<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the Quarterly Period Ended March 31, 2000
-------------
Commission File Number 001-13593
IRI INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2044681
(State or Other Jurisdiction of (I.R.S. Employer Identification. No.)
Incorporation or Organization)
1000 LOUISIANA, SUITE 5900, HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 651-8002
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
-------------
Indicate by check X whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of each class of common stock, $0.01 par value
per share, at May 12, 2000:
39,908,331 Common Shares
================================================================================
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS.
<PAGE> 3
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 25,563 $ 35,688
Marketable securities, at fair value (cost of $22,280 at March 31, 2000
and $13,437 at December 31, 1999)........................................ 19,781 14,686
Accounts receivable, less allowance for doubtful accounts of $1,798 at
March 31, 2000 and $1,740 at December 31, 1999........................... 23,080 14,476
Income taxes receivable................................................... 2,717 2,717
Inventories............................................................... 93,547 92,572
Costs & estimated earnings in excess of billings on uncompleted contracts 3,050 1,400
Deferred income taxes..................................................... 2,343 1,388
Other current assets...................................................... 1,124 1,242
----------- -----------
Total current assets................................................... 171,205 164,169
Property, plant and equipment, net......................................... 44,994 45,697
Deferred income taxes...................................................... 2,220 3,945
Other assets............................................................... 3,218 3,282
----------- -----------
Total assets........................................................... $ 221,637 $ 217,093
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................................. $ 12,547 $ 9,589
Customer advances......................................................... 1,611 1,938
Income taxes payable...................................................... 1,170 996
Other liabilities......................................................... 1,998 1,797
----------- -----------
Total current liabilities.............................................. 17,326 14,320
Accrued postretirement benefits............................................ 1,427 1,427
Other long-term liabilities................................................ 46 46
----------- -----------
Total liabilities...................................................... 18,799 15,793
Commitments and contingencies
Shareholders' equity and comprehensive income:
Preferred stock, $1.00 par value; 25,000,000 shares
authorized, none issued.................................................. -- --
Common stock, $0.01 par value; 100,000,000 shares authorized,
39,900,000 shares issued and outstanding................................. 399 399
Additional paid-in capital................................................ 168,902 168,884
Retained earnings......................................................... 33,945 32,403
Accumulated other comprehensive loss...................................... (408) (386)
----------- -----------
Total shareholders' equity and comprehensive income.................... 202,838 201,300
----------- -----------
$ 221,637 $ 217,093
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
---------- -----------
<S> <C> <C>
Revenues................................................................. $ 33,114 $ 22,543
Cost of goods sold....................................................... 24,578 15,828
---------- -----------
Gross profit......................................................... 8,536 6,715
Selling and administrative expense....................................... 6,294 6,065
Restructuring charge..................................................... -- 805
---------- -----------
Operating income (loss).............................................. 2,242 (155)
Other income (expense):
Interest income......................................................... 343 322
Interest expense........................................................ (92) (129)
Other, net.............................................................. (9) (1,866)
---------- -----------
242 (1,673)
---------- -----------
Income (loss) before income taxes.................................... 2,484 (1,828)
Income tax expense (benefit)............................................. 942 (326)
---------- -----------
Net income (loss).................................................... $ 1,542 $ (1,502)
========== ===========
Net income (loss) per basic share........................................ $ 0.04 $ (0.04)
========== ===========
Net income (loss) per diluted share...................................... $ 0.04 $ (0.04)
========== ===========
Average basic shares outstanding......................................... 39,900 39,900
========== ===========
Average diluted shares outstanding....................................... 40,747 39,900
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED TOTAL SHAREHOLDERS'
COMMON PAID-IN RETAINED OTHER COMPRE- EQUITY AND COMPRE-
STOCK CAPITAL EARNINGS HENSIVE LOSS HENSIVE INCOME
---------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1999................ $ 399 168,884 32,403 (386) $ 201,300
Stock option compensation.................... -- 18 -- -- 18
Comprehensive income:
Net income.................................. -- -- 1,542 -- 1,542
Foreign currency translation adjustment..... -- -- -- (22) (22)
Total comprehensive income............... 1,520
---------------------------------------------------------- -------------------
Balances at March 31, 2000.................. $ 399 168,902 33,945 (408) $ 202,838
========================================================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, MARCH 31,
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 1,542 $ (1,502)
Adjustments to reconcile net income (loss) to net cash
used in operations:
Depreciation and amortization.......................................... 1,391 1,276
Amortization of goodwill............................................... 314 313
Amortization of negative goodwill...................................... - (1,342)
Gain on sale of assets................................................. - -
Deferred income taxes.................................................. 770 -
Change in employee benefit accounts.................................... (267) (54)
Stock option compensation.............................................. 18 218
Foreign currency translation adjustment................................ (22) -
Changes in assets and liabilities, net of effects of acquisitions:
Marketable securities................................................. (5,095) (16,334)
Accounts receivable................................................... (8,604) 7,600
Inventories........................................................... (975) 4,290
Other current assets.................................................. (1,532) 2,782
Other noncurrent assets............................................... 17 (4)
Income taxes payable.................................................. 174 -
Accounts payable and accrued liabilities, customer
advances and other liabilities....................................... 2,906 (7,314)
---------- ----------
Net cash used in operations..................................... (9,363) (10,071)
---------- ----------
Cash flows from investing activities:
Capital expenditures..................................................... (717) (415)
Proceeds from sale of assets............................................. 29 -
---------- ----------
Net cash used in investing activities........................... (688) (415)
---------- ----------
Cash flows from financing activities -
payments on capital lease obligation..................................... (74) (68)
---------- ----------
Decrease in cash and cash equivalents..................................... (10,125) (10,554)
Cash and cash equivalents at beginning of period.......................... 35,688 37,475
---------- ----------
Cash and cash equivalents at end of period................................ $ 25,563 $ 26,921
========== ==========
Supplemental cash flow information:
Interest paid............................................................ $ 92 $ 129
========== ==========
Income taxes paid (refunded)............................................. $ (2) $ 300
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 2000
<PAGE> 8
(1) GENERAL
The accompanying condensed consolidated financial statements of IRI
International Corporation and subsidiaries (the Company) as of March 31,
2000 and for the three ended March 31, 2000 and 1999 have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission and are unaudited; however, they include all adjustments
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation for such periods.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to
be expected for the entire year.
Certain footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted herein. The interim information
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
(2) INVENTORIES
Inventories consist of the following at March 31, 2000 and December 31,
1999 (in thousands) (unaudited):
<TABLE>
<CAPTION>
2000 1999
-------- ----------
<S> <C> <C>
Raw materials $ 36,705 35,524
Work-in-process 12,625 13,929
Finished goods 44,217 43,119
-------- ----------
Total $ 93,547 92,572
======== ==========
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
The Company has contract commitments with customers aggregating $56.7
million at March 31, 2000. At March 31, 2000, the Company was contingently
liable for approximately $2.9 million in letters of credit which guarantee
the Company's performance for payment to third parties in accordance with
specified contractual terms and conditions. Management does not expect any
material losses to result from these off-balance-sheet instruments as it
anticipates full performance on the related contracts.
<PAGE> 9
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(4) NET INCOME (LOSS) PER COMMON SHARE
Stock options outstanding at March 31, 2000 of 2,586,500 shares were
considered in the computation of net income per common share, resulting in
847,000 potentially dilutive shares for the quarter then ended. Stock
options outstanding at March 31, 1999 of 2,471,500 shares were not
considered in the computation of net income per common share for the quarter
then ended because the exercise price exceeded the average market price for
the respective period.
(5) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued by the Financial
Accounting Standards Board in June 1998. SFAS 133 standardizes the
accounting for derivative instruments, including derivative instruments
embedded in other contracts. Under the standard, entities are required to
carry all derivative instruments in the statement of financial position at
fair value. The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. If specified conditions are met, entities may
elect to designate a derivative instrument as a hedge of exposures to
changes in fair values, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure the effective
portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings)
and subsequently reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of hedge
effectiveness, as well as the ineffective portion of the gain or loss, is
reported in earnings immediately. Accounting for foreign currency hedges is
similar to the accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.
The Company will adopt SFAS 133 beginning January 1, 2001. The Company has
not yet determined the impact that SFAS 133 will have on consolidated
financial statements. Management believes that the determination will not
be meaningful until closer to the date of initial adoption.
(6) SEGMENT FINANCIAL INFORMATION
The Company operates through three business segments consisting of Oilfield
Equipment, Downhole Tools and Specialty Steel. Financial information by
segments for the three months ended March 31, 2000 and 1999 is summarized
below (in thousands) (unaudited):
<TABLE>
<CAPTION>
OILFIELD DOWNHOLE SPECIALTY CORPORATE
EQUIPMENT PRODUCTS STEEL AND OTHER TOTAL
--------- -------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
QTR ENDED MARCH 31, 2000:
Sales to unaffiliated customers 20,210 12,757 1,423 (1,276) 33,114
Operating income (loss) 3,529 3,169 (3) (4,453) 2,242
Depreciation and amortization 140 821 11 419 1,391
Capital Expenditures 4 713 -- -- 717
</TABLE>
3
<PAGE> 10
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
QTR ENDED MARCH 31, 1999:
Sales to unaffiliated customers 10,967 11,326 1,170 (920) 22,543
Operating income (loss) 605 2,023 738 (3,521) (155)
Depreciation and amortization 129 1,078 11 58 1,276
Amortization of negative goodwill - - - 1,342 1,342
Capital Expenditures - 415 - - 415
</TABLE>
4
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed
consolidated financial statements and the notes thereto.
OVERVIEW
General
We manufacture land-based drilling and well-servicing rigs and rig
component parts for use in the domestic and international markets. The
condition of the oil and gas industry and worldwide levels of exploration,
development and production activity, including the number of oil and gas wells
being drilled, the depth and drilling conditions of such wells, the number of
well completions and the level of workover activity have a substantial impact
on our revenues. Exploration, development and production activity is largely
dependent on the prevailing view of future oil and natural gas prices which
have been significantly volatile for the last 20 years. Oil and natural gas
prices are influenced by factors affecting the supply of and demand for oil and
gas, including the level of drilling activity, worldwide economic activity,
interest rates and the cost of capital, environmental regulation, tax policies,
political requirements of national governments, coordination by OPEC and the
cost of producing oil and gas. Demand for our products in certain emerging
market countries may be greatly influenced by their need for internal
development, energy self-sufficiency or hard currency earnings rather than the
conventional factors relating to the price of oil and natural gas.
As a result of increases in the price of oil over the course of the
previous year, customer spending and rig utilization rates have increased. The
increases in our revenues, operating income, results of operations and backlog
for the first quarter of 2000, as compared to the first quarter of 1999,
reflects the higher level of activity in the industry, and the benefits of
measures taken by the Company to reduce cost and improve productivity.
On March 16, 2000 we announced the signing of a definitive merger agreement
with National-Oilwell, Inc., ("National-Oilwell") a worldwide leader in the
design, manufacture and sale of comprehensive systems and components used in oil
and gas drilling and production, as well as in the provision of supply chain
integration services to the upstream oil and gas industry.
The merger agreement, unanimously approved by each company's board of
directors, calls for our shareholders to receive .3385 share of
National-Oilwell common stock for each common share of the Company.
National-Oilwell will issue approximately 14.4 million shares of its common
stock for all common shares of the Company issued and outstanding and all
options to purchase common shares of the Company, which options will become
fully vested at closing. This transaction is expected to be accounted for as a
pooling of interests and be tax-free to both companies and our shareholders.
Foreign Exchange Transactions
We have attempted to limit our exposure to foreign currency fluctuations.
Sales denominated in foreign currencies are primarily made by foreign branches
of the Downhole Products segment. With the exception of our Canadian
subsidiary, we maintain our cash, cash equivalents and investments in U.S.
dollar denominated accounts (except to the extent needed for local operating
expenses). We have not engaged in and do not currently intend to
<PAGE> 12
engage in any significant derivative instruments or currency trading
transactions to compensate for adverse currency fluctuations among foreign
currencies.
RESULTS OF OPERATIONS
Sales of new rigs manufactured by us can produce large fluctuations in revenues
depending on the size and the timing of the construction of orders. Individual
orders of rig packages range from $1 million to $25 million and cycle times for
the design, engineering and manufacturing of rig packages range from six to
nine months. These fluctuations in the size and timing of orders, may affect
our quarterly revenues and operating income.
Results of Segment Operations
The following discussion of the results of operations of our oil field
equipment, downhole products and specialty steel segments does not reflect the
allocation of corporate overhead and unallocated administrative expenses and
amortization of goodwill and negative goodwill on an individual segment basis.
Certain information that reconciles the discussion of the results of operations
of the individual segments to our condensed consolidated financial statements
is as follows (unaudited):
<TABLE>
<CAPTION>
THE COMPANY
(IN THOUSANDS)
------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
------------ ----------
<S> <C> <C>
Revenues
Oilfield equipment............................. $20,210 $10,967
Down hole tools................................ 12,757 11,326
Specialty steel................................ 1,423 1,170
Eliminations................................... (1,276) (920)
------- -------
Total......................................... $33,114 $22,543
======= =======
Segment operating income (loss)
Oil field equipment............................ $3,529 $ 605
Downhole tools................................. 3,169 2,023
Specialty steel................................ (3) 738
------- -------
Total......................................... 6,695 3,366
Corporate overhead and unallocated
administrative expenses....................... (4,139) (3,744)
Amortization of negative goodwill.............. -- 1,342
Amortization of goodwill...................... (314) (314)
Restructuring costs............................ -- (805)
------- -------
Operating income........................... $2,242 $(155)
======= =======
</TABLE>
Oil Field Equipment
Revenues for this segment increased 84.3% from the first three months of
1999 to $20.02 million in the first three months of 2000, due to the partial
income recognition of new orders received in the fourth quarter of 1999 from
customers in Russia and the Middle East. Gross margin was 21.9% for the first
quarter of 2000 as compared to 12.2% for the first quarter of 1999. The lower
margin in the first quarter of 1999 reflects an unusually low average margin on
contracts that the company performed during that period.
Downhole Products
This segment had revenues of $12.8 million for the first quarter of 2000,
which constituted an increase of 12.6% from the first quarter of 1999. In
addition, operating income grew by 56.6% from the first quarter of 1999 to $3.2
million in the first quarter of this year. Operating margin improved to 24.8%
in the first quarter of this year
4
<PAGE> 13
from 17.9% in the first quarter of the previous year, due to lower expense
levels and a 28% growth in rental revenue which provided a higher gross margin.
Specialty Steel
Revenues increased to $1.4 million for the first quarter of 2000, from $1.2
million in the first quarter of 1999, largely due to an increase in the number
of contracts with the military for gun tubes. However, operating income was down
from $0.7 million in 1999 to a loss of $3,000, resulting from lower margin
business.
Corporate and Administrative Expenses
The $ 0.4 million increase for the first three months of 2000, as compared
to the first three months of 1999, resulted from: (1) $0.3 million expenditure
made by the Oilfield Equipment segment in connection with a sales tax audit,
offset by a $0.2 million reduction in administrative salaries and (2) a $0.3
million increase in depreciation expense for computer systems and a $0.1
million increase in fees for professional services, offset by a $0.1 million
reduction in salaries of administrative personnel in the Downhole Products
segment. Corporate and administrative expenses were 12.5% of revenues, down from
16.6% of revenue for the prior year period.
Other Income (Expense)
The decrease in other expense for the first quarter of 2000 as compared to
the first quarter of 1999 was primarily the result of decreased losses from
investments in marketable securities in 2000. Gains on investments in marketable
securities netted $16,000 during the first quarter of 2000, as compared to
losses of $1.7 million during the first quarter of 1999.
Income Taxes
The change in the effective income tax rate to 38% for the first quarter of
2000 from (17.8)% is primarily attributable to the net operating income for 2000
as compared to a net operating loss in 1999. The change was partially due to the
fact that there was no negative goodwill amortization in the first quarter of
2000, while there was negative goodwill amortization in each of the first three
quarters of 1999.
ACCOUNTING POLICIES
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued by the Financial
Accounting Standards Board in June 1998. SFAS 133 standardizes the accounting
for derivative instruments, including derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If specified conditions
are met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness, as well as the
ineffective portion of the gain or loss, is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
The Company will adopt SFAS 133 beginning January 1, 2001. The Company has
not yet determined the impact that SFAS 133 will have on consolidated financial
statements. Management believes that the determination will not be meaningful
until closer to the date of initial adoption.
5
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had cash and cash equivalents and marketable
securities of $45.3 million, compared to $50.4 million at December 31, 1999.
Our working capital was $153.9 million compared to $149.8 million at December
31, 1999. This increase in working capital at March 31, 2000 resulted from an
increase in marketable securities, accounts receivable, inventories, deferred
income taxes and other current assets, partially offset by a decrease in cash
and cash equivalents, and an increase in current liabilities. At March 31,
2000, the ratio of our current assets to current liabilities was approximately
9.9:1.
Without taking into account the proposed merger with National-Oilwell, we
believe that our balance sheet, significant liquidity and cash flow from
operations will be sufficient to meet our short term and long term liquidity
needs. We believe that any credit facilities that we may need in the future
will be available on commercially acceptable terms, though there can be no
assurances in this regard.
Credit Facility
The Company had a $9.7 million revolving credit facility with a maturity
date of March 31, 2000. The revolving credit facility was replaced in December
1999 with a new $10.0 million revolving credit facility, which matures on
December 28, 2000 and provides exclusively for bank guarantees and commercial
and standby letters of credit. At March 31, 2000, approximately $7.2 million
was available for bank guarantees and letters of credit under the new revolving
credit facility. The Company had no outstanding indebtedness at March 31, 2000.
CAPITAL EXPENDITURES
Capital expenditures for the three months ended March 31, 2000 totaled
approximately $0.7 million, which was used to purchase (1) several buildings,
which are currently being used by the Downhole Products segment as storage
facilities and for the servicing of equipment, and (2) rental tools for the
Downhole Products segment. We are funding capital expenditures with available
cash and cash flow from operations.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this report,
the matters described herein contain forward-looking statements that involve
risk and uncertainties including but not limited to economic and competitive
factors outside of our control. These factors more specifically include:
- dependence on the oil and gas industry;
- competition from various entities;
- the impact of government regulations;
- the instability of certain foreign economies (including Russia and
countries of the Asia-Pacific region);
- currency fluctuations;
- risks of expropriation; and
- changes in law affecting international trade and investment.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate" "intend," "estimate," and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates.
INFLATION
Inflation has not had a material impact on our operating costs.
6
<PAGE> 15
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
This discussion of our exposure to market risks and our risk-management
activities includes forward looking statements. These forward looking
statements involve risks and uncertainties, including economic and competitive
factors outside our control.
Our primary risk exposures come from interest rate risks, foreign exchange
rate risks, and equity price risks. Our exposure to interest rate risks are
minimal with respect to indebtedness. We repaid substantially all our
outstanding indebtedness in November 1997. However, at March 31, 2000, we had
approximately $21.2 million of cash and cash equivalents in interest bearing
accounts. The rate of return on these accounts will vary with the prevailing
interest rates. We do not engage in any significant interest rate swaps or
other derivative activities designed to limit our exposure to changes in
interest rates.
Our direct exposure to foreign exchange risks is minimal. Except as
discussed above in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Foreign Exchange Transactions" with
respect to our Downhole Products segment, all of our sales are denominated in
U.S. dollars. However, foreign exchange rate fluctuations may affect our
revenues indirectly to the extent that a stronger U.S. dollar affects our
ability to compete on the basis of price. We do not engage in any significant
hedging or currency trading activities to limit our sensitivity to changes in
foreign exchange rates and/or interest rates.
At March 31, 2000, we had marketable securities of $19.8 million. From
time to time, we purchase equitable securities for trading purposes.
Fluctuations in interest rates and equity prices could adversely affect the
value of our marketable securities.
We do not believe there has been any material change in market risks
relating to our business operations since the end of 1999.
7
<PAGE> 16
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
The exhibits listed on the exhibit Index following the signature page
hereof are filed herewith in response to this item.
(b) Reports on Form 8-K
None.
8
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 15, 2000 IRI INTERNATIONAL CORPORATION
By: /s/ ROBERT L. HARGRAVE
---------------------------------------
Robert L. Hargrave
Chief Financial and Accounting
Officer
9
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
*2.1 Agreement of Merger among National-Oilwell, Inc., Arrow
Acquisition, Inc. and IRI International Corporation, dated as
of March 15, 2000
**3.1 Form of Restated Certificate of Incorporation of IRI
International Corporation
**3.2 Amended and Restated Bylaws of the Company
10.1 Employment Agreement between IRI International Corporation and
Robert Hargrave
10.2 First Amendment to Credit Agreement between IRI International
Corporation and Bank One, Texas, dated as of April 5, 2000
27.1 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q)
</TABLE>
- ---------
* Exhibit incorporated herein by reference to National-Oilwell, Inc.'s
Registration Statement on Form S-4, dated as of May 10, 2000.
** Exhibit incorporated herein by reference to the Company's registration
statement on Form S-1 (Registration No. 333-31157) dated September 8,
1997, as amended.
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between IRI
International Corporation, a Delaware corporation having offices at 1000
Louisiana, Suite 5900, Houston, Texas 77002 ("Employer"), and Robert L.
Hargrave, ("Employee"), to be effective as of the Closing Date (as defined in
that certain Agreement of Merger of even date herewith among Employer, Arrow
Acquisition Corp. and National-Oilwell, Inc.
Employer is desirous of continuing to employ Employee pursuant to the terms
and conditions and for the consideration set forth in this Agreement and of
terminating any prior employment agreement or arrangement, and Employee is
desirous of continuing in the employ of Employer pursuant to such terms and
conditions and for such consideration set forth in this Agreement and of
terminating any prior existing employment agreement or arrangement.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Employer and Employee agree as follows:
1. EMPLOYMENT AND DUTIES:
1.1. Employer agrees to continue to employ Employee, and Employee agrees to
be employed by Employer throughout the Term (as defined below) of this
Agreement, subject to the terms and conditions of this Agreement.
1.2 Employee shall serve as Vice Chairman and Chief Financial Officer of
the Employer and shall report to the Chief Executive Officer of Employer.
Employee agrees to serve in the assigned position and to perform diligently and
to the best of Employee's abilities the duties and services appertaining to such
position as determined by Employer, as well as such additional or different
duties and services appropriate to such position which Employee from time to
time may be reasonably directed to perform by Employer; provided, that the
Employee shall not be forced to relocate anywhere other than the metropolitan
areas of Houston, Texas or any other city where Employee is located as of the
date of this Agreement. Employer will provide Employee with those resources
reasonably required for the performance of his duties hereunder. Employee shall
at all times comply with and be subject to such generally applicable policies
and procedures as Employer may establish from time to time.
1.3. Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or any of its subsidiaries or affiliates or requires any
significant portion of Employee's business time; provided, however, that
Employee may have other business, personal, and civic interests which, from time
to time, require portions of his time but which (i) do not and will not
interfere with the performance of his duties hereunder and (ii) are not and will
not be competitive with the Relevant Business (as defined herein). Such other
<PAGE> 2
interests may include service on boards and governing bodies of charitable,
cultural, educational, and other non-profit organizations, and on the boards of
other enterprises that do not engage in any business in competition with the
Relevant Business.
1.4. Employee acknowledges and agrees that Employee owes a fiduciary duty
of loyalty, fidelity and allegiance to act at all times in the best interests of
Employer, any of its subsidiaries or affiliates, and to do no act which would
injure the business, interests, or reputation of Employer or any of its
subsidiaries or affiliates. In keeping with these duties, Employee shall make
full disclosure to Employer of all business opportunities pertaining to
Employer's business and shall not appropriate for Employee's own benefit
business opportunities concerning the subject matter of the fiduciary
relationship.
2. COMPENSATION AND BENEFITS:
2.1. Employee's initial base salary under this Agreement shall be
($_________) per annum, and shall be paid in installments in accordance with
Employer's standard payroll practice. Employee's base salary may be increased
from time to time by Employer and, after any such change, Employee's new level
of base salary shall be Employee's base salary for purposes of this Agreement
until the effective date of any subsequent change.
2.2. Employer and Employee may enter into separate written stock option
agreements pursuant to which Employee may be granted options to purchase shares
of common stock of Employer subject to the terms and conditions of any such
agreement. The number of shares and terms of the restrictions placed upon
exercising the options shall be as specified in any such agreement. Employee
acknowledges that his participation in any Employer stock option plans shall be
subject to the Board of Directors approval of his participation
2.3. Employer's current management incentive program (or such other name as
it has adopted) and the Board of Directors approval of his participation shall
govern employee's participation, if any, in any bonus plans.
2.4. While employed by Employer, Employee shall be allowed to participate,
on the same basis generally as other employees of Employer, in all general
employee benefit plans and programs, including improvements or modifications of
the same, which on the effective date or thereafter are made available by
Employer to all or substantially all of Employer's employees. Such benefits,
plans, and programs may include, without limitation, medical, health, and dental
care, life insurance, disability protection, and pension plans. Nothing in this
Agreement is to be construed or interpreted to provide greater rights,
participation, coverage, or benefits under such benefit plans or programs than
provided to similarly situated employees pursuant to the terms and conditions of
such benefit plans and programs.
2.5. Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or
<PAGE> 3
employee benefit program or plan, so long as such actions are similarly
applicable to covered employees generally. Moreover, unless specifically
provided for in a written plan document adopted by the Board of Directors of
Employer, none of the benefits or arrangements described in this Article 2 shall
be secured or funded in any way, and each shall instead constitute an unfunded
and unsecured promise to pay money in the future exclusively from the general
assets of Employer and its subsidiaries and affiliates.
2.6 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR
TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION:
3.1. The term of this Agreement shall be for one (1) year from the date
hereof, and shall be automatically extended for successive terms of one year
commencing on the first anniversary of the effective date of this Agreement, and
on each anniversary date thereafter, unless Employer or Employee gives written
notice to the other, not less than ninety (90) days prior to the next succeeding
anniversary date, that employment will not be renewed or continued hereunder
following such anniversary date.
3.2. Notwithstanding any other provisions of this Agreement, Employer shall
have the right to terminate Employee's employment under this Agreement at any
time for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors that "cause" exists for the termination of the employment
relationship. As used in this Section 3.2(i), the term "cause" shall
mean (a) Employee has engaged in gross negligence, incompetence or
willful misconduct in the performance of, or Employee's refusal to
perform, the duties and services required of Employee pursuant to this
Agreement; (b) Employee has committed any fraudulent or dishonest acts
involving Employer or has been convicted of a crime involving moral
turpitude; or (c) Employee's breach of any material provision of this
Agreement or corporate code or policy. A decision as to whether
"cause" exists for termination of the employment relationship with
Employee shall be made by the Employer's Board of Directors. Employee,
if he so requests, after reasonable notice that cause exists, shall be
entitled to be heard before the Employer's Board of Directors. If
Employee disagrees with the decision reached by the Employer's Board
of Directors, any dispute will be limited to whether the Employer's
Board of Directors reached its decision in good faith;
(ii) for any other reason whatsoever, including termination without cause,
in the sole discretion of Employer's Chief Executive Officer or
Employer's Board of Directors;
<PAGE> 4
(iii) upon Employee's death; or
(iv) upon Employee becoming incapacitated by accident, sickness, or other
circumstance which in the reasonable opinion of a qualified doctor
approved by the Executive Committee or Employer's Board of Directors
renders him mentally or physically incapable of performing the duties
and services required of Employee, and which will continue in the
reasonable opinion of such doctor for a period of not less than 180
days.
The termination of Employee's employment shall constitute a "Termination for
Cause" if made pursuant to Section 3.2(i); the effect of such termination is
specified in Section 3.4. The termination of Employee's employment shall
constitute an "Involuntary Termination" if made pursuant to Section 3.2(ii); the
effect of such termination is specified in Section 3.5. The effect of the
employment relationship being terminated pursuant to Section 3.2(iii) as a
result of Employee's death is specified in Section 3.7. The effect of the
employment relationship being terminated pursuant to Section 3.2(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.8.
3.3. Notwithstanding any other provisions of this Agreement, Employee shall
have the right to terminate the employment relationship under this Agreement at
any time for any of the following reasons:
(i) a material breach by Employer of any material provision of this
Agreement, including, without limitation, a material reduction in
Employee's title, position, duties, responsibilities, and authority to
such an extent that Employee is relegated to a position substantially
inferior to that which he shall hold with Employer at the commencement
of this Agreement, or elimination of Employee's job and him not being
offered employment by Employer or a successor to all or a portion of
Employer's business or assets, with (a) comparable responsibilities,
(b) the same or greater base salary, (c) comparable value for his
participation in any stock option plans and (d) comparable severance
benefits, and then only if any such breach remains uncorrected for 30
days following written notice of such breach by Employee to Employer's
Board of Directors
(ii) (x) Employer completes a merger or consolidation, a sale of all or
substantially all of its assets of Employer, or the sale of all of its
outstanding common stock, in each case in which all of the
stockholders of Employer receive in such transaction cash and/or
securities that are publicly traded, and (y) Employee's employment is
terminated after such transaction by virtue of an Involuntary
Termination within ninety (90) days after the completion of such
transaction;
<PAGE> 5
(iii) any corporation, person or group within the meaning of Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Act"), becomes the beneficial owner (within the meaning
of Rule 13d-3 under the Act) of voting securities of Employer
representing more than fifty percent of the total votes eligible to be
cast at any election of directors of Employer and Employee's
employment is terminated after such event by virtue of Involuntary
Termination within ninety (90) days after the occurrence of such
event;
(iv) the dissolution of Employer; or
(v) for any other reason whatsoever, in the sole discretion of Employee.
The termination of Employee's employment by Employee shall constitute an
"Involuntary Termination" if made pursuant to Section 3.3(i), 3.3(ii), 3.3(iii)
or 3.3(iv); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee shall constitute a "Voluntary
Termination" if made pursuant to Sections 3.3(v); the effect of such termination
is specified in Section 3.4.
3.4. Upon a "Voluntary Termination" of the employment relationship by
Employee or a termination of the employment relationship for "Cause" by
Employer, all future compensation to which Employee is entitled and future
benefits for which Employee is eligible shall cease and terminate as of the date
of termination. Employee shall be entitled to pro rata salary through the date
of such termination, but Employee shall not be entitled to any bonuses not yet
paid at the date of such termination.
3.5. Upon an Involuntary Termination of the employment relationship by
either Employer or Employee pursuant to Sections 3.2(ii), 3.3(i), 3.3(ii),
3.3(iii) or 3.3 (iv), Employee shall be entitled, in consideration of Employee's
continuing obligations hereunder after such termination (including, without
limitation, Employee's non-competition obligations), to receive a lump sum
payment equal to 150% of Employee's base salary for the year in which
termination occurs. Employee's rights under this Section 3.5 are Employee's sole
and exclusive rights against Employer or its subsidiaries or affiliates, and
Employer's and its subsidiaries' and affiliates' sole and exclusive liability to
Employee under this Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship, provided however,
Employee's rights and obligations with respect to Employee stock options, if
any, are governed the controlling option agreement.
3.6. Employee covenants not to sue or lodge any claim, demand or cause of
action against Employer based on Involuntary Termination for any monies other
than those specified in Section 3.5. If Employee breaches this covenant,
Employer and its subsidiaries' and affiliates' shall be entitled to recover from
Employee all sums expended by Employer and its subsidiaries and affiliates
(including costs and attorneys fees) in connection with such suit, claim, demand
or cause of action. Employer and its subsidiaries and affiliates shall not be
entitled to offset any of the amounts specified in the immediately preceding
sentence against amounts otherwise owing by Employer and its subsidiaries and
affiliates to Employee prior to a final determination under
<PAGE> 6
the terms of the arbitration provisions of this Agreement that Employee has
breached the covenant contained in this Section 3.6.
3.7. Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses not yet paid to Employee at the date of such termination.
3.8. Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his pro rata salary for a
period of six months following the date of such termination, but Employee shall
not be entitled to any individual bonuses not yet paid to Employee at the date
of such termination.
3.9. In all cases, the compensation and benefits payable to Employee under
this Agreement upon termination of the employment relationship shall be reduced
and offset by any amounts to which Employee may otherwise be entitled under any
and all severance plans or policies of Employer or its subsidiaries or
affiliates or any successor to all or a portion of the business or assets of
Employer; provided, however, that no sums received by Employee pursuant to
Employer's pension and retirement and thrift plan shall be considered a payment
requiring offset under this Section.
3.10. Termination of the employment relationship shall not terminate those
obligations imposed by this Agreement which are continuing in nature, including,
without limitation, Employee's obligations of confidentiality, non-competition
and Employee's continuing obligations with respect to business opportunities
that had been entrusted to Employee by Employer during the employment
relationship.
3.11. This Agreement governs the rights and obligations of Employer and
Employee with respect to Employee's salary and other perquisites of employment.
Except as otherwise provided in this Agreement, Employee's rights and
obligations with respect to any Employee stock options and other incentive
awards shall be governed by the applicable plans, awards, or other governing
documents.
4. UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
4.1. Employee shall at all times comply with United States laws applicable
to Employee's actions on behalf of Employer and its subsidiaries and affiliates,
including specifically, without limitation, the United States Foreign Corrupt
Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter
be amended, and/or its successor statutes. If Employee pleads guilty to or nolo
contendre or admits civil or criminal liability under the FCPA or other
applicable United States law, or if a court finds that Employee has personal
civil or criminal liability under the FCPA or other applicable
<PAGE> 7
United States law, or if a court finds that Employee committed an action
resulting in Employer or any of its subsidiaries or affiliates having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law, such action or finding shall constitute "cause" for termination
under this Agreement unless Employer's Board of Directors determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer. Moreover, to the extent that Employer or its subsidiaries or
affiliates is found or held responsible for any civil or criminal fines or
sanctions of any type under the FCPA or other applicable United States law or
suffers other damages as a result of Employee's actions, Employee shall be
responsible for, and shall reimburse and pay to that entity an amount of money
equal to, such civil or criminal fines, sanctions or damages. The rights
afforded Employer or its subsidiaries and affiliates under this provision are in
addition to any and all rights and remedies otherwise afforded by the law.
5. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
5.1. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's or
any of its subsidiaries' or affiliates' businesses, products or services
(including, without limitation, all such information relating to corporate
opportunities, research, financial and sales data, pricing and trading terms,
evaluations, opinions, interpretations, acquisition prospects, the identity of
customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects, or
marketing and merchandising techniques, prospective names, and marks) shall be
disclosed to Employer and are and shall be the sole and exclusive property of
Employer. Upon termination of Employee's employment, for any reason, Employee
promptly shall deliver the same, and all copies thereof, to Employer.
5.2. Employee will not, at any time during or after his employment by
Employer, make any unauthorized disclosure of any confidential business
information or trade secrets of Employer or its subsidiaries or affiliates, or
make any use thereof, except in the carrying out of his employment
responsibilities hereunder. Employer's subsidiaries and affiliates shall be
third party beneficiaries of Employee's obligations under this Section. As a
result of Employee's employment by Employer, Employee may also from time to time
have access to, or knowledge of, confidential business information or trade
secrets of third parties, such as customers, suppliers, partners, joint
ventures, and the like, of Employer and its subsidiaries and affiliates.
Employee also agrees to preserve and protect the confidentiality of such third
party confidential information and trade secrets to the same extent, and on the
same basis, as Employer's or any of their subsidiaries' or affiliates'
confidential business information and trade secrets.
5.3. If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of
<PAGE> 8
copyright (such as videotapes, written presentations on acquisitions, computer
programs, E-mail, voice mail, electronic databases, drawings, maps,
architectural renditions, models, manuals, brochures, or the like) relating to
Employer's or any of its subsidiaries' or affiliates' businesses, products, or
services, whether such work is created solely by Employee or jointly with others
(whether during business hours or otherwise and whether on Employer's or any of
its subsidiaries' or affiliates' premises or otherwise), Employer shall be
deemed the author of such work if the work is prepared by Employee in the scope
of his employment; or, if the work is not prepared by Employee within the scope
of his employment but is specially ordered by Employer or any of its
subsidiaries or affiliates as a contribution to a collective work, as a part of
a motion picture or other audiovisual work, as a translation, as a supplementary
work, as a compilation, or as an instructional text, then the work shall be
considered to be work made for hire and Employer or any of its subsidiaries or
affiliates shall be the author of the work. If such work is neither prepared by
Employee within the scope of his employment nor a work specially ordered that is
deemed to be a work made for hire, then Employee hereby agrees to assign, and by
these presents does assign, to Employer all of Employee's worldwide right,
title, and interest in and to such work and all rights of copyright therein.
5.4. Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer or any of its subsidiaries or
affiliates and their nominees, at any time, in the protection of Employer's or
any of its subsidiaries' or affiliates' worldwide right, title, and interest in
and to information, ideas, concepts, improvements, discoveries, and inventions,
and its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Employer or any of its subsidiaries or
affiliates or their nominees and the execution of all lawful oaths and
applications for applications for patents and registration of copyright in the
United States and foreign countries.
6. POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
6.1. As part of the consideration for the compensation and benefits to be
paid to Employee hereunder, and as an additional incentive for Employer to enter
into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 6. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any county within the State of Texas,
and to the extent allowed by law, in any geographic area or market where
Employer or any of its subsidiaries or affiliated companies are engaged in the
Relevant Business as of the date of termination of the employment relationship
or have during the previous twelve months engaged in the Relevant Business:
(i) engage in the business of the design, manufacture, sale, repair and
distribution of products used in oil and gas drilling and production
and any other business engaged in by the Employer immediately prior to
the date of this Agreement (the "Relevant Business");
(ii) render advice or services to, or otherwise assist, any other person,
association, or entity who is engaged, directly or indirectly, in the
Relevant Business; and
<PAGE> 9
(iii) induce any employee of Employer or any of its subsidiaries or
affiliates to terminate his or her employment with Employer or any of
its subsidiaries or affiliates, or hire or assist in the hiring of any
such employee by any person, association, or entity not affiliated
with Employer or any of its subsidiaries or affiliates; provided,
however, that this clause (iii) shall not apply to responses to
general advertising not directed toward employees of Employer or any
of its subsidiaries or affiliates.
These non-competition obligations shall apply during Employee's employment and
for a period of one (1) year after termination of employment. After termination
of employment these non-competition obligations shall apply only to businesses
having annual revenues in excess of $20 million dollars competitive with any
line of business conducted by Employer or any of its subsidiaries having annual
revenues in excess of $20 million dollars for the last fiscal year prior to the
time of termination. If Employer or any of its subsidiaries or affiliates
abandons a particular aspect of its business, that is, ceases such aspect of its
business with the intention to permanently refrain from such aspect of its
business, then this post-employment non-competition covenant shall not apply to
such former aspect of that business.
6.2. Employee understands that the foregoing restrictions may limit his
ability to engage in certain businesses during the period provided for above,
but acknowledges that Employee will receive sufficiently high remuneration and
other benefits (e.g., the right to receive compensation under Section 3.5 for
the remainder of the Term upon Involuntary Termination) under this Agreement to
justify such restriction. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article 6 by Employee, and Employer or
any of its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Article 6 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 6, but shall be in
addition to all remedies available at law or in equity to Employer or any of its
subsidiaries or affiliates, including, without limitation, the recovery of
damages from Employee and his agents involved in such breach.
6.3. It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the proprietary information of Employer and its
subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be unreasonable, or overly broad as
to geographic area or time, or otherwise unenforceable, the parties intend for
the restrictions therein set forth to be modified by such courts so as to be
reasonable and enforceable and, as so modified by the court, to be fully
enforced.
7. EMPLOYEE CONFIDENTIALITY COMMITMENT:
7.1 In the course of employment, Employer will provide Employee with a
great deal
<PAGE> 10
of proprietary, confidential, and restricted information, including Trade
Secrets (as herein defined), not known to those outside of Employer
(collectively, "Confidential Information"). "Trade Secrets" are any information,
including a formula, pattern, compilation, program, device, method, technique,
or process, that derives independent economic value, actual or potential, from
not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use is the subject of efforts that are
reasonable under circumstances to maintain its secrecy.
7.2 Employee shall not disclose or make use of Employer's Confidential
Information to anyone not employed by either Employer without written
authorization. Employee shall be bound by Employer's rules governing company
trade secret usage and will not use Employer's Trade Secrets outside the scope
of Employee's employment. Employee further shall not disclose or use Employer's
Confidential Information for any purpose for a period of one (1) year after
employment with Employer is terminated.
7.3 Employee will not disclose any Confidential Information to persons
(including other employees of Employer unless such persons have executed a
declaration similar to this one); provided, however, that Employee may make such
disclosure if required by law. Employee will hold Confidential Information in
trust, and consistently exercise all reasonable precautions to ensure that it is
not disclosed to any unauthorized persons, or used in any unauthorized manner,
published, or otherwise disseminated, either during or subsequent to, employment
with Employer, and will immediately report to Employer any breach or violation
of the commitments made in this declaration, whether the breach or violation is
intentional or inadvertent.
7.4 Employee acknowledges that the Confidential Information, particularly
regarding Trade Secrets, is material to the successful and profitable operation
of Employer, and if such Confidential Information is improperly divulged, it
will constitute an irreparable injury to Employer. Therefore, Employee consents
to the imposition of whatever injunctive or other relief Employer deems
necessary or appropriate in order to protect the Confidential Information.
7.5 In the event Employee has any question as to whether information is to
be covered by the terms of this Section, Employee shall treat such information
as Confidential Information, and as such, falling under the terms and
obligations of this Section.
8. MISCELLANEOUS:
8.1. For purposes of this Agreement the terms "affiliates" or "affiliated"
means an entity who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Employer.
8.2. Employer and Employee shall refrain, both during the employment
relationship and after the employment relationship terminates, from publishing
any oral or written statements about each other or any of Employer's
subsidiaries' or affiliates' directors, officers, employees,
<PAGE> 11
agents or representatives that are slanderous, libelous, or defamatory; or that
disclose private or confidential information about Employee's or Employer's or
any of its subsidiaries' or affiliates' business affairs, officers, employees,
agents, or representatives; or that constitute an intrusion into the seclusion
or private lives of Employee or Employer's or any of its subsidiaries' or
affiliates' directors, officers, employees, agents, or representatives; or that
give rise to unreasonable publicity about the private lives of Employee or
Employer's or any of its subsidiaries' or affiliates' officers, employees,
agents, or representatives; or that place Employee or Employer or any of its
subsidiaries or affiliates or their respective officers, employees, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of Employee or Employer or any of its
subsidiaries or affiliates or their respective officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined.
8.3. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Employer to:
IRI International Corporation
1000 Louisiana, Suite 5900
Houston, Texas 77002
Attn: Hushang Ansary, Chairman and Chief Executive Officer
Fax: (713) 659-3137
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, NY 10022
Attn: Mr. William F. Henze II
Fax: (212) 755-7306
If to Employee, to the address reflected in Employer's records as his residence.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4. This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
<PAGE> 12
8.5. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6. It is a desire and intent of the parties that the terms, provisions,
covenants, and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenant, or
remedy of this Agreement or the application thereof to any person, association,
or entity or circumstances shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term, provision, covenant, or
remedy shall be construed in a manner so as to permit its enforceability under
the applicable law to the fullest extent permitted by law. In any case, the
remaining provisions of this Agreement or the application thereof to any person,
association, or entity or circumstances other than those to which they have been
held invalid or unenforceable, shall remain in full force and effect.
8.7. Any and all claims, demands, cause of action, disputes, controversies
and other matters in question arising out of or relating to this Agreement, any
provision hereof, the alleged breach thereof, or in any way relating to the
subject matter of this Agreement, involving Employer, its subsidiaries and
affiliates and Employee (all of which are referred to herein as "Claims"), even
though some or all of such Claims allegedly are extra-contractual in nature,
whether such Claims sound in contract, tort or otherwise, at law or in equity,
under state or federal law, whether provided by statute or the common law, for
damages or any other relief, including equitable relief and specific
performance, shall be resolved and decided by binding arbitration pursuant to
the Federal Arbitration Act in accordance with the Commercial Arbitration Rules
then in effect with the American Arbitration Association. In the arbitration
proceeding the Employee shall select one arbitrator, the Employer shall select
one arbitrator and the two arbitrators so selected shall select a third
arbitrator. Should one party fail to select an arbitrator within five days after
notice of the appointment of an arbitrator by the other party or should the two
arbitrators selected by the Employee and the Employer fail to select an
arbitrator within ten days after the date of the appointment of the last of such
two arbitrators, any person sitting as a Judge of the United States District
Court of any District in Texas, upon application of the Employee or the
Employer, shall appoint an arbitrator to fill such space with the same force and
effect as though such arbitrator had been appointed in accordance with the
immediately preceding sentence of this Section 8.7. The decision of a majority
of the arbitrators shall be binding on the Employee, the Employer and its
subsidiaries and affiliates. The arbitration proceeding shall be conducted in
Houston, Texas. Judgment upon any award rendered in any such arbitration
proceeding may be entered by any federal or state court having jurisdiction.
This agreement to arbitrate shall be enforceable in either federal or state
court. The enforcement of this agreement to arbitrate and all procedural aspects
of this Agreement to arbitrate, including but not limited to, the construction
and interpretation of this agreement to arbitrate, the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act.
<PAGE> 13
In deciding the substance of any such Claim, the Arbitrators shall apply
the substantive laws of the State of Texas; provided, however, that the
Arbitrators shall have no authority to award treble, exemplary or punitive type
damages under any circumstances regardless of whether such damages may be
available under Texas law, the parties hereby waiving their right, if any, to
recover treble, exemplary or punitive type damages in connection with any such
Claims.
8.8. This Agreement shall be binding upon and inure to the benefit of
Employer, its subsidiaries and affiliates, and any other person, association, or
entity which may hereafter acquire or succeed to all or a portion of the
business or assets of Employer by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Employee's rights and obligations
under this Agreement are personal and such rights, benefits, and obligations of
Employee shall not be voluntarily or involuntarily assigned, alienated, or
transferred, whether by operation of law or otherwise, by Employee without the
prior written consent of Employer.
8.9. Except as provided in (1) written company policies promulgated by
Employer dealing with issues such as securities trading, business ethics,
governmental affairs and political contributions, consulting fees, commissions
and other payments, compliance with law, investments and outside business
interests as officers and employees, reporting responsibilities, administrative
compliance, and the like, (2) the written benefits, plans, and programs
referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements
contemporaneously or hereafter executed by Employer and Employee, this Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect to such subject
matters and replaces and merges previous agreements and discussions pertaining
to the employment relationship between Employer and Employee. Specifically, but
not by way of limitation, any other employment agreement or arrangement in
existence as of the date hereof between Employer and Employee is hereby canceled
and Employee hereby irrevocably waives and renounces all of Employee's rights
and claims under any such agreement or arrangement.
IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement
in multiple originals to be effective on the date first stated above.
EMPLOYEE
International Corporation
IRI
By: /s/ Robert L. Hargrave By: /s/ Hushang Ansary
--------------------------- ----------------------------
Title: Chairman
<PAGE> 1
FIRST AMENDMENT
TO CREDIT AGREEMENT
This First Amendment ("Amendment") is made as of the 5th day of April,
2000, by and between IRI INTERNATIONAL CORPORATION (the "Borrower") and BANK
ONE, TEXAS, N.A. (the "Lender").
WHEREAS, the Borrower and the Lender entered into a Loan Agreement dated
December 29, 1999, as amended (if applicable) (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Section 1.01 Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.
ARTICLE II
Section 2.01 Section 7.13 of the Credit Agreement is hereby amended in its
entirety as follows:
Section 7.13 Accounts with Lender. Borrower shall transfer all of
its primary operating accounts and treasury management to Lender
by June 30, 2000.
ARTICLE III
Section 3.01 This Amendment shall become effective only after it is fully
executed by the Borrower and the Lender and the Lender shall have received from
the Borrower the following documents: First Amendment to Credit Agreement.
Except as amended by this Amendment, the Credit Agreement shall remain in full
force and effect in accordance with its terms.
ARTICLE IV
Section 4.01 The Borrower represents and warrants that (a) the
representations and warranties contained in the Credit Agreement are true and
correct in all material respects as of the date of this Amendment, (b) no
condition, act or event which could constitute an Event of
Page 1
<PAGE> 2
Default under the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an Event of Default under the Credit Agreement.
Section 4.02 The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Lender in connection with this Amendment,
including legal fees incurred by the Lender in the preparation, consummation,
administration and enforcement of this Amendment.
Section 4.03 This Amendment is a modification only and not a novation.
Except for the above-quoted modification(s), the Credit Agreement, any agreement
or security document, and all the terms and conditions thereof, shall be and
remain in full force and effect with the changes herein deemed to be
incorporated therein. This Amendment is to be considered attached to the Credit
Agreement and made a part thereof. This Amendment shall not release or affect
the liability of any guarantor, surety or endorser of the Credit Agreement or
release any owner of collateral securing the Credit Agreement. The validity,
priority and enforceability of the Credit Agreement shall not be impaired
hereby. To the extent that any provision of this Amendment conflicts with any
term or condition set forth in the Credit Agreement, or any agreement or
security document executed in conjunction therewith, the provisions of this
Amendment shall supersede and control. Borrower acknowledges that as of the date
of this Amendment it has no offsets with respect to all amounts owed by Borrower
to Lender and Borrower waives and releases all claims which it may have against
Lender arising under the Credit Agreement on or prior to the date of this
Amendment.
Section 4.05 The Borrower acknowledges and agrees that this Amendment is
limited to the terms outlined above, and shall not be construed as an amendment
of any other terms or provisions of the Credit Agreement; The Borrower hereby
specifically ratifies and affirms the terms and provisions of the Credit
Agreement. Borrower releases Lender from any and all claims which may have
arisen, known or unknown, in connection with the Credit Agreement on or prior to
the date hereof. This Amendment shall not establish a course of dealing or be
construed as evidence of any willingness on the Lender's part to grant other or
future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
day and year first above written.
LENDER: BORROWER:
BANK ONE, TEXAS, N.A. IRI INTERNATIONAL CORPORATION
By: /s/ Karen S. Shouse By: /s/ Robert L. Hargrave
---------------------------- ----------------------------
Karen S. Shouse
First Vice President
Page 2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 25,563
<SECURITIES> 19,781
<RECEIVABLES> 24,878
<ALLOWANCES> 1,798
<INVENTORY> 93,547
<CURRENT-ASSETS> 171,205
<PP&E> 59,714
<DEPRECIATION> (14,720)
<TOTAL-ASSETS> 221,637
<CURRENT-LIABILITIES> 17,326
<BONDS> 0
0
0
<COMMON> 399
<OTHER-SE> 202,439
<TOTAL-LIABILITY-AND-EQUITY> 221,637
<SALES> 33,114
<TOTAL-REVENUES> 33,114
<CGS> 24,578
<TOTAL-COSTS> 30,872
<OTHER-EXPENSES> 334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (92)
<INCOME-PRETAX> 2,484
<INCOME-TAX> 942
<INCOME-CONTINUING> 1,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,542
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
