-sell Innovex’s products alongside select Dril-Quip offerings and to facilitate further market penetration of Innovex’s existing deepwater well construction portfolio;

 

   

Innovex’s belief that the combined company’s complementary customer relationships, services and solutions will increase the combined company’s global scale and footprint across several growing markets (including Saudi Arabia, Mexico, South America and the Asia Pacific region);

 

   

Innovex’s belief that the combined company can enable the growth of Innovex’s broad downhole tools portfolio across the large Canadian onshore market through Dril-Quip’s strong Canadian footprint and customer relationships and accelerate the marketing of Dril-Quip’s leading onshore Canadian wellhead business in the U.S. onshore market through Innovex’s operational and sales infrastructure;

 

   

Innovex’s expectation that the combined company will achieve annual cost synergies of approximately $30 million within 24 months after the mergers close;

 

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Innovex’s expectation that the combined company will provide greater opportunities for research and development related to Dril-Quip’s and Innovex’s respective commitments to the continued development of technologies that will utilize best-in-class research and development capabilities to deliver next-generation, innovative products and to position the combined company at the forefront of energy technologies and solutions;

 

   

Innovex’s expectation that the mergers will result in a combined company that is superior operationally due to increased scale and scope, and in terms of enhancing value for Innovex’s stockholders than if Innovex continued to operate as an independent, standalone company;

 

   

Innovex’s expectation that the combined company will create a more flexible and lean manufacturing footprint to deliver cost-effective and high-quality mission-critical products;

 

   

Innovex’s belief that the combined company will have increased access to sources of capital and a broader range of investors to support the development and increased capacity for the combined company’s product and service offerings as compared to Innovex continuing to operate as a privately held company;

 

   

Innovex’s belief that the mergers will provide the existing stockholders of Innovex with greater liquidity by exchanging their Innovex shares of common stock for Dril-Quip’s publicly traded stock, which could also provide the combined company with an enhanced ability to pursue acquisitions and other synergies-focused consolidation opportunities in the future; and

 

   

Innovex’s belief that the combined company board, which immediately after the closing of the mergers will have nine members, including four directors designated by Innovex, Adam Anderson, the current Chief Executive Officer of Innovex (and who will serve as the Chief Executive Officer of the combined company), and four directors designated by Dril-Quip, will provide continuity as to strategy, operational focus and financial discipline and opportunities for organizational advancement.

Unaudited Prospective Financial Information

Dril-Quip and Innovex do not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, earnings or other results given, among other reasons, the uncertainty of the underlying assumptions and estimates. However, Dril-Quip and Innovex are including certain unaudited prospective financial information in this section of this proxy statement/prospectus because it was among the financial information made available in connection with the Dril-Quip Board’s and the Innovex Board’s, as applicable, valuation of the mergers and the other transactions contemplated by the merger agreement. Certain of the unaudited prospective financial information also was provided to Citi for its use and reliance in connection with its financial analyses and opinion described in the section titled “—Opinion of Dril-Quip’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Dril-Quip, Innovex, any of their respective affiliates, officers, directors, advisors or other representatives or any other recipient of this information considered or now considers it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance. Actual future results could vary materially from such prospective financial information. As such, Dril-Quip stockholders are cautioned not to place undue reliance on the unaudited prospective financial information, including whether to vote for the merger proposals or any other matter.

This information was prepared solely for internal use and is subjective in many respects. The Dril-Quip projections (as defined below) were based solely upon information available to Dril-Quip’s management and the Innovex projections (as defined below) were based solely upon information available to Innovex’s management, in each case at the time of preparation.

While presented with numerical specificity, the Dril-Quip projections and the Innovex projections reflect numerous estimates and assumptions that were deemed to be reasonable as of the respective dates the estimates

 

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and assumptions were made but are inherently uncertain and may be beyond the control of Dril-Quip’s and Innovex’s management, as applicable. These assumptions include, but are not limited to, Dril-Quip’s and Innovex’s future results, oilfield services industry activity, commodity prices, demand for natural gas and crude oil, capital availability, general economic and regulatory conditions and other matters described in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” The Dril-Quip projections, with respect to Dril-Quip, and the Innovex projections, with respect to Innovex, reflect both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Dril-Quip and Innovex can give no assurance that their respective unaudited prospective financial information and the underlying estimates and assumptions will be realized.

In addition, since the Dril-Quip projections and the Innovex projections are inherently forward looking and cover multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the Dril-Quip projections or the Innovex projections not to be realized include, but are not limited to, risks and uncertainties relating to Dril-Quip’s and Innovex’s business, industry performance, the regulatory environment, general business and economic conditions and other matters described under the section of this proxy statement/prospectus entitled “Risk Factors.” See also “Cautionary Note Regarding Forward-Looking Statements” and “Where You Can Find More Information.”

The Dril-Quip projections and the Innovex projections were not prepared with a view toward public disclosure, nor were such projections prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Dril-Quip’s independent registered public accounting firm, Innovex’s independent certified public accounting firm nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability and assume no responsibility for, and disclaim any association with, the prospective financial information. The report of the independent registered public accounting firm to Dril-Quip contained in its Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated by reference into this proxy statement/prospectus, relates to historical financial information of Dril-Quip, and such report does not extend to the Dril-Quip projections included below and should not be read to do so. The report of Innovex’s independent certified public accounting firm contained in this proxy statement/prospectus relates to historical financial information of Innovex, and such report does not extend to the Innovex projections included below and should not be read to do so. The unaudited prospective financial information set forth in this section of this proxy statement/prospectus entitled “Unaudited Prospective Financial Information” has been prepared by, and is the responsibility of, with respect to the Dril-Quip projections, Dril-Quip management and, with respect to the Innovex projections, Innovex management.

Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date such projections were prepared. Dril-Quip and Innovex can give no assurance that, had the Dril-Quip projections or the Innovex projections, as applicable, been prepared either as of the date of the merger agreement or as of the date of this proxy statement/prospectus, similar estimates and assumptions would be used. Except as required by applicable securities laws, Dril-Quip and Innovex do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the Dril-Quip projections or the Innovex projections, as applicable, to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown not to be appropriate, including with respect to the accounting treatment of the mergers under GAAP, or to reflect changes in general economic or industry conditions.

The Dril-Quip projections, with respect to Dril-Quip, and the Innovex projections, with respect to Innovex, do not take into account all the possible financial and other effects on Dril-Quip or Innovex, respectively, of the

 

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mergers, the effect on Dril-Quip or Innovex, respectively of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the mergers. Further, the Dril-Quip projections and the Innovex projections do not take into account the effect on Dril-Quip or Innovex, respectively, of any possible failure of the mergers to occur. None of Dril-Quip, Innovex, or their respective affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any Dril-Quip or Innovex stockholder or other person regarding Dril-Quip’s or Innovex’s ultimate performance compared to the information contained in the Dril-Quip projections or the Innovex projections, as applicable, or that the forecasted results will be achieved. The inclusion of the Dril-Quip projections and the Innovex projections herein should not be deemed an admission or representation by Dril-Quip, Innovex, as applicable, or their respective affiliates, officers, directors, advisors or other representatives that it is viewed as material information of Dril-Quip or Innovex, particularly in light of the inherent risks and uncertainties associated with such forecasts.

The unaudited prospective financial information of Dril-Quip and Innovex included in this proxy statement/prospectus has been prepared by, and is the responsibility of, the management of Dril-Quip or the management of Innovex, as applicable. Neither PricewaterhouseCoopers LLP (“PwC”), the independent registered accountant of Dril-Quip, nor Grant Thornton LLP (“Grant Thornton”), the independent certified public accountants of Innovex, has audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the accompanying unaudited prospective financial information and, accordingly, neither PwC nor Grant Thornton expresses an opinion or any other form of assurance with respect thereto. The report of PwC with respect to Dril-Quip, incorporated by reference in this proxy statement/prospectus relates to the historical financial statements of Dril-Quip, does not extend to the unaudited prospective financial information of Dril-Quip and should not be read to do so. The report of Grant Thornton with respect to Innovex’s audited financial statements included elsewhere in this proxy statement/prospectus, relates to the historical financial statements of Innovex, does not extend to the unaudited prospective financial information of Innovex and should not be read to do so.

In light of the foregoing, and considering the uncertainties inherent in any forecasted information, holders of Dril-Quip common stock are cautioned not to place undue reliance on such information, and Dril-Quip urges all holders of Dril-Quip common stock to review Dril-Quip’s most recent SEC filings for a description of Dril-Quip’s reported financial results and Innovex’s historical financial information included elsewhere in this proxy statement/prospectus. See the section entitled “Where You Can Find More Information.”

Dril-Quip’s Projections

In preparing the Dril-Quip projections described below, Dril-Quip management made numerous assumptions regarding Dril-Quip business, including, but not limited to:

 

   

Market growth assumptions during the forecast period, which were based published industry information from reputable sources such as Rystad Energy and Spears & Associates, including deepwater and land wells drilled;

 

   

Revenue growth relied on a combination of the aforementioned market growth over the period as well as continued expansion and market share gains of existing product lines, including growth due to product sales related to energy transition;

 

   

Any inflation in costs incurred would be passed through to customers;

 

   

Capital expenditures during the projection period would be a consistent percentage of revenue;

 

   

Additional margin expansion would occur as a consequence of improved operating efficiency during the projection period; and

 

   

An effective tax rate of 30% during the projection period.

 

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The following table presents selected unaudited prospective financial data of Dril-Quip (referred to herein as the “Dril-Quip projections”):

 

     Year Ended December 31,  
     2024E     2025E     2026E     2027E     2028E  
     (in Millions)  

Total Revenues

     $505       $585       $616       $639       $661  

Adjusted EBITDA (1)

     $71       $118       $127       $132       $137  

Capital Expenditures

     ($19     ($18     ($18     ($19     ($20

Free Cash Flow (2)

     $57       $36       $71       $80       $86  

 

(1)

Adjusted EBITDA is defined as net income excluding income taxes, interest income and expense, depreciation and amortization expense, stock-based compensation, non-cash gains or losses from foreign currency exchange rate changes as well as other significant non-cash items and other adjustments for certain charges and credits. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) or other measures prepared in accordance with GAAP.

(2)

Free Cash Flow is defined as cash flow from operating activities less capital expenditures.

Innovex’s Projections

In preparing the Innovex’s projections described below, Innovex’s management made numerous assumptions regarding Innovex’s business, including, but not limited to:

 

   

Market growth assumptions during the forecast period, including NAM and International and Offshore rig count levels, which were based on management’s views of macro-economic patterns that influence the industry, including oil and gas commodity prices, drilling and completion spending and activity levels, and spending for intervention and other production enhancement services. Management’s view was informed by interactions with customers and from published industry information from reputable sources;

 

   

Revenue growth relied on a combination of the aforementioned market growth over the forecast period as well as continued expansion and market share gains;

 

   

Pricing levels were assumed to remain relatively stable throughout the forecast period and that any inflation in costs incurred would be passed through to customers;

 

   

Capital expenditures during the projection period were forecast to be sufficient to cover the maintenance capital needs of the organization as well as the capital needs required to achieve the forecasted growth in revenue;

 

   

Additional margin expansion would occur as a consequence of improved operating efficiency during the projection period; and

 

   

No material changes in domestic or international tax regimes would be experienced during the projection period and the effective tax rate would remain generally constant as a percentage of revenue.

The following table presents selected unaudited prospective financial data of Innovex (referred to herein as the “Innovex projections”):

 

     Year Ended December 31,  
     2024E     2025E     2026E     2027E     2028E  
     (in Millions)  

Total Revenues

     $560       $639       $677       $718       $761  

Adjusted EBITDA (1)

     $124       $144       $154       $163       $173  

Capital Expenditures

     ($17     ($19     ($20     ($22     ($23

Free Cash Flow (2)

     $82       $76       $92       $97       $102  

 

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(1)

Solely for the purposes of the Innovex projections, Adjusted EBITDA is defined as net income excluding income taxes, interest income and expense, depreciation and amortization expense, stock-based compensation as well as other significant non-cash items and other adjustments for certain charges and credits and excludes the impact of Innovex’s equity method investment in DWS.

(2)

Solely for purposes of the Innovex projections, Free Cash Flow is defined as operating cash flow less capital expenditures plus distributions received from Innovex’s minority investment in DWS.

Certain of the measures included in the Dril-Quip projections and the Innovex projections are non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Dril-Quip and Innovex are not reported by all of their competitors and may not be comparable to similarly titled amounts used by other companies.

DRIL-QUIP AND INNOVEX DO NOT INTEND TO, AND DISCLAIM ANY OBLIGATION TO, UPDATE, CORRECT OR OTHERWISE REVISE THE DRIL-QUIP PROJECTIONS OR THE INNOVEX PROJECTIONS, AS APPLICABLE, TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE OF THE MERGER AGREEMENT OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING ANY SUCH PROJECTIONS ARE NO LONGER APPROPRIATE (EVEN IN THE SHORT TERM).

Non-GAAP Financial Information

The non-GAAP measures presented above were used by each of the Dril-Quip Board and the Innovex Board in connection with its consideration of the mergers and relied upon by Citi, at the direction of the Dril-Quip Board, in connection with its financial analyses and opinion. Financial measures provided to a financial advisor in connection with a business combination such as the mergers are excluded from the definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of these non-GAAP financial measures were not provided to or relied upon by the Dril-Quip Board or the Innovex Board in connection with their respective consideration of the mergers or by Citi in connection with its financial analyses or opinion. Accordingly, no reconciliations of the non-GAAP financial measures included in the financial projections is provided in this proxy statement/prospectus.

Opinion of Dril-Quip’s Financial Advisor

Dril-Quip has engaged Citi as Dril-Quip’s financial advisor in connection with the proposed mergers. In connection with Citi’s engagement, the Dril-Quip Board requested that Citi evaluate the fairness, from a financial point of view, to Dril-Quip of the aggregate merger consideration provided for pursuant to the merger agreement, which aggregate merger consideration Citi was advised implies a pro forma equity ownership interest in Dril-Quip upon consummation of the first merger by the securityholders of Innovex immediately prior to consummation of the first merger of 48% on a fully-diluted basis. On March 17, 2024, at a meeting of the Dril-Quip Board held to evaluate the proposed mergers, Citi rendered an oral opinion, confirmed by delivery of a written opinion dated March 17, 2024, to the Dril-Quip Board to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi, the aggregate merger consideration provided for pursuant to the merger agreement was fair, from a financial point of view, to Dril-Quip.

The full text of Citi’s written opinion, dated March 17, 2024, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text

 

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of Citi’s opinion. Citi’s opinion was provided for the information of the Dril-Quip Board (in its capacity as such) in connection with its evaluation of the aggregate merger consideration from a financial point of view to Dril-Quip and did not address any other terms, aspects or implications of the mergers. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Dril-Quip to effect or enter into the mergers, the relative merits of the mergers as compared to any alternative business strategies that might exist for Dril-Quip or the effect of any other transaction that Dril-Quip might engage in or consider. Citi’s opinion was not intended to be and did not constitute a recommendation as to how the Dril-Quip Board, and is not intended to be and does not constitute a recommendation as to how any securityholder, should vote or act on any matters relating to the proposed mergers or otherwise.

In arriving at its opinion, Citi:

 

   

reviewed a draft, dated March 17, 2024, of the merger agreement;

 

   

held discussions with certain senior officers, directors and other representatives of Dril-Quip and certain senior officers and other representatives of Innovex concerning the businesses, operations and prospects of Dril-Quip and Innovex;

 

   

reviewed certain publicly available and other business and financial information relating to Dril-Quip and Innovex provided to or discussed with Citi by the managements of Dril-Quip and Innovex, including certain financial forecasts and other information and data relating to Dril-Quip prepared by the management of Dril-Quip and certain financial forecasts and other information and data relating to Innovex prepared by the management of Innovex as approved by the management of Dril-Quip;

 

   

reviewed certain information and data provided to or discussed with Citi by the managements of Dril-Quip and Innovex relating to the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by such managements to result from the mergers;

 

   

reviewed the financial terms of the mergers as set forth in the merger agreement in relation to, among other things, current and historical market prices of Dril-Quip common stock, the financial condition and certain historical and projected financial and operating data of Dril-Quip and Innovex, and the capitalization of Dril-Quip and Innovex;

 

   

reviewed certain financial, stock market and other publicly available information relating to the businesses of certain other companies whose operations Citi considered relevant in evaluating those of Dril-Quip and Innovex;

 

   

reviewed certain potential pro forma financial effects of the mergers utilizing the financial forecasts and other information and data and potential strategic implications and financial and operational benefits referred to above; and

 

   

conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In connection with Citi’s engagement, at the request of Dril-Quip, Citi held discussions with certain third parties regarding a potential transaction involving Dril-Quip.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the managements and other representatives of Dril-Quip and Innovex that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. With respect to the financial forecasts and other information and data that Citi was directed to utilize in its analyses, Citi was advised by the managements of Dril-Quip and Innovex and Citi assumed, with Dril-Quip’s consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements, as the case may be, as to, and were a reasonable basis upon which to

 

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evaluate, the future financial performance of Dril-Quip and Innovex, the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by such managements to result from, and other potential pro forma financial effects of, the mergers and the other matters covered thereby. Citi expressed no view or opinion as to any financial forecasts and other information or data (or underlying assumptions on which they were based) provided to or otherwise reviewed by or discussed with Citi and Citi assumed, with Dril-Quip’s consent, that the financial results, including with respect to the potential strategic implications and financial and operational benefits anticipated to result from the mergers, reflected in such financial forecasts and other information and data would be realized in the amounts and at the times projected.

Citi relied, at Dril-Quip’s direction, upon the assessments of the managements of Dril-Quip and Innovex, as the case may be, as to, among other things, (i) the potential impact on Dril-Quip and Innovex of macroeconomic, geopolitical, market, competitive, seasonal and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the energy equipment and services industry, including with respect to the availability and pricing of commodities, raw materials and finished goods and supply and demand for oil and natural gas, which are subject to significant volatility and which, if different than as assumed, could have a material impact on Citi’s analyses or opinion, (ii) Innovex’s disclosure controls and procedures, including implications of material weaknesses identified in Innovex’s internal control over financial reporting and the remediation of such material weaknesses, (iii) Dril-Quip’s and Innovex’s completed acquisitions, including financial and other aspects involved and the ability to integrate acquired businesses and realize the potential benefits thereof, (iv) the existing and future products and intellectual property of Dril-Quip and Innovex, (v) existing and future agreements and other arrangements involving, and the ability to attract, retain and/or replace, key employees, customers, suppliers, service providers and other commercial relationships of Dril-Quip and Innovex, and (vi) the ability of Dril-Quip to integrate the operations of Dril-Quip and Innovex and to realize the potential strategic implications and financial and operational benefits as contemplated. Citi assumed, with Dril-Quip’s consent, that there would be no developments with respect to any such matters that would have an adverse effect on Dril-Quip, Innovex or the mergers (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion.

Citi did not make and was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of Dril-Quip, Innovex or any other entity nor did Citi make any physical inspection of the properties or assets of Dril-Quip, Innovex or any other entity. Citi did not evaluate the solvency or fair value of Dril-Quip, Innovex or any other entity under any state, federal, provincial or other laws relating to bankruptcy, insolvency or similar matters. Citi expressed no view or opinion as to any actual or potential litigation, claims or governmental, regulatory or other proceedings, enforcement actions, consent decrees or other orders, audits or investigations or the potential impact thereof on Dril-Quip, Innovex or any other entity or the mergers.

Citi assumed, with Dril-Quip’s consent, that the mergers would be consummated in accordance with their respective terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and agreements for the mergers or otherwise, no delay, limitation, restriction, condition or other action, including any divestiture or other requirements, amendments or modifications, would be imposed or occur that would have an adverse effect on Dril-Quip, Innovex or the mergers (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion. Citi also assumed, with Dril-Quip’s consent, that the mergers will qualify for the intended tax treatment contemplated by the merger agreement. Representatives of Dril-Quip advised Citi, and Citi further assumed, that the final terms of the merger agreement would not vary materially from those set forth in the draft reviewed by Citi. Citi’s opinion, as set forth therein, related to the relative values of Dril-Quip and Innovex (after taking into account the Innovex special cash dividend (as defined in the Section titled, “The Merger Agreement—Covenants—Innovex Special Cash Dividend”) to holders of

 

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Innovex common stock). Citi did not express any view or opinion as to the actual value of Dril-Quip common stock when issued in connection with the first merger or the prices at which Dril-Quip common stock, Innovex common stock or any other securities of Dril-Quip or Innovex may trade or otherwise be transferable at any time, including following the announcement or consummation of the mergers. Citi also did not express any view or opinion with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax or other consequences of the mergers or otherwise or changes in, or the impact of, accounting standards or tax and other laws, regulations and governmental and legislative policies affecting Dril-Quip, Innovex or the mergers (including the contemplated benefits thereof), and Citi relied, with Dril-Quip’s consent, upon the assessments of representatives of Dril-Quip as to such matters.

Citi’s opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, to Dril-Quip of the aggregate merger consideration (to the extent expressly specified herein), and did not address any other terms, aspects or implications of the mergers, including, without limitation, the form or structure of the mergers, the exercise of any drag-along rights by consenting stockholders of Innovex, any governance arrangements or any terms, aspects or implications of any registration rights or stockholders agreements or any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the mergers or otherwise. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Dril-Quip to effect or enter into the mergers, the relative merits of the mergers as compared to any alternative business strategies that might exist for Dril-Quip or the effect of any other transaction that Dril-Quip might engage in or consider. Citi also expressed no view as to, and its opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of any parties to the mergers, or any class of such persons, relative to the aggregate merger consideration or otherwise. Citi’s opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments may affect its opinion, Citi has no obligation to update, revise or reaffirm its opinion. As the Dril-Quip Board was aware, the industries in which Dril-Quip and Innovex operate (including commodity prices related to such industries) and the securities of Dril-Quip have experienced and may continue to experience volatility and disruptions, and Citi expressed no view or opinion as to any potential effects of such volatility or disruptions on Dril-Quip, Innovex or the mergers (including the contemplated benefits thereof). The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses and factors assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Dril-Quip and Innovex. No company or business reviewed is identical or directly comparable to Dril-Quip or Innovex and an evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies or businesses reviewed or the results of any particular analysis.

The estimates contained in Citi’s analyses and the ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more

 

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or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.

Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the mergers. The type and amount of consideration payable in the mergers were determined through negotiations between Dril-Quip and Innovex and the decision to enter into the merger agreement was solely that of the Dril-Quip Board. Citi’s opinion was only one of many factors considered by the Dril-Quip Board in its evaluation of the mergers and should not be viewed as determinative of the views of the Dril-Quip Board or Dril-Quip management with respect to the mergers or the aggregate merger consideration.

Financial Analyses

The summary of the financial analyses described below under this heading “—Financial Analyses” is a summary of the material financial analyses reviewed with the Dril-Quip Board and performed by Citi in connection with Citi’s opinion, dated March 17, 2024. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. Future results may be different from those described and such differences may be material. Approximate implied equity value reference ranges derived from the financial analyses described below for Innovex and Dril-Quip were rounded to the nearest $5 million and approximate implied per share equity value reference ranges derived from the financial analyses described below for Dril-Quip were rounded to the nearest $0.10. For purposes of the financial analyses described below, (i) the term “adjusted EBITDA” generally refers to earnings before interest, taxes, depreciation, amortization and equity method investments, adjusted for certain non-recurring and non-cash items, and (ii) the term “adjusted EBITDA-Capex” generally refers to adjusted EBITDA, less capital expenditures.

In calculating implied fully-diluted equity ownership percentage reference ranges as reflected in the financial analyses described below, Citi divided (i) the low-ends (or high-ends, as the case may be) of the approximate implied equity value reference ranges derived for Innovex from such analyses by (ii) the sum of (a) the high-ends (or low-ends, as the case may be) of the approximate implied equity value reference ranges derived for Dril-Quip from such analyses and (b) the low-ends (or high ends, as the case may be) of the approximate implied equity value reference ranges derived for Innovex from such analyses in order to calculate the low-ends (or high-ends) of such fully-diluted equity ownership percentage reference ranges.

Selected Public Companies Analyses. Citi performed separate selected public companies analyses of Innovex and Dril-Quip in which Citi reviewed certain financial and stock market information relating to Innovex, Dril-Quip and the selected publicly traded companies listed below.

Innovex. In its selected public companies analysis of Innovex, Citi reviewed certain financial information relating to Innovex and certain financial and stock market information relating to the following seven selected companies that Citi considered generally relevant for purposes of analysis as publicly traded energy equipment and services companies with operations in the North American onshore markets (collectively, the “Innovex selected companies”):

 

   

Cactus, Inc.

 

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ChampionX Corporation

 

   

Hunting PLC

 

   

NOV Inc.

 

   

Oil States International, Inc.

 

   

Schoeller-Bleckmann Oilfield Equipment AG

 

   

Weatherford International plc

Citi reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on March 15, 2024 plus total debt, preferred equity and non-controlling interests (as applicable) and less cash, cash equivalents and investments in unconsolidated affiliates (as applicable), as multiples of calendar year 2024 and calendar year 2025 estimated adjusted EBITDA and calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex. Financial data of the Innovex selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Innovex was based on financial forecasts and other information and data provided by the management of Innovex.

The overall low to high calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples observed for the Innovex selected companies were 5.2x to 9.6x (with a median of 6.8x) and 4.6x to 8.5x (with a median of 6.0x), respectively. The overall low to high calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples observed for the Innovex selected companies were 7.2x to 11.1x (with a median of 9.6x) and 6.2x to 9.5x (with a median of 7.9x), respectively. Citi applied selected ranges of calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples derived from the Innovex selected companies of 6.1x to 7.4x and 5.4x to 6.6x, respectively, and selected ranges of calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples derived from the Innovex selected companies of 8.7x to 10.6x and 7.1x to 8.7x, respectively, to corresponding data of Innovex, in each case based on financial forecasts and other information and data provided by the management of Innovex.

This analysis indicated approximate implied equity value reference ranges for Innovex of $660 million to $825 million and $680 million to $855 million based on calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples, respectively, and $835 million to $1.040 billion and $795 million to $990 million based on calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples, respectively.

Dril-Quip. In its selected public companies analysis of Dril-Quip, Citi reviewed certain financial and stock market information relating to Dril-Quip and the following six selected companies that Citi considered generally relevant for purposes of analysis as publicly traded energy equipment and services companies (collectively, the “Dril-Quip selected companies”):

 

   

Cactus, Inc.

 

   

ChampionX Corporation

 

   

NOV Inc.

 

   

Oceaneering International, Inc.

 

   

Oil States International, Inc.

 

   

TechnipFMC plc

Citi reviewed the same information referred to above under “—Selected Public Companies Analyses—Innovex.” Financial data of the Dril-Quip selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Dril-Quip was based on financial forecasts and other information and data provided by the management of Dril-Quip, public filings and other publicly available information.

 

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The overall low to high calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples observed for the Dril-Quip selected companies were 5.2x to 9.6x (with a median of 7.7x) and 4.6x to 8.5x (with a median of 6.3x), respectively. The overall low to high calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples observed for the Dril-Quip selected companies were 9.3x to 11.1x (with a median of 10.0x) and 7.6x to 9.5x (with a median of 8.0x), respectively. Citi applied selected ranges of calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples derived from the Dril-Quip selected companies of 6.9x to 8.4x and 5.7x to 6.9x, respectively, and selected ranges of calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples derived from the Dril-Quip selected companies of 9.3x to 11.0x and 7.6x to 8.8x, respectively, to corresponding data of Dril-Quip, in each case based on financial forecasts and other information and data provided by the management of Dril-Quip.

This analysis indicated approximate implied equity value reference ranges for Dril-Quip of $705 million to $815 million (or approximately $19.90 to $22.90 per share) and $885 million to $1.035 billion (or approximately $24.90 to $29.10 per share) based on calendar year 2024 and calendar year 2025 estimated adjusted EBITDA multiples, respectively, and $700 million to $790 million (or approximately $19.80 to $22.30 per share) and $975 million to $1.100 billion (or approximately $27.50 to $31.00 per share) based on calendar year 2024 and calendar year 2025 estimated adjusted EBITDA-Capex multiples, respectively.

Utilizing the approximate implied equity value reference ranges derived for Innovex and Dril-Quip as described above, Citi calculated the following approximate implied fully-diluted pro forma equity ownership reference ranges for Innovex, as compared to Innovex’s fully-diluted pro forma equity ownership in the combined company upon consummation of the mergers based on the aggregate merger consideration:

 

Implied Fully-Diluted Pro Forma Equity Ownership Reference Ranges Based On:

 

Innovex Fully-Diluted Pro
Forma Equity
Ownership in the Mergers

CY2024E Adjusted

EBITDA

 

CY2025E Adjusted

EBITDA

 

CY2024E Adjusted

EBITDA-Capex

 

CY2025E Adjusted

EBITDA-Capex

45% - 54%

  40% - 49%   51% - 60%   42% - 50%   48%

Discounted Cash Flow Analyses. Citi performed separate discounted cash flow analyses of Innovex and Dril-Quip.

Innovex. Citi performed a discounted cash flow analysis of Innovex by calculating the estimated present value of the standalone unlevered, after-tax free cash flows that Innovex was forecasted to generate during the fiscal years ending December 31, 2024 through December 31, 2028 based on financial forecasts and other information and data provided by the management of Innovex. For purposes of this analysis, stock-based compensation was treated as a cash expense. Citi calculated terminal values for Innovex by applying to the fiscal year 2028 estimated adjusted EBITDA of Innovex (inclusive of Innovex’s pro rata portion of estimated adjusted EBITDA attributable to unconsolidated affiliates) a selected range of adjusted EBITDA multiples of 5.0x to 7.0x. The present values (as of December 31, 2023) of the cash flows and terminal values were then calculated using a selected range of discount rates of 13.1% to 14.5%. This analysis indicated an approximate implied equity value reference range for Innovex of $665 million to $900 million.

Dril-Quip. Citi performed a discounted cash flow analysis of Dril-Quip by calculating the estimated present value of the standalone unlevered, after-tax free cash flows that Dril-Quip was forecasted to generate during the fiscal years ending December 31, 2024 through December 31, 2028 based on financial forecasts and other information and data provided by the management of Dril-Quip. For purposes of this analysis, stock-based compensation was treated as a cash expense. Citi calculated terminal values for Dril-Quip by applying to the fiscal year 2028 estimated adjusted EBITDA of Dril-Quip a selected range of adjusted EBITDA multiples of 5.0x to 7.0x. The present values (as of December 31, 2023) of the cash flows and terminal values were then calculated using a selected range of discount rates of 12.5% to 13.8%. This analysis indicated an approximate implied equity value reference range for Dril-Quip of $735 million to $910 million (or approximately $20.70 to $25.70 per share).

 

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Utilizing the approximate implied equity value reference ranges derived for Innovex and Dril-Quip as described above, Citi calculated the following approximate implied fully-diluted pro forma equity ownership reference range for Innovex, as compared to Innovex’s fully-diluted pro forma equity ownership in the combined company upon consummation of the mergers based on the aggregate merger consideration:

 

Implied Fully-Diluted Pro Forma

Equity Ownership Reference Range

 

Innovex Fully-Diluted Pro Forma
Equity Ownership in the Mergers

42% - 55%

  48%

Certain Additional Information

Citi also observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was noted for informational purposes, including the following:

Illustrative Accretion (Dilution). Citi observed the illustrative potential pro forma financial effects of the mergers on Dril-Quip’s fiscal years 2025, 2026 and 2027 estimated earnings per share, estimated operating cash flow per share and estimated free cash flow per share based on financial forecasts and other information and data relating to Dril-Quip and Innovex provided by the managements of Dril-Quip and Innovex, public filings and other publicly available information after taking into account potential net synergies, the Innovex special cash dividend and transaction-related expenses anticipated by the managements of Dril-Quip and Innovex to result from the mergers, which indicated that the mergers could be accretive to Dril-Quip’s fiscal years 2025, 2026 and 2027 estimated earnings per share, estimated operating cash flow per share and estimated free cash flow per share relative to Dril-Quip on a standalone basis. Actual results achieved by Dril-Quip may vary from forecasted results and variations may be material.

Illustrative Has/Gets. Citi compared the approximate implied per share equity value reference ranges derived for Dril-Quip on a standalone basis as described above under “—Discounted Cash Flow AnalysesDril-Quip” relative to the illustrative approximate implied per share equity value reference range for Dril-Quip pro forma for the mergers utilizing a selected range of adjusted EBITDA multiples of 5.0x to 7.0x and a selected range of discount rates of 11.8% to 13.1%, after taking into account potential net synergies, the Innovex special cash dividend and transaction-related expenses anticipated by the managements of Dril-Quip and Innovex to result from the mergers. Citi observed that the mergers could result in an approximate implied equity value reference range for Dril-Quip of $22.80 to $29.70 per share relative to the approximate implied equity value reference range for Dril-Quip on a standalone basis of $20.70 to $25.70 per share. Actual results achieved by Dril-Quip may vary from forecasted results and variations may be material.

Other. Citi also observed the following:

 

   

the historical closing price of Dril-Quip common stock during the 52-week period ended March 15, 2024, which indicated a low and high closing price of Dril-Quip common stock of approximately $19.61 per share and $30.53 per share, respectively; and

 

   

undiscounted publicly available Wall Street research analysts’ price targets for Dril-Quip common stock of $22.00, $24.00 and $40.00 per share.

Miscellaneous

Dril-Quip has agreed to pay Citi for its services in connection with the proposed mergers an aggregate fee of $9 million, of which a portion was payable upon delivery of Citi’s opinion and $7 million is payable contingent upon consummation of the mergers. In addition, Dril-Quip agreed to reimburse Citi for its expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising out of Citi’s engagement.

 

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As the Dril-Quip Board was aware, Citi and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other similar financial services to Innovex and/or certain of its affiliates, including, during the approximate two-year period prior to the date of Citi’s opinion, having acted or acting as an underwriter for Innovex’s contemplated initial public offering for which underwriting services Citi and its affiliates received no compensation. Although Citi and its affiliates did not provide investment banking, commercial banking or other similar financial services during the two-year period prior to the date of Citi’s opinion to Dril-Quip unrelated to the mergers or to Amberjack (the principal stockholder of Innovex) for which services Citi or its affiliates received or expect to receive compensation, Citi and its affiliates in the future may provide such services to Dril-Quip and/or its affiliates or Amberjack and/or its affiliates or portfolio companies for which services Citi and its affiliates would expect to receive compensation. In the ordinary course of business, Citi and its affiliates may actively trade or hold the securities or financial instruments (including loans and other obligations) of Dril-Quip, Innovex and their respective affiliates for their own account or for the account of customers and, accordingly, may at any time hold a long or short position or otherwise effect transactions in such securities or financial instruments. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with Dril-Quip, Innovex and their respective affiliates.

Dril-Quip selected Citi to act as Dril-Quip’s financial advisor in connection with the proposed mergers based on Citi’s reputation, experience and familiarity with Dril-Quip, Innovex and their respective businesses. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Board of Directors and Management of the Combined Company

The merger agreement contains certain provisions relating to the governance of the combined company following completion of the mergers.

Board of Directors

Following the effective time, the combined company board will consist of nine directors, comprised of:

 

   

four directors from among the members of the Dril-Quip Board as of the date of the merger agreement, which will include the Chairperson of the Dril-Quip Board as of immediately prior to the effective time;

 

   

four directors designated by Innovex; and

 

   

the Chief Executive Officer of Innovex as of immediately prior to the effective time.

The parties intend that the composition of the combined company board represent, as a whole, diversity in professional background, experience, expertise (including as to financial matters) and perspective (including as to age, gender and ethnicity). All four of the Dril-Quip designees and at least one of the Innovex designees will meet the independence standards of the NYSE as may be applicable with respect to the combined company as of the effective time. Additionally, under the stockholders agreement, at least two of the Innovex designees must not be employees or affiliates of Amberjack.

The individuals designated to serve on the combined company board following the effective time include: (i) John Lovoi, Terence Jupp, Carri Lockhart and Amy Schwetz as Dril-Quip designees, (ii) Patrick Connelly, Jason Turowsky, Angie Sedita and Bonnie S. Black as Innovex designees and (iii) Adam Anderson (current Chief Executive Officer of Innovex). The combined company will take all actions necessary such that one of the Innovex designees will serve in the class of directors to be elected at the 2024 annual meeting of Dril-Quip

 

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stockholders, one of the Innovex designees will serve in the class of directors to be elected at the 2025 annual meeting of Dril-Quip stockholders and two of the Innovex designees will serve in the class of directors to be elected at the 2026 annual meeting of Dril-Quip stockholders.

Chairperson of the Combined Company Board

The Chairperson of the Dril-Quip Board as of immediately prior to the effective time will serve as the Chairperson of the combined company board following the effective time.

Committees of the Combined Company Board

In addition, at the effective time, (i) a Dril-Quip designee will be appointed as Chairperson of the Audit Committee, the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board and (ii) certain Innovex designees will be appointed to the Nomination & Corporate Governance Committee and the Compensation Committee of the combined company board.

Management

At the effective time, the following individuals will be appointed as executive officers of the combined company: Adam Anderson as Chief Executive Officer, Kendal Reed as Chief Financial Officer and Mark Reddout as President of North America. For additional information on executive officers of the combined company, see “Executive Compensation of the Combined Company”.

Treatment of Innovex Equity-Based Awards

The merger agreement provides for the treatment set forth below with respect to the awards held by Innovex’s non-employee directors and executive officers at the effective time. For additional information regarding treatment of awards held by Innovex’s executive officers upon certain terminations of employment or following the mergers, see “—Change in Control Payments and Benefits” below.

Innovex Stock Option Awards: Each Innovex stock option award that is outstanding immediately prior to the effective time will, at the effective time, be converted into the right to receive a number of shares of Dril-Quip common stock, equal to (a) the Innovex option cash equivalent divided by (b) the average Dril-Quip stock price (rounded up to the nearest whole cent), reduced by applicable tax withholding.

The following table sets forth, for each of Innovex’s executive officers and non-employee directors who have served at any time since January 1, 2023, the aggregate number of shares of Innovex common stock subject to outstanding stock options held by such executive officers and non-employee directors, as applicable, as of April 30, 2024.

 

Executive Officer Name

   Number of Shares Subject to Outstanding Innovex Stock
Option Awards (#)
 

Adam Anderson

     186,240  

Kendal Reed

     75,100  

Mark Reddout

     113,158  

Angie Sedita

     5,000  

Erik Hoover

     4,700  

Innovex Time-Based Restricted Stock Unit Awards: Each continuing RSU will, at the effective time, be converted into an award covering a number of shares of Dril-Quip common stock, rounded down to the nearest whole share, equal to the product of (a) the number of shares of Innovex common stock subject to such award and (b) the per share merger consideration. If Dril-Quip stockholders approve the 2024 LTIP, the continuing

 

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RSUs will be considered substitute awards under the 2024 LTIP, subject to vesting over the same time period as was applicable under the respective continuing RSUs, but otherwise subject to the terms and conditions set forth in the 2024 LTIP. If Dril-Quip stockholders do not approve the 2024 LTIP, the continuing RSUs will be assumed by Dril-Quip on the same terms and conditions as were applicable to such awards as of immediately prior to the effective time (including vesting restrictions). Each Innovex RSU will be entitled to receive the number of shares of Dril-Quip common stock equal to the number of shares of Innovex common stock subject to such Innovex RSU multiplied by the per share merger consideration reduced by applicable tax withholding.

The following table sets forth, for each of Innovex’s executive officers and non-employee directors who have served at any time since January 1, 2023, (i) the aggregate number of shares of Innovex common stock subject to unvested time-based restricted stock unit awards held by such executive officers, which are continuing RSUs and (ii) the aggregate number of shares of Innovex common stock subject to unvested time-based restricted stock unit awards held by such executive officers and non-employee directors, as applicable, each, as of April 30, 2024.

 

Name

   Number of Shares
Subject to
Outstanding
Innovex Time-
Based Restricted
Stock Unit Awards
(Continuing) (#)
     Number of
Shares Subject
to Outstanding
Innovex Time-
Based Restricted
Stock Unit
Awards (Non-
Continuing) (#)
 

Adam Anderson

     136,405        225  

Kendal Reed

     47,551        125  

Mark Reddout

     18,750        225  

Bonnie Black

     9,250        —   

Angie Sedita

     6,250        —   

Share Ownership

As described under “The Merger Agreement—Merger Consideration,” executive officers and non-employee directors of Innovex who beneficially own shares of Innovex common stock will be entitled to receive the per share merger consideration in respect of each share of Innovex common stock beneficially owned by them.

Indemnification and Insurance

Dril-Quip has agreed that it and the surviving company will indemnify and hold harmless to the fullest extent permitted by applicable law, each person who is now, or who has been at any time prior to the date hereof or who becomes prior to the effective time, a director and officer of Innovex or any of its subsidiaries (each, an “indemnified party,” and collectively the “indemnified parties”), against all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of Innovex or any subsidiary of Innovex, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the effective time, whether asserted or claimed prior to, or at or after, the effective time, including in connection with the merger agreement, the mergers or the other transactions contemplated by the merger agreement, and Dril-Quip and the surviving company will also advance expenses as incurred to the fullest extent permitted under applicable law for a period of six years from the effective time, except that any person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined by final adjudication that such person is not entitled to indemnification.

For a period of six years after the effective time, Dril-Quip will cause the surviving company to maintain in effect the current policies of directors’ and officers’ liability insurance maintained by Innovex, provided that that

 

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surviving company may substitute such existing policies with policies from a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the insured for claims arising from facts or events that occurred at or prior to the effective time (including in connection with the merger agreement or the mergers and other transactions contemplated by the merger agreement); provided that Dril-Quip shall not be required to pay annual premiums in excess of 300% of the last annual premium paid by Innovex prior to the date of the merger agreement in respect of the coverage required to be obtained pursuant to the merger agreement but in such case shall purchase as much coverage as reasonably practicable for such amount. However, prior to the effective time, Innovex may (or, if requested by Dril-Quip, will) purchase (and pay in full the aggregate premium for) a six year “tail” insurance policy on terms and conditions providing substantially equivalent benefits as the current policies of the directors’ and officers’ liability insurance maintained by Innovex with respect to claims arising from facts or events that occurred at or before the effective time (including in connection with the negotiation and execution of the merger agreement and the consummation of the transactions contemplated by the merger agreement) for a maximum cost of 300% of the last annual premium paid by Innovex prior to the date of the merger agreement in respect of the current policies of directors’ and officers’ liability insurance maintained by Innovex, which prepaid “tail” policy will include as much coverage as reasonably practicable for such amount. If Innovex obtains such prepaid “tail” policy prior to the effective time, Dril-Quip will maintain such policy for its full term and cause all obligations thereunder to be honored by the surviving company, and no other party will have any further obligation to purchase or pay for insurance under the merger agreement.

All rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time and rights to advancement of expenses relating thereto existing at or prior to the time of the merger agreement in favor of any indemnified party as provided in the organizational documents of Innovex and its subsidiaries or any indemnification agreement between such indemnified party and Innovex or any of its subsidiaries, in each case will survive the merger and other transactions contemplated by the merger agreement unchanged and will not be amended, restated, repealed or otherwise modified in any manner that would adversely affect any right thereunder of any such indemnified party.

The indemnification, exculpation and insurance provisions in the merger agreement are for the benefit of and enforceable by each of the indemnified parties, who are third-party beneficiaries of such provisions. For additional information, please see “The Merger Agreement—Covenants—Indemnification; Directors and Officers Insurance.

Interests of Dril-Quip Directors and Executive Officers in the Mergers

In considering the recommendation of the Dril-Quip Board that stockholders vote “FOR” the merger proposals, Dril-Quip stockholders should be aware that the executive officers and directors of Dril-Quip have interests in the mergers that may be different from, or in addition to, those of Dril-Quip stockholders generally.

These interests are described below. The Dril-Quip Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the mergers, in approving the merger agreement, and in recommending the approval of the merger proposals.

Dril-Quip Non-Employee Director Restricted Stock Awards

For purposes of the 2017 Omnibus Incentive Plan of Dril-Quip, Inc., as amended (the “2017 Omnibus Incentive Plan”), the completion of the mergers will constitute a “change in control.” As a result, all time-based restricted stock awards held by Dril-Quip’s non-employee directors will become automatically vested upon the completion of the mergers.

 

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The following table sets forth, for each Dril-Quip non-employee director, the aggregate number of shares of Dril-Quip common stock subject to time-based restricted stock awards held by such non-employee director as of December 31, 2023.

 

Non-Employee Director Name

   Number of Shares Subject to Outstanding
Dril-Quip Non-Employee Director
Restricted Stock Awards

(#)
 

John V. Lovoi

     15,324  

Terence B. Jupp

     15,078  

Carri A. Lockhart

     9,167  

Steven L. Newman

     13,587  

Amy B. Schwetz

     12,321  

Darryl K. Willis

     12,397  

Dril-Quip Executive Officers

Change in Control Payments and Benefits

For purposes of the agreements described below, the completion of the mergers will constitute a “change in control” as defined within the applicable documents.

Dril-Quip has entered into an employment agreement with each of its NEOs, Jeffrey J. Bird, Kyle F. McClure, James C. Webster and Donald M. Underwood (as each may be amended from time to time, the “Dril-Quip employment agreements”), pursuant to which the executive officers may become eligible to receive severance benefits upon a qualifying termination of employment following the mergers.

If Mr. Bird’s employment is terminated by Dril-Quip without “cause” or by Mr. Bird for “good reason” (each term as defined in the employment agreement) prior to the end of the “employment term” (as defined in the employment agreement) and not during the period commencing on the occurrence of a Change of Control (as defined in the employment agreement) and ending on the third anniversary of such date (the “change of control period”), Mr. Bird will receive the following severance payments and benefits: (i) a lump sum cash payment equal to two times Mr. Bird’s annual base salary and (ii) continued medical, dental, vision and life insurance coverage until the earlier of Mr. Bird’s receipt of equivalent coverage and benefits under the plans of a subsequent employer or two years after the date of termination. Mr. Bird’s receipt of these payments and benefits is subject to his execution and non-revocation of a release of claims and his continued compliance with the confidentiality, non-competition and non-solicitation covenants set forth in the employment agreement as well as any post-separation obligations included in any other agreement between Dril-Quip and Mr. Bird.

If Mr. Bird’s employment is terminated prior to the end of the employment term and during a change of control period by Dril-Quip without cause or by Mr. Bird for good reason, Mr. Bird will receive the following change of control severance payments and benefits: (i) a lump sum cash payment equal to three times Mr. Bird’s annual base salary, (ii) a lump sum cash payment equal to a pro rata portion of the greater of the target annual bonus for the year of termination or the average annual bonus amount paid for the three most recent “performance periods” (as defined in the employment agreement), (iii) a lump sum cash payment in an amount equal to three times the greater of the target annual bonus for the year of termination or the average annual bonus amount paid for the three most recent performance periods, (iv) unless greater benefits are otherwise provided under the applicable award agreements, immediate vesting of any stock options, restricted stock awards or performance stock units (with performance awards vesting at target) previously granted to Mr. Bird and outstanding as of the time immediately prior to the date of his termination and the extension of the exercise period (if applicable to an award) until the earlier of the first anniversary of the date of termination and the expiration date of the award and (v) continued medical, dental, vision and life insurance coverage until the earlier of Mr. Bird’s receipt of equivalent coverage and benefits under the plans of a subsequent employer or three years

 

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after the date of termination. Mr. Bird’s receipt of these payments and benefits is subject to his execution and non-revocation of a release of claims and his continued compliance with the confidentiality, non-competition and non-solicitation covenants set forth in the employment agreement as well as any post-separation obligations included in any other agreement between Dril-Quip and Mr. Bird.

In addition, Mr. Bird is subject to a perpetual covenant not to use or disclose Dril-Quip’s trade secrets or confidential information and non-competition and non-solicitation covenants during the term of his employment and for 12 months following his termination.

The employment agreements with Messrs. McClure, Webster and Underwood include similar termination and severance provisions. If the executive’s employment is terminated by Dril-Quip without “cause” or by the executive for “good reason” (each term as defined in the applicable employment agreement) prior to the end of the “employment term” and not during a “change of control period” (each term as defined in the applicable employment agreement), the executive will receive the following payments and benefits: (i) a lump sum cash payment equal to one times the executive’s annual base salary and (ii) continued medical, dental, vision and life insurance coverage until the earlier of the executive’s receipt of equivalent coverage and benefits under the plans of a subsequent employer or one year after the date of termination.

The executive’s receipt of these payments and benefits is subject to his execution and non-revocation of a release of claims and his continued compliance with the confidentiality, non-competition and non-solicitation covenants set forth in the employment agreement as well as any post-separation obligations included in any other agreement between Dril-Quip and the executive.

The employment agreements with Messrs. McClure, Webster and Underwood include similar change of control severance provisions. If the executive’s employment is terminated prior to the end of the employment term and during a change of control period by Dril-Quip without cause or by the executive for good reason, the executive will receive the following payments and benefits: (i) a lump sum cash payment equal to two times annual base salary, (ii) a lump sum cash payment equal to a pro rata portion of the greater of the target annual bonus for the year of termination or the average annual bonus amount paid for the three most recent “performance periods” (as defined in the employment agreement), (iii) a lump sum cash payment in an amount equal to two times the greater of the target annual bonus for the year of termination or the average annual bonus amount paid for the three most recent performance periods, (iv) unless greater benefits are otherwise provided under the applicable award agreements, immediate vesting of any stock options, restricted stock awards or performance stock units (with performance awards vesting at target) previously granted to the executive and outstanding as of the time immediately prior to the date of his termination and the extension of the exercise period (if applicable to an award) until the earlier of the first anniversary of the date of termination and the expiration date of the award and (v) continued medical, dental, vision and life insurance coverage until the earlier of the executive receipt of equivalent coverage and benefits under the plans of a subsequent employer or two years after the date of termination. The executive’s receipt of these payments and benefits is subject to his execution and non-revocation of a release of claims and his continued compliance with the confidentiality, non-competition and non-solicitation covenants set forth in the employment agreement as well as any post-separation obligations included in any other agreement between Dril-Quip and the executive.

In addition, the executive is subject to a perpetual covenant not to use or disclose Dril-Quip’s trade secrets or confidential information and non-competition and non-solicitation covenants during the term of his employment and for 12 months following his termination.

Quantification of Potential Payments and Benefits to Dril-Quip’s Executive Officers

The information set forth below is required by Item 402(t) of Regulation S-K regarding compensation that is based on or otherwise relates to the mergers that the Dril-Quip NEOs could receive in connection with the mergers. Such amounts have been calculated assuming that (a) the mergers closed on the latest practicable date

 

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of April 30, 2024, (b) the value per share of Innovex common stock on the completion of the mergers is $24.50 (which, in accordance with SEC requirements, is the average closing price of Dril-Quip common stock over the first five business days following the first public announcement of the mergers), (c) none of the Dril-Quip NEOs receives any additional equity-based awards following the date hereof, (d) each Dril-Quip NEOs is terminated by Dril-Quip immediately following the completion of the mergers (making all payments and benefits below attributable to a “double-trigger” arrangement), and (e) each Dril-Quip NEO has properly executed any required releases and complied with all requirements (including any applicable restrictive covenants) necessary in order to receive all payments and benefits. Some of the assumptions used in the table below are based upon information not currently available and, as a result, the actual amounts to be received by any of the Dril-Quip NEOs below may materially differ from the amounts set forth below.

For purposes of the following, the mergers will constitute a “change in control” under the Dril-Quip employment agreements and the 2017 Omnibus Incentive Plan.

 

Change in Control Compensation         

Name

   Cash
($) (1)
     Equity
($) (2)
     Perquisites/
Benefits
($) (3)
     Total
($)
 

Jeffrey J. Bird

     4,114,500        6,268,913        55,268        10,438,681  

Kyle F. McClure

     1,661,520        3,346,406        36,185        5,044,111  

James C. Webster

     1,545,600        2,628,973        32,767        4,207,340  

Don Underwood

     1,121,340        996,195        32,767        2,150,302  

 

(1)

These amounts reflect the cash severance payment payable under the employment agreements with each Dril-Quip NEO described under “—Change in Control Payments and Benefits” above in the event of a qualifying termination of his employment during a change in control period. Such cash severance is “double-trigger,” which means that a Dril-Quip NEO must experience a qualifying termination on or within three years following a change in control of Dril-Quip. Details of the cash payments are shown in the following supplemental table:

 

Name

   Cash
Severance
($) (a)
     Bonus
($) (b)
     Cash Total
($)
 

Jeffrey J. Bird

     3,900,000        214,500        4,114,500  

Kyle F. McClure

     1,548,000        113,520        1,661,520  

James C. Webster

     1,440,000        105,600        1,545,600  

Don Underwood

     1,056,000        65,340        1,121,340  

 

  (a)

These amounts reflect the total cash severance payments, which is equal to (i) three times the sum of Mr. Bird’s base salary and target annual bonus and (ii) two times the sum of base salary and target annual bonus for all other Dril-Quip NEOs.

  (b)

The pro-rated target bonus is calculated assuming a termination date of April 30, 2024.

 

(2)

These amounts reflect the value of Dril-Quip Restricted Stock and Dril-Quip Performance Units, as described under “—Dril-Quip Executive Officers Restricted Stock Awards” and “—Dril-Quip Executive Officers Performance Unit Awards.” The 2021 Dril-Quip Restricted Stock Awards and Performance Unit Awards outstanding as of the date of the merger agreement that remain outstanding as of the closing of the mergers will fully vest upon the mergers (and such vesting is therefore pursuant to a “single-trigger” arrangement), with Performance Units deemed earned based on target performance levels pursuant to the terms of the employment agreements. The 2022 and 2023 Dril-Quip Restricted Stock Awards and Performance Unit Awards are “double-trigger,” with Performance Units deemed earned based on target performance levels. The amount is based on a per share value of Dril-Quip common stock of $24.50. Details of the equity award payments are shown below under “—Dril-Quip Executive Officers Restricted Stock Awards” and “—Dril-Quip Executive Officers Performance Unit Awards.”

 

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(3)

These amounts reflect the estimated value of perquisites and benefits payable or provided under the employment agreements with each Dril-Quip NEO described under “—Change in Control Payments and Benefits” above in the event of a qualifying termination of his employment during a change in control period. Such perquisites and benefits are “double-trigger,” which means that a Dril-Quip NEO must experience a qualifying termination on or within three years following a change in control of Dril-Quip. These amounts reflect the estimated cost of continued medical coverage at no cost to Mr. Bird for 36 months and all other Dril-Quip NEOs for 24 months.

Dril-Quip Executive Officers Restricted Stock Awards

For purposes of the 2017 Omnibus Incentive Plan, the completion of the mergers will constitute a “change in control.” As a result, all restricted shares of Dril-Quip common stock held by Dril-Quip’s executive officers will become automatically vested upon the completion of the mergers.

The following table sets forth, for each Dril-Quip executive officer, the aggregate number of shares of Dril-Quip common stock subject to restricted shares held by such executive as of April 30, 2024.

 

Executive Officer Name

   Number of Shares Subject to
Outstanding Dril-Quip
Restricted Stock Awards (#)
     Value of
Outstanding Dril-
Quip Restricted
Stock Awards ($)
 

Jeffrey J. Bird

     104,828        2,568,286  

Kyle F. McClure

     55,399        1,357,276  

James C. Webster

     43,170        1,057,665  

Don Underwood

     16,919        414,516  

Dril-Quip Executive Officers Performance Unit Awards

For purposes of the 2017 Omnibus Incentive Plan, the completion of the mergers will constitute a “change in control.” As a result, the performance units of Dril-Quip common stock, deemed to be achieved at the target level, held by Dril-Quip’s executive officers will become automatically vested upon the completion of the mergers.

The following table sets forth, for each Dril-Quip executive officer, the aggregate number of shares of Dril-Quip common stock subject to performance units held by such executive as of April 30, 2024.

 

Executive Officer Name

   Number of Shares Subject
to Outstanding Dril-Quip
Performance Unit Awards
(#)
     Value of Outstanding
Dril-Quip
Performance Unit
Awards ($)
 

Jeffrey J. Bird

     151,046        3,700,627  

Kyle F. McClure

     81,189        1,989,131  

James C. Webster

     64,135        1,571,308  

Don Underwood

     23,742        581,679  

Material U.S. Federal Income Tax Consequences

The following general discussion sets forth the material U.S. federal income tax consequences of the integrated mergers to U.S. holders (as defined below) of Innovex common stock that exchange their shares of Innovex common stock for Dril-Quip common stock in the first merger. This discussion does not address any tax consequences arising under the laws of any U.S. state or local or non-U.S. jurisdiction, or under any U.S. federal laws other than those pertaining to income tax. In addition, it does not address any alternative minimum tax consequences of the integrated mergers or the potential application of the Medicare contribution tax on net investment income. This discussion is based upon the regulations promulgated under the Code and court and

 

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administrative rulings and decisions, all as in effect on the date hereof. These laws may change, possibly retroactively, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion.

This discussion addresses only consequences to those U.S. holders that hold their shares of Innovex common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to U.S. holders in light of their particular circumstances or that may be applicable to U.S. holders that are subject to special treatment under the U.S. federal income tax laws, such as:

 

   

a financial institution;

 

   

a tax-exempt organization;

 

   

an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity);

 

   

an insurance company;

 

   

a mutual fund;

 

   

a dealer or broker in stocks and securities, or currencies;

 

   

a trader in securities elects mark-to-market treatment;

 

   

a holder of Innovex common stock or Innovex equity awards that received Innovex common stock or Innovex equity awards through a tax-qualified retirement plan or otherwise as compensation;

 

   

a person that is not a U.S. holder (as defined below);

 

   

a person that has a functional currency other than the U.S. dollar;

 

   

a holder of Innovex common stock that holds Innovex common stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction;

 

   

a person subject to special tax accounting rules (including rules requiring recognition of gross income based on a taxpayer’s applicable financial statement); or

 

   

a United States expatriate.

THE TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO AN INNOVEX STOCKHOLDER MAY BE COMPLEX AND WILL DEPEND ON SUCH HOLDER’S SPECIFIC SITUATION AND FACTORS NOT WITHIN DRIL-QUIP’S OR INNOVEX’S CONTROL. ALL INNOVEX STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM IN THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY U.S. FEDERAL, U.S. STATE OR LOCAL, NON-U.S. OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN SUCH LAWS.

U.S. Holder Defined

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Innovex common stock that, for U.S. federal income tax purposes, is:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes), created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

an estate the income of which is subject to U.S. federal income tax regardless of its source; or

 

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a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Innovex common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, if you are a partner in a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that holds Innovex common stock, you should consult your tax advisor regarding the tax consequences to you of the integrated mergers.

Determining the tax consequences of the integrated mergers may be complex. U.S. holders of Innovex common stock should consult with their own tax advisors as to the tax consequences of the integrated mergers in light of their particular circumstances, including the applicability and effect of the alternative minimum tax and any U.S. state or local, non-U.S. or other tax laws and of changes in those laws.

Tax Consequences of the Mergers in General

The integrated mergers are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and Dril-Quip and Innovex intend to report the integrated mergers consistent with such qualification. Dril-Quip and Innovex have not sought, and do not intend to seek, any ruling from the IRS regarding the qualification of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code. As a result, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to the treatment of the integrated mergers as a “reorganization” within the meaning of Section 368(a) of the Code.

Tax Consequences if the Mergers Qualify as a “Reorganization” Within the Meaning of Section 368(a) of the Code

The integrated mergers are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming that the integrated mergers are so treated, the material U.S. federal income tax consequences of the integrated mergers to U.S. holders of Innovex common stock will be as follows:

 

   

a U.S. holder generally will not recognize gain or loss except with respect to cash paid in lieu of fractional shares of Dril-Quip common stock (as discussed below).

 

   

the aggregate tax basis in the shares of Dril-Quip common stock that a U.S. holder receives in the first merger (including any fractional share interests deemed received and sold, as described below) will equal the U.S. holder’s aggregate adjusted tax basis in the Innovex common stock exchanged for such Dril-Quip common stock in the first merger.

 

   

a U.S. holder’s holding period for the shares of Dril-Quip common stock received in exchange for shares of Innovex common stock in the first merger (including a fractional share interest deemed received and sold, as described below) will include the holding period for the shares of the Innovex common stock exchanged for such Dril-Quip common stock in the first merger.

If a U.S. holder of Innovex common stock acquired different blocks of Innovex common stock at different times or at different prices, such U.S. holder’s tax basis and holding period in its shares of Dril-Quip common stock may be determined separately with reference to each block of Innovex common stock. Any such U.S. holder should consult its tax advisor regarding the tax bases and holding periods of the particular shares of Dril-Quip common stock received in the first merger.

A U.S. holder who receives cash in lieu of a fractional share of Dril-Quip common stock generally will be treated as having received the fractional share of Dril-Quip common stock pursuant to the first merger and then

 

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as having sold such fractional share of Dril-Quip common stock for cash. As a result, a U.S. holder generally will recognize gain or loss equal to the difference, if any, between (i) the amount of cash received and (ii) the portion of the U.S. holder’s aggregate adjusted tax basis of its Innovex common stock exchanged in the first merger that is allocable to the fractional share of Dril-Quip common stock that is sold. This gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the closing date of the first merger, the U.S. holder’s holding period for the fractional shares of Dril-Quip common stock deemed to be received is greater than one year. Long-term capital gains of individuals are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to certain limitations.

A U.S. holder may be required to retain records related to such holder’s Innovex common stock and file with its U.S. federal income tax return for the taxable year that includes the mergers a statement setting forth certain facts relating to the mergers.

Tax Consequences if the Mergers Do Not Qualify as a “Reorganization” Within the Meaning of Section 368(a) of the Code

If the integrated mergers do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, then the receipt of Dril-Quip common stock (and cash paid in lieu of fractional shares of Dril-Quip common stock) in exchange for Innovex common stock in the first merger will be a taxable transaction. In such a case, a U.S. holder generally will recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the fair market value of the Dril-Quip common stock received in the first merger plus the amount of any cash in lieu of fractional shares of Dril-Quip common stock and (ii) such holder’s adjusted tax basis in its shares of Innovex common stock exchanged in the first merger. Gain or loss must be calculated separately for each block of shares of Innovex common stock exchanged by such U.S. holder if such blocks were acquired at different times or for different prices. Any gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if, as of the closing date of the mergers, the holding period in a particular block of shares of Innovex common stock exchanged in the first merger is greater than one year as of the date of the mergers. Long-term capital gains of individuals are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to certain limitations.

INNOVEX STOCKHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS ABOUT THE SPECIFIC TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM IN THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, U.S. STATE OR LOCAL NON-U.S. OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN SUCH LAWS.

Information Reporting and Backup Withholding

Information returns may be required to be filed with the IRS in connection with the integrated mergers. Further, the consideration payable to U.S. holders in connection with the integrated mergers may be subject to deduction or withholding as required under applicable law. A U.S. holder may be subject to U.S. backup withholding on any cash payments made pursuant to the integrated mergers unless such holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with the applicable requirements of the backup withholding rules. Any amounts withheld under the U.S. backup withholding rules or otherwise is not an additional tax and will generally be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, if any, provided that the U.S. holder timely furnishes the required information to the IRS.

THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE INTEGRATED MERGERS. IT IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS THAT MAY BE IMPORTANT TO A PARTICULAR U.S. HOLDER. ALL INNOVEX STOCKHOLDERS ARE STRONGLY

 

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ENCOURAGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM, INCLUDING TAX REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, U.S. STATE OR LOCAL, NON-U.S. OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN SUCH LAWS.

Accounting Treatment of the Mergers

Dril-Quip prepares its financial statements in accordance with GAAP. The mergers will be accounted for as a business combination and as a reverse acquisition pursuant to ASC 805, where Innovex, the legal acquiree, is determined to be the accounting acquirer of Dril-Quip. Under the reverse acquisition method of accounting, the assets and liabilities of Dril-Quip as of the closing date will be consolidated by Innovex at their respective fair values, and the excess or shortfall of the purchase price consideration over the fair value of Dril-Quip’s net assets will be recognized as goodwill or gain on bargain purchase, respectively.

As part of the mergers, Dril-Quip management has determined Innovex to be the accounting acquirer of Dril-Quip for the following reasons:

 

   

Although the pre-combination stockholders of Innovex will own approximately 48% of the combined company, the largest pre-combination stockholder of Innovex, Amberjack, is expected to hold the largest minority voting interest of approximately 43% in the combined company when the mergers are consummated, whereas Dril-Quip’s pre-combination ownership is widely dispersed among stockholders.

 

   

Innovex surpasses Dril-Quip in size as measured in key performance metrics including EBITDA and Adjusted EBITDA.

 

   

It is expected that the combined company board will consist of nine directors, four of which will be designated by Innovex, four of which will be designated by Dril-Quip and one of which will be Innovex’s existing chief executive officer.

 

   

Innovex’s existing senior management team will comprise the majority of the senior management of the combined company, including the positions already announced for Chief Executive Officer, Chief Financial Officer, and the President of North America.

 

   

The combined company’s headquarters will be located at Innovex’s headquarters, the combined company’s name will be Innovex International, Inc., and the ticker symbol of the combined company will be “INVX.”

Regulatory Approvals

Antitrust Clearance

To complete the mergers, Dril-Quip, Innovex and Amberjack (or its affiliates) must make filings with and obtain authorizations, approvals or consents from a number of regulatory authorities in accordance with applicable antitrust and foreign investment laws. The completion of the mergers is subject to antitrust review in the United States. Under the HSR Act, and the rules promulgated thereunder, the mergers cannot be completed until the parties to the merger agreement have given notification and furnished information to the FTC and the DOJ, and until the applicable waiting period has expired or has been terminated. Dril-Quip and Innovex each filed an HSR Act notification with the FTC and the DOJ on April 1, 2024. Dril-Quip and Innovex derive revenues in other jurisdictions where antitrust/foreign investment clearances are or may be required, including Saudi Arabia, Colombia and Ecuador. Filings were submitted with the Superintendency of Economic Competition of Ecuador on March 25, 2024 and April 24, 2024, and are expected to be submitted with the General Authority for Competition for the Kingdom of Saudi Arabia and with the Superintendency of Industry and Commerce of Colombia in order to obtain their approvals.

 

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Dril-Quip and Innovex cannot assure you that all of the regulatory approvals described above will be obtained, and, if obtained, Dril-Quip and Innovex cannot assure you as to the date of any approvals (or conditions placed thereon) or the absence of any litigation challenging such approvals. At any time before or after consummation of the mergers, the FTC, the DOJ or any state could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the mergers or seeking the divestiture of substantial assets of Dril-Quip or Innovex or their respective subsidiaries. Private parties may also seek to take legal action under antitrust laws under certain circumstances.

Dril-Quip and Innovex are not currently aware of any material governmental approvals or actions that are required for completion of the transaction other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Securities and Exchange Commission

Dril-Quip has filed a registration statement on Form S-4 with the SEC under the Securities Act, of which this proxy statement/prospectus forms a part, that must be declared effective by the SEC and pursuant to which the issuance of shares of Dril-Quip common stock issuable upon the effective time, other than the shares of Dril-Quip common stock issuable to the consenting stockholders, will be registered with the SEC.

New York Stock Exchange

In addition, the completion of the mergers is subject to approval for listing on the NYSE of the shares of Dril-Quip common stock to be issued in the mergers, subject to official notice of issuance.

Listing of Dril-Quip Common Stock

It is a condition to the consummation of the mergers that the shares of Dril-Quip common stock issuable to Innovex stockholders in the mergers be approved for listing on the NYSE, subject to official notice of issuance. Following the completion of the mergers, it is expected that the common stock of the combined company will trade under a new ticker symbol, “INVX”.

Appraisal Rights or Dissenters’ Rights

Under Delaware law, Dril-Quip stockholders are not entitled to dissenters’ or appraisal rights in connection with any of the merger proposals as contemplated by the merger agreement. Innovex stockholders are entitled to appraisal rights in connection with the mergers under Section 262 of the DGCL.

Innovex’s certificate of incorporation and the Innovex stockholders agreement contain certain drag-along provisions, which, if exercised in connection with the mergers, would require Innovex stockholders to waive any dissenters’ rights, appraisal rights or similar rights in connection with the mergers. Pursuant to the drag-along provisions, the consenting stockholders that constitute the Principal Stockholders (as defined in Innovex’s certificate of incorporation and the Innovex stockholders agreement) who hold at least 40% of the total number of issued and outstanding Innovex shares have the right to exercise their drag-along rights in connection with the mergers and require the remaining Innovex stockholders to waive any dissenters’ rights, appraisal rights or similar rights in connection with the mergers.

Prior to the closing, at the direction of the consenting stockholders, Innovex will deliver a drag-along notice (as permitted in Innovex’s certificate of incorporation and the Innovex stockholders agreement) to each Innovex stockholder (other than the consenting stockholders) with respect to the transactions contemplated by the merger agreement in accordance with Innovex’s certificate of incorporation and the Innovex stockholders agreement. To the extent drag-along rights are exercised pursuant to Innovex’s certificate of incorporation and the Innovex stockholders agreement, the Innovex stockholders subject to the drag-along have waived their respective appraisal rights arising out of the mergers.

 

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THE MERGER AGREEMENT

The following description sets forth the principal terms of the merger agreement, a copy of which is attached as Annex A and incorporated by reference into this proxy statement/prospectus. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this description, which is summary by nature. This description does not purport to be complete and is qualified in its entirety by reference to the complete text of the merger agreement. You are encouraged to read the merger agreement carefully and in its entirety, as well as this proxy statement/prospectus and the documents incorporated by reference herein, before making any decisions regarding any of the proposals described in this proxy statement/prospectus. This section is only intended to provide you with information regarding the terms of the merger agreement. Neither Dril-Quip nor Innovex intends that the merger agreement be a source of business or operational information about Dril-Quip or Innovex. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone, and you should read the information provided elsewhere in this proxy statement/prospectus and in the public filings Dril-Quip makes with the SEC, as described in “Where You Can Find More Information.”