<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-7265
ENERGY VENTURES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
Delaware 04-2515019
- ------------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027-3415
- ----------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 297-8400
--------------------------------------------------
(Registrant's telephone number, include area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at May 8, 1996
-------------- ---------------------------
Common Stock, $1.00 Par Value 18,731,142
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -----------
ASSETS (in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . $ 5,924 $ 4,517
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $654,000 at March 31, 1996 and $615,000
at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 98,450 102,763
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,585 117,936
Materials and Supplies . . . . . . . . . . . . . . . . . . . . . 10,556 10,042
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . . . 14,313 14,316
------------- -------------
246,828 249,574
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION . . . . . . . . . . . . . . . . . 192,988 192,702
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET . . . . . . . . . . . . . . . 37,419 37,398
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,660 11,386
------------- -------------
$ 495,895 $ 491,060
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines
of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,772 $ 4,826
Current Maturities of Long-Term Debt . . . . . . . . . . . . . . 4,125 5,894
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . 50,828 53,703
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . 23,740 32,693
------------- -------------
99,465 97,116
------------- -------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 124,838 126,849
DEFERRED INCOME TAXES, NET . . . . . . . . . . . . . . . . . . . . . . 33,018 32,926
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,172 6,103
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 18,542 18,522
Capital in Excess of Par Value . . . . . . . . . . . . . . . . . 158,297 157,953
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . 64,514 60,167
Cumulative Foreign Currency Translation Adjustment . . . . . . . (7,047) (6,915)
Treasury Stock, at Cost . . . . . . . . . . . . . . . . . . . . . (1,904) (1,661)
------------- -------------
232,402 228,066
------------- -------------
$ 495,895 $ 491,060
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE> 3
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------
1996 1995
-------- ---------
(in thousands, except
per share amounts)
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 110,042 $ 72,660
--------- ---------
COSTS AND EXPENSES:
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 83,540 53,156
Selling, General and Administrative Attributable to Segments . . . 14,368 11,594
Corporate General and Administrative . . . . . . . . . . . . . . . 1,364 1,256
--------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770 6,654
--------- ---------
OTHER INCOME (EXPENSE):
Interest Expense, Net . . . . . . . . . . . . . . . . . . . . . . (3,973) (3,965)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . (111) (59)
--------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 6,686 2,630
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 2,339 999
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,347 $ 1,631
========= =========
NET INCOME PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.13
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 18,421 12,659
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------
1996 1995
-------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,347 $ 1,631
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operations:
Depreciation and Amortization . . . . . . . . . . . . . . . 6,180 4,463
Deferred Income Tax Provision . . . . . . . . . . . . . . . 37 197
Oil Country Tubular Ltd. Deposit . . . . . . . . . . . . . (8,000) --
Gain on Sale of Assets . . . . . . . . . . . . . . . . . . (38) (19)
Provision for Uncollectible Accounts Receivable . . . . . . 201 72
Change in Operating Assets and Liabilities, Net of Effects
of Business Acquired . . . . . . . . . . . . . . . . . . (7,025) (6,839)
--------- ---------
Net Cash Used by Operating Activities . . . . . . . . . . . . (4,298) (495)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Business, Net of Cash Acquired . . . . . . . . . . (608) --
Capital Expenditures for Property, Plant and Equipment . . . . . (7,270) (5,296)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 302
--------- ---------
Net Cash Used by Investing Activities . . . . . . . . . . . . (7,650) (4,994)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Lines of Credit, Net . . . . . . . . . 15,946 4,781
Repayments on Term Debt . . . . . . . . . . . . . . . . . . . . . (2,720) (895)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 (38)
--------- ---------
Net Cash Provided by Financing Activities . . . . . . . . . . 13,349 3,848
--------- ---------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH . . . . . . . . . . . . . . . 6 (193)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407 (1,834)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . 4,517 3,144
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 5,924 $ 1,310
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized . . . . . . . . . . . . $ 6,980 $ 6,962
Income Taxes Paid, Net of Refunds . . . . . . . . . . . . . . . . $ 929 $ 392
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The unaudited consolidated condensed financial statements included herein
have been prepared by Energy Ventures, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. These
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for the fair
presentation of such financial statements for the interim periods presented.
Although the Company believes that the disclosures in these financial
statements are adequate to make the interim information presented not
misleading, certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The results of operations for the
three month period ended March 31, 1996 are not necessarily indicative of the
results expected for the full year.
(2) Inventories
Inventories by category are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials and components . . . $ 54,945 $ 61,578
Work in process . . . . . . . . . . 17,716 17,167
Finished goods . . . . . . . . . . 44,924 39,191
----------- ---------
$ 117,585 $ 117,936
=========== =========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
(3) Acquisition
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock. The acquisition is expected to provide the Company with greater
manufacturing and marketing efficiencies by allowing for a consolidation of
overhead, reduced distribution and marketing costs and a rationalization of
manufacturing operations. The allocation of the purchase price to the fair
market value of the net assets acquired is based on the preliminary estimate of
fair market value and may be revised when additional information concerning
asset and liability valuations is obtained.
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the Prideco
acquisition had occurred on January 1, 1995. The pro forma information set
forth below is not necessarily indicative of the results that actually would
have been achieved had such transactions been consummated as of January 1,
1995, or that may be achieved in the future.
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1995
---------------
(in thousands, except per
share amount)
<S> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,881
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,234
Net Income Per Common Share . . . . . . . . . . . . . . . . . $ 0.15
</TABLE>
5
<PAGE> 6
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(4) Long-Term Debt
On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated as of March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 7.
(5) Contingencies
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS") proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of a joint venture ("COLEVE")
with Columbia Gas Development Corporation. In general, the IRS' proposal seeks
payment of a tax liability of approximately $14.1 million plus accrued interest
thereon, and includes $3.4 million of taxes relating to the proposed
disallowance of certain interest deductions taken by the Company with respect
to COLEVE that was the subject of a similar letter received by the Company in
the fourth quarter of 1993. The tax liability with respect to these matters
has been previously provided for as a deferred tax liability in the Company's
consolidated financial statements. The Company disagrees with the IRS'
position and is currently pursuing its rights of administrative review and
appeal and intends to vigorously contest this matter. Although the resolution
of these remaining issues could affect the timing of the payment of previously
accrued tax liabilities and require the use of a portion of its available
capital, the Company does not believe that the results of the audit or the
ultimate resolution of the IRS' proposed adjustments will have a material
impact on its consolidated results of operations or financial position.
(6) Reclassifications
Certain reclassifications of prior period balances have been made to
conform such amounts to corresponding March 31, 1996 classifications.
6
<PAGE> 7
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements
The $120 million Senior Notes which are described in Note 4 are
unconditionally guaranteed on a joint and several basis by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance
sheets as of March 31, 1996 and December 31, 1995, and the related condensed
consolidating statements of income and cash flows for the three month periods
ended March 31, 1996 and 1995, have been provided. The condensed consolidating
financial statements herein are followed by notes which are an integral part of
these statements.
CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . $ 78 $ 4,721 $ 1,125 $ -- $ 5,924
Other Current Assets . . . . . . . 1,567 200,452 38,885 -- 240,904
--------- ---------- ---------- ---------- --------
1,645 205,173 40,010 -- 246,828
--------- ---------- ---------- ---------- --------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . . 1,068 176,094 15,826 -- 192,988
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . . 342,884 (161,218) 16,682 (198,348) --
OTHER ASSETS . . . . . . . . . . . . 4,838 53,848 (2,607) -- 56,079
--------- ---------- ---------- ---------- --------
$ 350,435 $ 273,897 $ 69,911 $ (198,348) $495,895
========= ========== ========== ========== ========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . . $ -- $ 16,946 $ 3,826 $ -- $ 20,772
Current Maturities of
Long-Term Debt . . . . . . . . . -- 3,916 209 -- 4,125
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . . 2,291 61,864 10,413 -- 74,568
--------- ---------- ---------- ---------- --------
2,291 82,726 14,448 -- 99,465
--------- ---------- ---------- ---------- --------
LONG-TERM DEBT . . . . . . . . . . . 120,000 4,279 559 -- 124,838
OTHER LIABILITIES . . . . . . . . . (4,258) 23,530 19,918 -- 39,190
--------- ---------- ---------- ---------- --------
STOCKHOLDERS' INVESTMENT . . . . . . 232,402 163,362 34,986 (198,348) 232,402
--------- ---------- ---------- ---------- --------
$ 350,435 $ 273,897 $ 69,911 $ (198,348) $495,895
========= ========== ========== ========== ========
</TABLE>
7
<PAGE> 8
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
Other Current Assets . . . . . . 1,564 208,342 35,151 -- 245,057
-------- ---------- --------- ---------- ---------
2,096 211,327 36,151 -- 249,574
-------- ---------- --------- ---------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . 159 177,945 14,598 -- 192,702
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . 342,844 (169,154) 18,417 (192,107) --
OTHER ASSETS . . . . . . . . . . . 4,969 47,079 (3,264) -- 48,784
-------- ---------- --------- ---------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= ========== =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . $ -- $ 795 $ 4,031 $ -- $ 4,826
Current Maturities of Long-Term Debt -- 5,484 410 -- 5,894
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . 4,055 72,451 9,890 -- 86,396
-------- ---------- --------- ---------- ---------
4,055 78,730 14,331 -- 97,116
-------- ---------- --------- ---------- ---------
LONG-TERM DEBT . . . . . . . . . . 120,000 6,262 587 -- 126,849
OTHER LIABILITIES . . . . . . . . . (2,053) 22,394 18,688 -- 39,029
-------- ---------- --------- ---------- ---------
STOCKHOLDERS' INVESTMENT . . . . . 228,066 159,811 32,296 (192,107) 228,066
-------- ---------- --------- ---------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= ========== =========
</TABLE>
8
<PAGE> 9
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 90,305 $ 19,737 $ -- $ 110,042
COSTS AND EXPENSES . . . . . . . . . 1,364 82,767 15,141 -- 99,272
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . (1,364) 7,538 4,596 -- 10,770
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . . (3,326) (639) 21 -- (3,944)
Equity in Subsidiaries, Net of Taxes 6,393 -- -- (6,393) --
Other, Net . . . . . . . . . . . . 6 (31) (115) -- (140)
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . 1,709 6,868 4,502 (6,393) 6,686
PROVISION (BENEFIT) FOR INCOME TAXES (2,638) 3,316 1,661 -- 2,339
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . $ 4,347 $ 3,552 $ 2,841 $ (6,393) $ 4,347
======== ========== ========== =========== =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 60,413 $ 12,247 $ -- $ 72,660
COSTS AND EXPENSES . . . . . . . . . 1,256 54,537 10,213 -- 66,006
-------- ---------- ---------- ----------- ---------
OPERATING INCOME (LOSS) . . . . . . . (1,256) 5,876 2,034 -- 6,654
-------- ---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . (2,133) (1,927) 102 -- (3,958)
Equity in Subsidiaries, Net of Taxes 4,082 -- -- (4,082) --
Other, Net . . . . . . . . . . . 3 158 (227) -- (66)
-------- ---------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES . . . . . 696 4,107 1,909 (4,082) 2,630
PROVISION (BENEFIT) FOR INCOME TAXES (935) 1,471 463 -- 999
-------- ---------- ---------- ----------- ---------
NET INCOME . . . . . . . . . . . . . $ 1,631 $ 2,636 $ 1,446 $ (4,082) $ 1,631
======== ========== ========== =========== =========
</TABLE>
9
<PAGE> 10
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . $ 4,347 $ 3,552 $ 2,841 $ (6,393) $ 4,347
Equity in Earnings of Subsidiaries . . . . . (6,393) -- -- 6,393 --
Other Adjustments and Changes . . . . . . . (5,813) (1,579) (1,253) -- (8,645)
-------- ---------- ---------- --------- ----------
Net Cash Provided (Used) by Operations . . (7,859) 1,973 1,588 -- (4,298)
-------- ---------- ---------- --------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Business, Net of Cash
Acquired . . . . . . . . . . . . . . . . . -- (608) -- -- (608)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . (33) (5,420) (1,817) -- (7,270)
Other, Net . . . . . . . . . . . . . . . . . -- 224 4 -- 228
-------- ---------- ---------- --------- ----------
Net Cash Used by Investing Activities . . . (33) (5,804) (1,813) -- (7,650)
-------- ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings Under Revolving Lines of Credit. . -- 16,130 (184) -- 15,946
Repayments on Term Debt . . . . . . . . . . -- (2,627) (93) -- (2,720)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net . . . . . . . . . 7,318 (7,936) 618 -- --
Other, Net . . . . . . . . . . . . . . . . . 120 -- 3 -- 123
-------- ---------- ---------- --------- ----------
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . 7,438 5,567 344 -- 13,349
-------- ---------- ---------- --------- ----------
Effect of Translation Adjustment on Cash . . . -- -- 6 -- 6
-------- ---------- ---------- --------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . (454) 1,736 125 -- 1,407
Cash and Cash Equivalents at Beginning of
Period . . . . . . . . . . . . . . . . . . . 532 2,985 1,000 -- 4,517
-------- ---------- ---------- --------- ----------
Cash and Cash Equivalents at End of Period . . $ 78 $ 4,721 $ 1,125 $ -- $ 5,924
======== ========== ========== ========= ==========
</TABLE>
10
<PAGE> 11
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . $ 1,631 $ 2,636 $ 1,446 $ (4,082) $ 1,631
Equity in Earnings of Subsidiaries . . . . . (4,082) -- -- 4,082 --
Other Adjustments and Changes . . . . . . . (6,823) 5,070 (373) -- (2,126)
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Operations . . . (9,274) 7,706 1,073 -- (495)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and Assets . . -- 290 12 -- 302
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . . . . . -- (4,368) (928) -- (5,296)
-------- -------- -------- -------- --------
Net Cash Used by Investing Activities . . . -- (4,078) (916) -- (4,994)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings Under Revolving Lines of Credit. . -- 3,631 1,150 -- 4,781
Repayments on Term Debt . . . . . . . . . . -- (727) (168) -- (895)
(Increase) Decrease in amounts due to and
from Subsidiaries, Net . . . . . . . . . . 9,151 (7,577) (1,574) -- --
Other, Net . . . . . . . . . . . . . . . . . (38) -- -- -- (38)
-------- -------- -------- -------- --------
Net Cash Provided (Used) by Financing
Activities . . . . . . . . . . . . . . . 9,113 (4,673) (592) -- 3,848
-------- -------- -------- -------- --------
Effect of Translation Adjustment on Cash . . . -- -- (193) -- (193)
-------- -------- -------- -------- --------
Net Decrease in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . (161) (1,045) (628) -- (1,834)
Cash and Cash Equivalents at Beginning of
Period . . . . . . . . . . . . . . . . . . . 166 1,593 1,385 -- 3,144
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Period . . $ 5 $ 548 $ 757 $ -- $ 1,310
======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) Condensed Consolidating Financial Statements - (Continued)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding March 31, 1996 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. OTHER
Notes 1 through 6 should be read in conjunction with the Condensed
Consolidating Financial Statements.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company manufactures and markets drill pipe and premium tubular
products and production equipment through its Oilfield Equipment Segment and
provides contract drilling and workover services through its Contract Drilling
Segment for use in the exploration and production of oil and natural gas. In
recent periods, the Company has benefited from the continuing consolidation in
the markets in which the Company competes, as well as from increased demand for
tubular products due to a decline in excess inventories of used drill pipe.
The markets for the Company's products and services are materially affected by
changes in the levels of domestic and worldwide exploration and production
activity and changes in prices for natural gas and oil. Exploration and
production activity is also affected by worldwide economic conditions, supply
and demand for oil and natural gas, seasonal trends and the political stability
of oil producing countries.
Operating income for the first quarter of 1996 was $10,770,000 as compared
to $6,654,000 for the first quarter of 1995. The 62% increase in operating
income for the first quarter of 1996 as compared to the first quarter of 1995
was primarily attributable to increased sales and margins for drill pipe and
other tubular products. The increase attributable to the improvement in the
tubular market was partially offset by transitional costs associated with the
Company's decision to concentrate on product design and manufacturing in its
artificial lift and production equipment division and the related sale of its
United States retail distribution system in February 1996. The Company expects
that its artificial lift and production equipment division should begin to
realize the benefits of these actions as the year progresses.
The Company's overall domestic rig utilization was up for the first
quarter of 1996. The Company's contract drilling segment experienced higher
domestic demand and utilization for its workover rigs and reduced utilization
of its drilling rigs in the first quarter of 1996 as compared to the first
quarter of 1995. The decline in the number of drilling rigs operating resulted
in a decrease in average margins for services performed at this segment. This
segment was also affected by the high costs relating to its Argentina
operations and lower operating income in Peru due to the curtailment of
operations by the Company's customer in Peru. The Company is taking action to
improve the results of its foreign workover and drilling operations. The
Company also believes it is well positioned to benefit from any increased
drilling activity in the inland and offshore waters in the US Gulf Coast
region.
The Company's operations will continue to be subject to prevailing
industry conditions and future results will be dependent on and affected by
price levels for oil and natural gas and other factors affecting levels of
exploration, development and production. Accordingly, there can be no
assurance as to future results or profitability.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1996 versus Three Months Ended March
31, 1995
For the three months ended March 31, 1996, net income more than doubled to
$4,347,000, or $.24 per share on revenues of $110,042,000 as compared to net
income of $1,631,000, or $.13 per share on revenues of $72,660,000 for the
first quarter of 1995. The increases in income and revenue were primarily
attributable to a substantial increase in drill pipe and tubular sales in the
Company's oilfield equipment segment. These increases more than offset a $1.3
million decline in operating income in the contract drilling segment.
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$90.3 million and $9.5 million, respectively, for the first quarter ended March
31, 1996 as compared to $53.3 million and $4.0 million, respectively,
for the first quarter ended March 31, 1995. The increases in revenue and
operating income were primarily attributable to increased drill pipe sales.
13
<PAGE> 14
Sales of tubular products in the first quarter of 1996 were $60.6 million
compared to $26.4 million in 1995. Operating income associated with the
tubular products division in the first quarter of 1996 was $8.1 million as
compared to $1.6 million in 1995. First quarter 1996 results reflected a
124% increase in sales of drill pipe and a 32% increase in sales of premium
tubulars. The increase in drill pipe sales reflected the Company's June 1995
acquisition of Prideco, Inc. and an overall increase in demand for drill pipe.
The increase in demand for drill pipe reflected moderately increased drilling
activity and the continuing decline in the supply of used drill pipe inventory,
against which the Company has historically competed. The increase in sales of
premium tubulars reflected an increase in demand associated with increased
natural gas and offshore exploration and production activity. The improvement
in operating income reflected the effects of increased sales, lower average
costs and improved pricing. Price improvements, however, were partially offset
by increases in the price of raw materials, particularly green tubing. Backlog
for tubular products at March 31, 1996, was approximately $81.7 million
compared to $78.4 at December 31, 1995. The Company believes that all of this
backlog will be shipped by year end.
Results for the first quarter of 1996 in the tubular division do not
include any revenues from sales of drill pipe manufactured at Oil Country
Tubular Ltd.'s ("OCTL") facility in India under the manufacturing arrangement
entered into with that firm in January 1996. Sales of products manufactured at
this facility on behalf of the Company have recently begun, and the Company
expects that its sales of tubular products from this facility will gradually
increase through the remainder of the year.
The Company recently completed the acquisition of Enerpro International,
Inc. ("Enerpro"), a manufacturer of premium threads and thread connections, for
approximately 312,000 shares of the Company's Common Stock and the assumption
of approximately $3.1 million in indebtedness. Sales of premium tubulars are
expected to increase as a result of this acquisition.
Revenues and operating income at the Company's artificial lift and
production equipment division were $30.4 million and $1.7 million,
respectively, for the quarter ended March 31, 1996, compared to $28.5 million
and $2.6 million, respectively, for the quarter ended March 31, 1995. Canadian
and international sales in this division were strong during the first quarter
of 1996, increasing by approximately 30% from 1995 levels. However, the
improved Canadian and international sales were more than offset by costs
associated with the Company's decision to focus the operations of this division
on product development and manufacturing. The Company is currently in the
process of reorganizing the internal management structure at this division with
the objective of increasing margins and reducing selling, general and
administrative expenses. This transition has resulted in various manufacturing
inefficiencies, transitional costs and sales disruptions associated with the
restructuring of its operations and management. The Company believes that once
this transition has been completed, the division will benefit from a reduction
in selling, general and administrative expenses and improved margins.
As part of the decision to focus on product development and manufacturing,
the Company sold its United States retail distribution system. Effective
December 31, 1995, the Company accounted for the sale of its United States
retail distribution system which was completed in February 1996. The
consideration from this disposition was approximately equal to its net book
value and did not result in any material gain or loss.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were $19.7
million and $2.6 million, respectively, for the first quarter ended March 31,
1996, as compared to $19.4 million and $3.9 million, respectively, for the
first quarter ended March 31, 1995.
Domestic barge volume improved by 17% from the first quarter of 1995 to
the first quarter of 1996 resulting in an increase in domestic revenues of 10%
from $12.4 million in the first quarter of 1995 to $13.6 million in the first
quarter of 1996. During the first quarter of 1996, the Company had more
workover rigs and less drilling rigs operating as compared to the first quarter
of 1995. The decline in the number of drilling rigs operating resulted in a
decrease in average margins for services performed at this division. Price
competition with respect to drilling rigs also affected results in this
segment.
The contract drilling segment's foreign operations in Nigeria, Peru and
Argentina contributed $6.1 million in revenues for the quarter ended March 31,
1996 compared to $7 million in the first quarter of 1995. The decline in
revenues was primarily attributable to the Company's two rigs in Peru being on
standby status for most of the first quarter in 1996. The Company's Nigerian
rig, however, continued to operate profitably during the quarter and
14
<PAGE> 15
represented approximately 39% of the international revenues for this division
during the quarter. Operating income from foreign operations in this segment
declined from approximately $1.5 million for the first quarter of 1995 to a $.1
million loss for the first quarter of 1996. This decline in operating income
was primarily attributable to reduced operations in Peru from two rigs
operating in the first quarter of 1995 as compared to one rig operating for a
portion of the first quarter of 1996 and to the high costs associated with the
Company's Argentina operations. The Company is currently taking action to
improve its operations in Argentina.
Operations in Nigeria are currently subject to various political risk. In
that regard, there is currently pending before the U.S. Congress various
legislation that, if enacted, would restrict trade and investment in Nigeria.
To date, no legislation has been enacted. However, if legislation were to be
adopted that either restricted trade or investment in Nigeria, the Company's
Nigerian operations could be materially affected.
Demand for the Company's domestic contract drilling and workover services
will continue to be materially dependent on levels of exploration and
development in the Gulf of Mexico and coastal and inland waters. The price of
natural gas will also be a material factor effecting that demand.
General
Selling, general and administrative expenses increased approximately 22%
to $15.7 million in the first quarter of 1996 from $12.9 million in the first
quarter of 1995. The increase in 1996 was primarily attributable to the
Prideco acquisition completed in June 1995 as well as the contract drilling
services in Argentina which became operational in June 1995.
The Company's effective tax rate for the quarter ended March 31, 1996 was
approximately 35% as compared to 38% for the quarter ended March 31, 1995. The
decline in such rate primarily reflected the impact of an increase in the
Company's ability to utilize foreign tax credits.
The demand for the Company's tubular products and contract drilling
services are particularly affected by the price of natural gas and the level of
oil and gas exploration activity while the demand for the Company's artificial
lift equipment is directly dependent on oil production activity. Sales of the
Company's artificial lift products are currently primarily concentrated in
North America and are affected by the level of oil production from older wells
as in addition to oil prices.
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations.
Operations and sales in foreign markets are subject to substantial
competition from large multinational corporations and government-owned entities
and to a variety of local laws and regulations requiring qualifications, use of
local labor, the provision of financial assurances or other restrictions and
conditions on operations. Foreign operations are also subject to risks
associated with doing business outside the U.S., including risk of war, civil
disturbances and governmental activities that may limit or disrupt markets,
restrict the movement of funds or result in the deprivation of contract rights
or the taking of property without fair compensation. Foreign operations may
also subject the Company to risks relating to fluctuations in currency exchange
rates. However, to date, currency fluctuations have not had a material adverse
impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of
approximately $5.9 million compared to approximately $4.5 million at December
31, 1995.
The Company also had in place various working capital lines of credit
secured by the inventory and receivables of the Company's subsidiaries
providing for borrowings up to $65.5 million, subject to availability
requirements. Borrowings under the Company's lines of credit are generally
based on the lender's determination of the collateral value of the current
assets securing the lines of credit. The lines of credit bear interest at
floating rates ranging from prime to prime plus 1 1/4% and are secured by
substantially all of the borrowing subsidiary's accounts receivable and
inventory. The Company and its subsidiaries are required to comply with various
affirmative and negative covenants relating to working capital, earnings and net
worth. The facilities also impose certain limitations on the use of funds by
the Company and its subsidiaries for acquisitions and capital expenditures, the
incurrence of additional indebtedness and other operational matters and certain
expenditures, and certain prohibitions on the declaration or
15
<PAGE> 16
payment of dividends by the Company. At March 31, 1996 and December 31,
1995, approximately $20.8 million and $4.8 million, respectively, had been
borrowed under the revolving lines of credit and approximately $3.0 million and
$5.1 million, respectively, had been used to support outstanding letters of
credit. At March 31, 1996 and December 31, 1995, $41.7 million and $55.6
million, respectively, was available for additional borrowing under these
credit facilities. The average interest rate under these facilities was 10.22%
for fiscal 1995 and 9.07% for the first three months of 1996.
The Company currently has outstanding $120 million of 10.25% Senior Notes
due 2004, with interest payments due semi-annually in March and September.
Certain subsidiaries of the Company have unconditionally guaranteed the
Company's obligations under the Senior Notes. The Indenture relating to the
Senior Notes contains various customary affirmative and negative covenants
that, among other things, limit the ability of the Company and certain of its
subsidiaries to (i) incur certain additional indebtedness unless the Company's
Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is at
least 2.0 to 1.0, (ii) make dividends, distributions and certain other
restricted payments, (iii) create certain liens, (iv) engage in certain
transactions with its affiliates, (v) engage in sale and leaseback
transactions, (vi) make certain asset dispositions and (vii) merge or
consolidate with, or transfer all or substantially all of its assets to another
person. The Indenture also limits the ability of the Company and certain of
its subsidiaries to issue preferred stock and creates restrictions on the
ability of certain of its subsidiaries to pay dividends and make other
distributions. At March 31, 1996, the Company had the ability under the
indenture to pay dividends and distributions in excess of $138 million.
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS") proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of a joint venture ("COLEVE")
with Columbia Gas Development Corporation. In general, the IRS' proposal seeks
payment of a tax liability of approximately $14.1 million plus accrued interest
thereon, and includes $3.4 million of taxes relating to the proposed
disallowance of certain interest deductions taken by the Company with respect
to COLEVE that was the subject of a similar letter received by the Company in
the fourth quarter of 1993. The tax liability with respect to these matters
has been previously provided for as a deferred tax liability in the Company's
consolidated financial statements. The Company disagrees with the IRS'
position and is currently pursuing its rights of administrative review and
appeal and intends to vigorously contest this matter. Although the resolution
of these remaining issues could affect the timing of the payment of previously
accrued tax liabilities and require the use of a portion of its available
capital, the Company does not believe that the results of the audit or the
ultimate resolution of the IRS' proposed adjustments will have a material
impact on its consolidated results of operations or financial position.
The Company's current sources of capital are cash generated from
operations and borrowings under its working capital lines of credit. The
Company believes that current reserves of cash and short-term investments,
access to existing credit lines and internally generated cash from operations
are sufficient to finance the projected cash requirements of its current
operations.
The Company is continually evaluating new acquisitions with a focus on
proprietary technology and under-utilized assets to enhance operations. Future
acquisitions may be funded through existing cash, cash flow from operations and
other borrowings and financings.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with OCTL pursuant to which OCTL will manufacture drill pipe
and premium tubulars for the company on an exclusive basis at OCTL's plant in
India. The OCTL arrangement is being used by the Company to pursue a strategic
expansion of its sales and operations in the Eastern Hemisphere. The Company
currently expects that its arrangement with OCTL will require an investment
between $20 million and $25 million in 1996, including an $8 million deposit
made by the Company to OCTL in the first quarter. The remainder of such funds
will be used for the purchase of inventory and other working capital
requirements.
16
<PAGE> 17
On May 3, 1996, the Company acquired Enerpro, a manufacturer of premium
threads and thread connections, for approximately 312,000 shares of Common
Stock and the assumption of approximately $3.1 million in indebtedness. The
operations of Enerpro are being combined with the premium thread operations of
the Company's tubular division.
In February 1996, the Company completed the sale of its United States
retail store distribution system for approximately $7.5 million. The Company
received $3 million in cash, a $4 million vendor credit with Continental Emsco
Company for future equipment needs of the Company and a $0.5 million note
receivable. The consideration received in the sale approximated the net book
value of the assets sold, resulting in no material gain or loss.
In addition to funds used to finance acquisitions, capital expenditures by
the Company during the first quarter of 1996 totaled approximately $7.3
million. During 1996, capital expenditures included approximately $3.2 million
for refurbishment of three domestic barge rigs, conversion of a platform rig to
SCR mode and the acquisition of rig moving equipment in Argentina.
Ongoing routine capital expenditures for the remainder of 1996 are
budgeted at approximately $12.9 million. Capital expenditures are expected to
be funded with available cash, cash flow from operations and borrowings under
lines of credit and other facilities.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits Page
----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 to the Registration Statement on
Form S-3; Registration No. 333-03407)
4.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 to the Registration Statement on
Form S-3; Registration No. 333-03407)
10.1 1992 Employee Stock Option Plan, as amended . . . . . . . . . . . . . . . . . . 19
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
</TABLE>
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY VENTURES, INC.
By: /s/ James G. Kiley
--------------------------------------------
James G. Kiley
Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Frances R. Powell
--------------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: May 14, 1996
18
<PAGE> 19
INDEX TO EXHIBITS
10.1 1992 Employee Stock Option Plan, as amended
27 Financial Data Schedule
<PAGE> 1
ENERGY VENTURES, INC.
1992 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. This 1992 Employee Stock Option Plan (the "Plan") of
Energy Ventures, Inc. (the "Company") for certain employees, including officers
and directors, is intended to advance the best interests of the Company by
providing such personnel, who have substantial responsibility for its
management and growth, with additional incentive and by increasing their
proprietary interest in the success of the Company, thereby encouraging them to
remain in its employ.
2. ADMINISTRATION. The Plan shall be administered by a committee
(the "Committee") consisting of three or more members of the Board of Directors
of the Company, all of whom shall be "disinterested persons" as defined in Rule
16b-3 of the Rules and Regulations promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act") or any similar or successor rule. For the
purposes of the Plan, a majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting shall decide any question brought
before that meeting. In addition, the Committee may take any action otherwise
proper under the Plan by the affirmative vote, taken without a meeting, of a
majority of its members. All questions of interpretation and application of
the Plan, or as to options granted hereunder (the "Options"), shall be subject
to the determination, which shall be final and binding, of a majority of the
whole Committee. When appropriate, the Plan shall be administered in order to
qualify certain of the Options granted hereunder as "incentive stock options"
described in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. OPTION SHARES. The stock subject to the Options and other
provisions of the Plan shall be shares of the Company's Common Stock, $1.00 par
value (or such other par value as may be designated by act of the Company's
stockholders) (the "Common Stock"). The total amount of the Common Stock with
respect to which Options may be granted shall not exceed in the aggregate
1,000,000 shares; provided, that the class and aggregate number of shares which
may be subject to the Options granted hereunder shall be subject to adjustment
in accordance with the provisions of Paragraph 16 hereof. Such shares may be
treasury shares or authorized but unissued shares.
In the event that any outstanding Option for any reason shall expire
or terminate by reason of the death or severance of employment of the optionee,
the surrender of any such Option or any other cause, the shares of Common Stock
allocable to the unexercised portion of such Option may again be subject to an
Option under the Plan.
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant the
following options from time to time to such eligible employees of the Company
as it shall from time to time determine:
<PAGE> 2
(a) "INCENTIVE" STOCK OPTIONS. The Committee may grant to
an eligible employee an Option, or Options, to buy a stated number of
shares of Common Stock under the terms and conditions of the Plan, so
that the Option will be an "incentive stock option" within the meaning
of Section 422 of the Code (an "incentive stock option").
(b) "NON-STATUTORY" STOCK OPTIONS. The Committee may grant
to an eligible employee an Option, or Options, to buy a stated number of
shares of Common Stock under the terms and conditions of the Plan, even
though such Option or Options would not constitute an "incentive stock
option" within the meaning of Section 422 of the Code (a "non-statutory
stock option").
Each Option granted shall be approved by the Committee which
shall specify whether each Option constitutes an incentive or non-statutory
stock option. Subject only to any applicable limitations set forth in the
Plan, the number of shares of Common Stock to be covered by any Options shall
be as determined by the Committee.
5. ELIGIBILITY. The individuals who shall be eligible to
participate in the Plan shall be such key employees, including officers and
directors if they are employees, of the Company, or of any parent or subsidiary
corporation, as the Committee shall determine from time to time. However, no
eligible employee who owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the corporation employing the
employee or of its parent or subsidiary corporation shall be eligible to
receive an Option which is an incentive stock option unless at the time that
such Option is granted the Option price is at least one hundred ten percent
(110%) of the fair market value of the Common Stock at the time such Option is
granted and such Option by its own terms is not exercisable after the
expiration of five years from the date such Option is granted. No individual
shall be eligible to receive an Option under the Plan while such individual is
a member of the Committee.
For the purposes of the preceding paragraph, an employee will be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust will be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries. Except
as otherwise provided, for all purposes of the Plan, the term "parent
corporation" shall mean any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, on the date of grant of the
Option in question, each of the corporations other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain; and the
term "subsidiary corporation" shall mean any corporation in an unbroken chain
of corporations, beginning with the Company if, on the date of grant of the
Option in question, each of the corporations, other than the last corporation
in the chain, owns
-2-
<PAGE> 3
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
6. OPTION PRICE. The price at which shares may be
purchased pursuant to an Option, whether it is an incentive stock option or a
non-statutory stock option, shall be not less than the fair market value of the
shares of Common Stock on the date such Option is granted and the Committee in
its discretion may provide that the price at which shares may be so purchased
shall be more than such fair market value. In the case of any eligible
employee described in Paragraph 5 who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
corporation employing the employee or of its parent or subsidiary corporation
(described in Paragraph 5), the option price at which shares may be so
purchased pursuant to any Option which is an incentive stock option granted
hereunder shall be not less than one hundred ten percent (110%) of the fair
market value of the Common Stock on the date such Option is granted.
7. DURATION OF OPTIONS. No Option which is an incentive
stock option shall be exercisable after the expiration of ten years from the
date such Option is granted; and the Committee in its discretion may provide
that such Option shall be exercisable throughout such ten-year period or during
any lesser period of time commencing on or after the date of grant of such
Option and ending upon or before the expiration of such ten-year period. In
the case of any eligible employee who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
corporation employing the employee or of its parent or subsidiary corporation
(described in Paragraph 5), no Option which is an incentive stock option shall
be exercisable after the expiration of 5 years from the date such Option is
granted. No Option which is a non-statutory stock option shall be exercisable
after the expiration of ten years from the date such Option is granted; and the
Committee in its discretion may provide that such Option shall be exercisable
throughout such ten-year period or during any lesser period of time commencing
on or after the date of grant of such Option and ending upon or before the
expiration of such ten-year period.
8. MAXIMUM VALUE OF STOCK SUBJECT TO OPTIONS WHICH ARE
INCENTIVE STOCK OPTIONS. Notwithstanding any other provisions of the Plan to
the contrary, the aggregate fair market value (determined as of the date the
Option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the optionee in any calendar year (under
this Plan and any other incentive stock option plan(s) of the Company and any
parent or subsidiary corporation(s) thereof) shall not exceed $100,000. In
making this determination, Options shall be taken into account in the order in
which they were granted.
9. AMOUNT EXERCISABLE. The agreement with respect to each
Option (whether incentive or non-statutory) shall set forth such terms and
conditions, including vesting, with respect to the exercise of such Option that
are not inconsistent with the Plan and as may be approved by the Committee.
The Committee, in its discretion, may change the terms of exercise so that any
Option may be exercised so long as it is valid and outstanding from time to
time in part or as a whole in such
-3-
<PAGE> 4
manner and subject to such conditions as it may set. In addition, the
Committee, in its discretion, may accelerate the time in which any outstanding
Option may be exercised. But in no event shall any Option be exercisable after
the tenth anniversary of the date of the grant.
10. EXERCISE OF OPTIONS. An optionee may exercise such
optionee's Option by delivering to the Company a written notice stating (i)
that such optionee wishes to exercise such Option on the date such notice is so
delivered, (ii) the number of shares of stock with respect to which such Option
is to be exercised, (iii) the address to which the certificate representing
such shares of stock should be mailed, and (iv) the social security number or
such optionee. In order to be effective, such written notice shall be
accompanied by (i) payment of the Option Price of such shares of stock and (ii)
payment of an amount of money necessary to satisfy any withholding tax
liability that may result from the exercise of such Option. Each such payment
shall be made by cashier's check drawn on a national banking association and
payable to the order of the Company in United States dollars.
If, at the time of receipt by the Company of such written
notice, (i) the Company has unrestricted surplus in an amount not less than the
Option Price of such shares of stock, (ii) all accrued cumulative preferential
dividends and other current preferential dividends on all outstanding shares of
preferred stock of the Company have been fully paid, (iii) the acquisition by
the Company of its own shares of stock for the purpose of enabling such
optionee to exercise such Option is otherwise permitted by applicable law and
without any vote or consent of any stockholder of the Company, and (iv) there
shall have been adopted, and there shall be in full force and effect, a
resolution of the Board of Directors of the Company authorizing the acquisition
by the Company of its own shares of stock for such purpose, then such optionee
may deliver to the Company, in payment of the Option Price of the shares of
stock with respect to which such Option is exercised, (x) certificates
registered in the name of such optionee that represent a number of shares of
stock legally and beneficially owned by such optionee (free of all liens,
claims and encumbrances of every kind) and having a fair market value on the
date of receipt by the Company of such written notice that is not greater than
the Option Price of the shares of stock with respect to which such Option is to
be exercised, such certificates to be accompanied by stock powers duly endorsed
in blank by the record holder of the shares of stock represented by such
certificates, with the signature of such record holder guaranteed by a national
banking association (or in lieu of such certificates, other arrangements for
the transfer of such shares to the Company which are satisfactory to the
Company), and (y) if the Option Price of the shares of stock with respect to
which such Option is to be exercised exceeds such fair market value, a
cashier's check drawn on a national banking association and payable to the
order of the Company in an amount, in United States dollars, equal to the
amount of such excess plus the amount of money necessary to satisfy any
withholding tax liability that may result from the exercise of such Option.
Notwithstanding the provisions of the immediately preceding sentence, the
Committee, in its sole discretion, may refuse to accept shares of stock in
payment of the Option Price of the shares of stock with respect to which such
Option is to be exercised and, in that event, any certificates representing
shares of stock that were received by the Company with such written
-4-
<PAGE> 5
notice shall be returned to such optionee, together with notice by the Company
to such optionee of the refusal of the Committee to accept such shares of
stock. The Company, upon approval of the Committee and in its sole discretion,
upon the request of the optionee, may retain shares of Common Stock which would
otherwise be issued upon exercise of an Option to satisfy any withholding tax
liability that may result from the exercise of such Option, which shares shall
be valued for such purpose at their then fair market value. If, at the
expiration of seven business days after the delivery to such optionee of such
written notice from the Company, such optionee shall not have delivered to the
Company a cashier's check drawn on a national banking association and payable
to the order of the Company in an amount, in United States dollars, equal to
the Option Price of the shares of stock with respect to which such Option is to
be exercised, such written notice from the optionee to the Company shall be
ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of
(i) such written notice from the optionee, (ii) payment, in the form required
by the foregoing provisions of this Paragraph 10, of the Option Price of the
shares of stock with respect to which such Option is to be exercised, and (iii)
payment, in the form required by the foregoing provisions of this Paragraph 10,
of an amount of money necessary to satisfy any withholding tax liability that
may result from the exercise of such Option, a certificate representing the
number of shares of stock with respect to which such Option has been so
exercised, reduced, to the extent applicable by the number of shares retained
by the Company as provided above to pay any required withholding tax, such
certificate to be registered in the name of such optionee, provided that such
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to such optionee at the address specified for
such purpose in such written notice from the optionee to the Company.
For purposes of this Paragraph 10, the "fair market value" of a
share of stock as of any particular date shall mean the closing sale price of a
share of Common Stock on that date as reported by the principal national
securities exchange on which the Common Stock is then listed if the Common
Stock is then listed on a national securities exchange or the average of the
bid and asked price of a share of Common Stock on that date as reported in the
NASDAQ listing if the Common Stock is not then listed on a national securities
exchange, provided that if no such closing price or quotes are so reported on
that date or if, in the discretion of the Committee, another means of
determining the fair market value of a share of stock at such date shall be
necessary or advisable, the Committee may provide for another means for
determining such fair market value.
11. TRANSFERABILITY OF OPTIONS. Options shall not be
transferable by the optionee otherwise than by will or under the laws of
descent and distribution, and shall be exercisable, during his lifetime, only
by him.
12. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except
as may be otherwise expressly provided herein, each Option (whether incentive
or non-statutory), to the extent it shall not previously have been exercised,
shall terminate on the earlier of the date of the expiration of the Option or
one day less
-5-
<PAGE> 6
than three months after the date of the severance, upon severance of the
employment relationship between the Company and the optionee, whether with or
without cause, for any reason other than the death, disability or retirement of
the optionee, during which period the optionee shall be entitled to exercise
the Option in respect of the number of shares that the optionee would have been
entitled to purchase had the optionee exercised the Option on the date of such
severance of employment. Whether authorized leave of absence, or absence on
military or government service, shall constitute severance of the employment
relationship between the Company and the optionee shall be determined by the
Committee at the time thereof.
In the event of severance because of the disability of the
holder of any Option (whether incentive or non-statutory) while in the employ
of the Company and before the date of expiration of such Option, such Option
shall terminate on the earlier of such date of expiration or one year following
the date of such severance because of disability, during which period the
optionee shall be entitled to exercise the Option in respect to the number of
shares that the optionee would have been entitled to purchase had the optionee
exercised the Option on the date of such severance because of disability.
In the event of the death of the holder of any Option (whether
incentive or non-statutory) while in the employ of the Company and before the
date of expiration of such Option, such Option shall terminate on the earlier
of such date of expiration or one year following the date of death. After the
death of the optionee, his executors, administrators or any person or persons
to whom his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the termination of an
Option, to exercise the Option, in respect of the number of shares that the
optionee would have been entitled to purchase if he had exercised the Option on
the day of his death while in employment.
In addition, in the event of the retirement of the holder of any
non-statutory stock option, in accordance with the provisions of the Company's
then existing policies regarding retirement as applied by the Committee, before
the date of expiration of such Option, such Option shall terminate on the
earlier of such date of expiration or one year following the date of such
retirement and, if such optionee should die within the one year period, any
rights he may have to exercise the Option shall be exercisable by his executor
or administrator or the person or persons to whom the Option shall have been
transferred by his will or by the laws of descent or distribution, as
appropriate, for the remainder of the one year period.
For purposes of incentive stock options issued under this Plan,
an employment relationship between the Company and the optionee shall be deemed
to exist during any period in which the optionee is employed by the Company, by
any parent or subsidiary corporation, by a corporation issuing or assuming an
option in a transaction to which Section 424(a) of the Code applies, or by a
parent or subsidiary corporation of such corporation issuing or assuming an
option (and for this purpose, the phrase "corporation issuing or assuming an
option" shall be substituted for the word "Company" in the definitions of
parent and subsidiary corporations specified in Paragraph 5 of this Plan, and
the parent-subsidiary relationship shall be determined
-6-
<PAGE> 7
at the time of the corporate action described in Section 424(a)). For purposes
of non-statutory stock options issued under this Plan, an employment
relationship between the Company and the optionee will exist under the
circumstances described above for incentive stock options and will also exist
if the optionee is transferred to an affiliated corporation approved by the
Committee.
13. REQUIREMENTS OF LAW. The Company shall not be required
to sell or issue any shares under any Option if the issuance of such shares
shall constitute a violation by the optionee or the Company of any provisions
of any law or regulation of any governmental authority. Each Option granted
under the Plan shall be subject to the requirements that, if at any time the
Board of Directors of the Company or the Committee shall determine that the
listing, registration or qualification of the shares subject thereto upon any
securities exchange or under any state or federal law of the United States or
of any other country or governmental subdivision thereof, or the consent or
approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue or
purchase of shares subject thereto, no such Option may be exercised in whole or
in part unless such listing, registration, qualification, consent, approval or
representation shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. If required at any time by the Board of
Directors or the Committee, an Option may not be exercised until the optionee
has delivered an investment letter to the Company. In addition, specifically
in connection with the Securities Act of 1933 (as now in effect or hereafter
amended), upon exercise of any Option, the Company shall not be required to
issue the underlying shares unless the Committee has received evidence
satisfactory to it to the effect that the holder of such Option will not
transfer such shares except pursuant to a registration statement in effect
under such Act or unless an opinion of counsel satisfactory to the Committee
has been received by the Company to the effect that such registration is not
required. Any determination in this connection by the Committee shall be
final, binding and conclusive. In the event the shares issuable on exercise of
an Option are not registered under the Securities Act of 1933, the Company may
imprint on the certificate for such shares the following legend or any other
legend which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws
of any state and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of counsel
satisfactory to the Corporation, in form and substance satisfactory to
the Corporation, that registration is not required for such sale or
transfer."
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) and, in the event any shares are so registered, the Company
may remove any legend on certificates representing such shares. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
-7-
<PAGE> 8
14. NO RIGHTS AS STOCKHOLDER. No optionee shall have
rights as a stockholder with respect to shares covered by his Option until the
date of issuance of a stock certificate for such shares; and, except as
otherwise provided in Paragraph 16 hereof, no adjustment for dividends, or
otherwise, shall be made if the record date therefor is prior to the date of
issuance of such certificate.
15. EMPLOYMENT OBLIGATION. The granting of any Option
shall not impose upon the Company any obligation to employ or continue to
employ any optionee; and the right of the Company to terminate the employment
of any officer or other employee shall not be diminished or affected by reason
of the fact that an Option has been granted to him.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The
existence of outstanding Options shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of
shares or other capital adjustment of, or the payment of a dividend in capital
stock or other equity securities of the Company on, its Common Stock, or other
increase or reduction of the number of shares of the Common Stock without
receiving consideration therefor in money, services, or property, or the
reclassification of its Common Stock, in whole or in part, into other equity
securities of the Company, then (a) the number, class and per share price of
shares of stock subject to outstanding Options hereunder shall be appropriately
adjusted (or in the case of the issuance of other equity securities as a
dividend on, or in a reclassification of, the Common Stock, the Options shall
extend to such other securities) in such a manner as to entitle an optionee to
receive, upon exercise of an Option, for the same aggregate cash consideration,
the same total number and class or classes of shares (or in the case of a
dividend of, or reclassification into, other equity securities, such other
securities) he would have held after such adjustment if he had exercised his
Option in full immediately prior to the event requiring the adjustment, or, if
applicable, the record date for determining stockholders to be affected by such
adjustment; and (b) the number and class of shares then reserved for issuance
under the Plan (or in the case of a dividend of, or reclassification into,
other equity securities, such other securities) shall be adjusted by
substituting for the total number and class of shares of stock then received,
the number and class or classes of shares of stock (or in the case of a
dividend of, or reclassification into, other equity securities, such other
securities) that would have been received by the owner of an equal number of
outstanding shares of Common Stock as a result of the event requiring the
adjustment. Comparable rights shall accrue to each optionee in the event of
successive subdivisions, consolidations, capital adjustments, dividends or
reclassifications of the character described above.
-8-
<PAGE> 9
If the Company shall distribute to all holders of its shares of
Common Stock (including any such distribution made to non-dissenting
stockholders in connection with a consolidation or merger in which the Company
is the surviving corporation and in which holders of shares of Common Stock
continue to hold shares of Common Stock after such merger or consolidation)
evidences of indebtedness or cash or other assets (other than cash dividends
payable out of consolidated retained earnings not in excess of, in any one year
period, the greater of (a) in an amount per share of Common Stock equal to
$1.00 per share of Common Stock (as the same may be adjusted from time to time
by the Board of Directors to reflect the effect of changes in capitalization)
and (b) two times the aggregate amount of dividends per share paid during the
preceding calendar year and dividends or distributions payable in shares of
Common Stock or other equity securities of the Company described in the
immediately preceding paragraph, but including stock or other securities of any
corporation or other entity owned by the Company), then in each case the Option
Price shall be adjusted by reducing the Option Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by the fair market value, as determined in good faith
by the Board of Directors of the Company (whose determination shall be
described in a statement filed in the Company's corporate records and be
available for inspection by any holder of an Option) of the portion of the
evidence of indebtedness or cash or other assets so to be distributed
applicable to one share of Common Stock; provided that in no event shall the
Option Price be less than the par value of a share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of the distribution retroactive to the record date
for the determination of the stockholders entitled to receive such
distribution. Comparable adjustments shall be made in the event of successive
distributions of the character described above.
If the Company shall make a tender offer for, or grant to all of
its holders of its shares of Common Stock the right to require the Company or
any subsidiary of the Company to acquire from such stockholders shares of,
Common Stock, at a price in excess of the Current Market Price (a "Put Right")
or the Company shall grant to all of its holders of its shares of Common Stock
the right to acquire shares of Common Stock for less than the Current Market
Price (a "Purchase Right") then, in the case of a Put Right, the Option Price
shall be adjusted by multiplying the Option Price in effect immediately prior
to the record date for the determination of stockholders entitled to receive
such Put Right by a fraction, the numerator of which shall be the number of
shares of Common Stock then outstanding minus the number of shares of Common
Stock which could be purchased at the Current Market Price for the aggregate
amount which would be paid if all Put Rights are exercised and the denominator
of which is the number of shares of Common Stock which would be outstanding if
all Put Rights are exercised; and, in the case of a Purchase Right, the Option
Price shall be adjusted by multiplying the Option Price in effect immediately
prior to the record date for the determination of the stockholders entitled to
receive such Purchase Right by a fraction, the numerator of which shall be the
number of shares of Common Stock then outstanding plus the number of shares of
Common Stock which could be purchased at the Current Market Price for the
aggregate amount which would be paid if all Purchase Rights are exercised and
the denominator of
-9-
<PAGE> 10
which is the number of shares of Common Stock which would be outstanding if all
Purchase Rights are exercised. In addition, the number of shares subject to
the Option shall be increased by multiplying the number of shares then subject
to the Option by a fraction which is the inverse of the fraction used to adjust
the Option Price. Notwithstanding the foregoing, if any such Put Rights or
Purchase Rights shall terminate without being exercised, the Option Price and
number of shares subject to the Option shall be appropriately readjusted to
reflect the Option Price and number of shares subject to the Option which would
have been in effect if such unexercised Rights had never existed. Comparable
adjustments shall be made in the event of successive transactions of the
character described above.
After the merger of one or more corporations into the Company,
after any consolidation of the Company and any one or more corporations, or
after any other corporate transaction described in Section 424(a) of the Code
in which the Company shall be the surviving corporation, each optionee, at no
additional cost, shall be entitled to receive, upon any exercise of his Option,
in lieu of the number of shares as to which the Option shall then be so
exercised, the number and class of shares of stock or other equity securities
to which the optionee would have been entitled pursuant to the terms of the
agreement of merger or consolidation if at the time of such merger or
consolidation such optionee had been a holder of a number of shares of Common
Stock equal to the number of shares as to which the Option shall then be so
exercised and, if as a result of such merger, consolidation or other
transaction, the holders of Common Stock are not entitled to receive any shares
of Common Stock pursuant to the terms thereof, each optionee, at no additional
cost, shall be entitled to receive, upon exercise of his Option, such other
assets and property, including cash, to which he would have been entitled if at
the time of such merger, consolidation or other transaction he had been the
holder of the number of shares of Common Stock equal to the number of shares as
to which the Option shall then be so exercised. Comparable rights shall accrue
to each optionee in the event of successive mergers or consolidations of the
character described above.
After a merger of the Company into one or more corporations,
after any consolidation of the Company and any one or more corporations, or
after any other corporate transaction described in Section 424(a) of the Code
in which the Company is not the surviving corporation, each optionee shall, at
no additional cost, be entitled, at the option of the surviving corporation,
(i) to have his then existing Option assumed or to have a new option
substituted for the existing Option by the surviving corporation to the
transaction which is then employing him, or a parent or subsidiary of such
corporation, on a basis where the excess of the aggregate fair market value of
the shares subject to the option immediately after the substitution or
assumption over the aggregate option price of such option is equal to the
excess of the aggregate fair market value of all shares subject to the Option
immediately before such substitution or assumption over the aggregate Option
Price of such shares, provided that the shares subject to the new option must
be traded on the New York or American Stock Exchange or quoted on the National
Association of Securities Dealers Automated Quotation System, or (ii) to
receive upon any exercise of his Option, in lieu of the number of shares as to
which the Option shall then be so exercised, the securities, property and other
assets, including cash, to which the Optionee would have been
-10-
<PAGE> 11
entitled pursuant to the terms of the agreement or merger or consolidation or
the agreement giving rise to the other corporate transaction if at the time of
such merger, consolidation or other transaction such optionee had been the
holder of the number of shares of Common Stock equal to the number of shares as
to which the Option shall then be so exercised.
If a corporate transaction described in Section 424(a) of the
Code which involves the Company is to take place and there is to be no
surviving corporation while an Option remains in whole or in part unexercised,
it shall be cancelled by the Board of Directors as of the effective date of any
such corporate transaction but before the date each optionee shall be provided
with a notice of such cancellation and each optionee shall have the right to
exercise such Option in full (without regard to any limitations on exercise set
forth in or imposed by the option agreement pursuant to which such Option was
granted as contemplated by Paragraph 9 of the Plan) to the extent it is then
still unexercised during a 30-day period preceding the effective date of such
corporate transaction.
For purposes of this Paragraph 16, Current Market Price per
share of Common Stock shall mean the closing price of a share of Common Stock
as reported by the principal national securities exchange on which the Common
Stock is then listed if the Common Stock is then listed on a national
securities exchange, or the average bid and asked prices of a share of Common
Stock as reported in the NASDAQ listing if the Common Stock is not then listed
on a national securities exchange, on the trading day immediately preceding the
first trading day on which, as a result of the establishment of a record date
or otherwise, the trading price reflects that an acquiror of Common Stock in
the public market will not participate in or receive the payment of any
applicable dividend or distribution.
Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock then subject to outstanding Options.
17. SUBSTITUTION OPTIONS. Options may be granted under the
Plan from time to time in substitution for stock options held by employees of
other corporations who are about to become employees of the Company, or whose
employer is about to become a parent or subsidiary corporation of the Company,
conditioned in the case of an incentive stock option upon the employee becoming
an employee of the Company or a parent or subsidiary corporation of the
Company, as a result of the merger or consolidation of the Company with another
corporation, or the acquisition by the Company of substantially all the assets
of another corporation, or the acquisition by the Company of at least 50% of
the issued and outstanding stock of another corporation as the result of which
it becomes a subsidiary of the Company. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set forth
in the Plan to such extent as the Board of Directors of the
-11-
<PAGE> 12
Company at the time of grant may deem appropriate to conform, in whole or in
part, to the provisions of the stock options in substitution for which they are
granted, but with respect to stock options which are incentive stock options,
no such variation shall be such as to affect the status of any such substitute
option as an "incentive stock option" under Section 422 of the Code.
18. AMENDMENT OR TERMINATION OF PLAN. The Board of
Directors may modify, revise or terminate the Plan at any time and from time to
time; provided, however, that without the further approval of the holders of
shares representing a majority of the total voting power of the Company at a
meeting of stockholders or by written consent, or if the provisions of the
corporate charter, by-laws or applicable state law prescribes a greater degree
of stockholder approval for this action, without the degree of stockholder
approval thus required, the Board of Directors may not (a) change the aggregate
number of shares which may be issued under Options pursuant to the provisions
of the Plan, (b) extend the term during which an Option may be exercised or the
termination date of the Plan or (c) materially change the class of employees
eligible to receive Options under the Plan; unless, in each such case, the
Board of Directors of the Company shall obtain an opinion of legal counsel to
the effect that stockholder approval of the amendment is not required (i) by
law, (ii) by the applicable rules and regulations of, or any agreement with,
any national securities exchange on which the Common Stock is then listed or if
the Common Stock is not so listed, the rules and regulations, or any agreement
with, the National Association of Securities Dealers, Inc., and (iii) in order
to make available to the optionee with respect to any option granted under the
Plan, the benefits of Rule 16b-3 of the Rules and Regulations under the
Exchange Act, or any similar or successor rule. In addition, the Board shall
have the power to make such changes in the Plan and in the regulations and
administrative provisions hereunder or in any outstanding Option as in the
opinion of counsel for the Company may be necessary or appropriate from time to
time to enable any Option granted pursuant to the Plan to qualify as incentive
stock options under Section 422 of the Code, and the regulations which may be
issued thereunder as in existence from time to time.
19. WRITTEN AGREEMENT. Each Option granted hereunder shall
be embodied in a written option agreement, which shall be subject to the terms
and conditions prescribed above, and shall be signed by the optionee and by the
appropriate officer of the Company for and in the name and on behalf of the
Company. Such an option agreement shall contain such other provisions as the
Committee in its discretion shall deem advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall, to
the fullest extent provided by law, indemnify each present and future member of
the Committee against, and each member of the Committee shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including, without limitation, reasonable attorneys' fees, the amount of
judgments and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his being
or having been a member of the Committee, whether or not he
-12-
<PAGE> 13
continues to be such member of the Committee at the time of incurring such
expenses. The foregoing right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each such member of the Committee and
shall be in addition to all other rights to which such member of the Committee
may be entitled as a matter of law, contract, or otherwise. Nothing in this
Paragraph 20 shall be construed to limit or otherwise affect any right to
indemnification, or payment of expense, or any provisions limiting the
liability of any officer or director of the Company or any member of the
Committee, provided by law, the Certificate of Incorporation of the Company or
otherwise.
21. EFFECTIVE DATE OF PLAN. The Plan shall become
effective and shall be deemed to have been adopted on March 19, 1992, if within
one year of that date it shall have been approved by the holders of voting
stock of the Company representing a majority of the total voting power of the
Company at a meeting of stockholders or by written consent or if the provisions
of the corporate charter, by-laws or applicable state law prescribes a greater
degree of stockholder approval for this action, the approval by the holders of
that percentage, at a meeting of stockholders or by written consent. No Option
shall be granted pursuant to the Plan after March 19, 2002.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 5,924
<SECURITIES> 0
<RECEIVABLES> 99,388
<ALLOWANCES> 654
<INVENTORY> 117,585
<CURRENT-ASSETS> 246,828
<PP&E> 192,988
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 495,895
<CURRENT-LIABILITIES> 99,465
<BONDS> 124,838
<COMMON> 18,542
0
0
<OTHER-SE> 213,860
<TOTAL-LIABILITY-AND-EQUITY> 495,895
<SALES> 110,042<F2>
<TOTAL-REVENUES> 110,042
<CGS> 83,540<F2>
<TOTAL-COSTS> 83,540
<OTHER-EXPENSES> 15,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,973
<INCOME-PRETAX> 6,686
<INCOME-TAX> 2,339
<INCOME-CONTINUING> 4,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,347
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
<F2>These line items include certain amounts related to non-tangible products
(i.e.,) services, however, since the amounts related to services are not
disclosed in the financial statements, the total revenue and CGS figures,
respectively, have been shown on these line items for purposes of this financial
data schedule.
</FN>
</TABLE>
