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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13086
EVI, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2515019
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (713) 297-8400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange in which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 10, 1998, was $2,042,322,630, based upon the closing
price on the New York Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at March 10, 1998
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Common Stock, $1.00 Par Value 47,784,619
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
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PART I
ITEM 1. BUSINESS
GENERAL
EVI, Inc., a Delaware corporation (together with its subsidiaries, the
"Company"), is an international manufacturer and supplier of engineered oilfield
tools and equipment. The Company's products are used for the drilling,
completion and production phases of oil and natural gas wells. The Company has
grown substantially through the years through a process of selected acquisitions
and internal development designed to take advantage of the consolidation in the
oil and gas service industry. Acquisitions have focused on the acquisitions of
named brand products, the development of complete product lines and savings
through consolidation. International development has focused on product
development and geographic deployment.
The Company's product lines are divided into a drilling products segment
consisting of drill pipe, premium tubulars and marine connectors, and a
production equipment segment consisting of completion and artificial lift
equipment. The Company's principal products consist of drill pipe and drilling
tools, premium connectors and associated high grade tubulars, marine connectors,
packers and completion tools and artificial lift systems. The Company's growth
strategy has resulted in the Company becoming the largest manufacturer of drill
pipe in the world, the largest provider of premium tubular connectors in North
America and one of the largest providers of artificial lift equipment in the
world. The production equipment segment designs, manufactures and services
artificial lift and completion equipment. To the Company's knowledge, none of
its competitors has as broad a product line of artificial lift equipment.
RECENT DEVELOPMENTS
On March 4, 1998, the Company entered into an Agreement and Plan of Merger
with Weatherford Enterra, Inc. ("Weatherford") providing for the merger of
Weatherford with and into the Company pursuant to an expected tax free merger
(the "Merger") in which the stockholders of Weatherford will receive 0.95 of a
share of the Company's common stock, $1.00 par value ("Common Stock"), in
exchange for each outstanding share of Weatherford common stock, $0.10 par value
("Weatherford common stock"). The Company will be the surviving corporation and
will be renamed EVI Weatherford, Inc.
Weatherford is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the exploration,
production and transmission sectors of the oil and gas industry. Weatherford
operates in three industry segments consisting of oilfield services, oilfield
products and gas compression. The acquisition of Weatherford is being proposed
to further the Company's strategy of taking advantage of opportunities in the
oilfield service industry, more particularly its well construction and
production life cycle segments. The Company believes that the combination of the
Company's broad range of completion and artificial lift products with
Weatherford's international oilfield service infrastructure and reputation
should provide the combined entity with a firm foundation for growth. The Merger
also is being pursued by the Company to (i) provide the Company with a greater
and more diversified line of products and services to serve its customers'
needs, (ii) expand the Company's international presence and (iii) provide the
Company with benefits through product leveraging and consolidation savings.
The Weatherford Merger is subject to various conditions, including approval
by the stockholders of both the Company and Weatherford and the receipt of all
required regulatory approvals and the expiration or termination of all waiting
periods (and extensions thereof) under the Hart-Scott-Rodino Act. Although there
can be no assurance that the Merger will close, the Company currently
anticipates that the Merger will be consummated shortly after the receipt of
such regulatory approvals and the approval of the Merger by the stockholders of
the Company and Weatherford.
DRILLING PRODUCTS SEGMENT
The Company's drilling products are comprised of drill pipe and drilling
tools, premium connectors and associated high grade tubulars and marine
connectors provided through its Grant Prideco drilling products segment. Grant
Prideco manufactures and markets three separate and distinct product lines: (i)
drill pipe and related drilling products, (ii) the Atlas Bradford(TM) and TCA(R)
lines of premium tubulars and premium engineered connections and (iii) XL marine
connectors and related accessories.
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Grant Prideco operates through 22 manufacturing facilities, with 16 in the
U.S. and one location each in Canada, Scotland, Singapore, India, (through an
exclusive manufacturing arrangement with Oil Country Tubular Limited ("OCTL")),
the Netherlands and Mexico. Grant Prideco also has over 90 worldwide licensed
manufacturing and repair locations. Grant Prideco markets its product lines
through ten technical support sales offices and a worldwide network of agents
and suppliers.
Grant Prideco's products are designed and engineered for high performance
applications. Drill pipe, as well as drill collars, heavy weights and kellys,
serve as the principal mechanical drilling tools used to drill an oil or natural
gas well. These products constitute all components of the drill stem used to
drill a well from the rig to the drill bit. Grant Prideco's production tubulars
are primarily premium tubing, casing and connections. Grant Prideco is the
largest manufacturer and supplier of drill pipe in the world and the largest
manufacturer of premium tubulars in North America.
Drill Pipe. Drill pipe is manufactured within specific metallurgical and
engineering guidelines to meet stringent requirements necessary for its use in
the drilling of oil and natural gas wells. Drill pipe must be designed and
manufactured to provide a reliable connection from the drilling rig to the drill
bit thousands of feet below the surface. Grant Prideco's drill pipe product line
consists primarily of specialty pipe that is marketed under the H-Series trade
name. Grant Prideco owns a number of patents on tool joint design and drill pipe
manufacturing processes and has licensed a number of foreign drill pipe
manufacturers to use Grant Prideco's H-Series patents and technologies. The
demand for the Company's drill pipe is dependent on the level of domestic and
international drilling activity, which in turn is affected by prevailing oil and
natural gas prices. In recent years, demand for these products has substantially
increased as a result of a reduction in worldwide inventory of used drill pipe
and related equipment. Demand has also grown due to the increase in directional,
deep and horizontal drilling activities. These methods of drilling increase the
wear on drill pipe and related tools. This trend significantly heightens
performance requirements and in turn increases the need for the technological
capabilities of the Company's products.
Customers for drill pipe and other drilling tools consist primarily of
major oil and natural gas companies and drilling contractors who consider drill
pipe to be a material portion of their overall drilling costs. Accordingly,
purchasing decisions are sensitive to price, quality, operational needs and
fluctuations in oil and natural gas prices.
Drill Collars and Heavyweights. Drill collars are the components of the
drill stem generally located directly above the drill bit in a vertical well. A
drill collar is machined from a solid steel bar and is used to provide weight on
the drill bit. Grant Prideco's heavyweight drill pipe is a seamless tubular
product that is less rigid than a drill collar and provides a transitional zone
between the drill collar in a vertical well and the more flexible drill pipe.
Heavyweight drill pipe also serves to apply weight to the drill bit in a
directional well.
Premium Tubulars and Connections. Grant Prideco's premium tubular product
line consists of premium tubing, liner, casing and premium engineered
connections that are used for the production of oil and natural gas in harsh
downhole environments. Typically harsh conditions are found in offshore and deep
natural gas wells, where pressure, temperature and corrosive elements are
extreme. The need for premium products particularly applies to deep water wells.
The term "premium" refers to seamless tubulars with high alloy chemistry,
specific molecular structure and highly engineered connections. Although all
aspects of premium tubulars have high engineering specifications, the
connections have the most critical technological criteria.
The Company's premium tubulars, whether casing or tubing, are designed and
engineered to withstand deep, high pressure, high temperature and highly
corrosive well environments. Premium tubulars are generally used in deep natural
gas and offshore wells. The product line is marketed under the trade names Atlas
Bradford(TM) and TCA(R) and utilizes a number of proprietary and patented
processes for threading and manufacturing premium tubulars. Atlas Bradford was a
pioneer in the development of high performance connections for premium tubulars.
The Company's premium engineered connections are marketed in conjunction with
Grant Prideco's premium tubular product lines in order to provide its customers
with a complete product. Premium tubulars, like the lower performance variety
known as API tubulars, are made up of casing and tubing. These products line the
walls of a wellbore and serve as a conduit for hydrocarbons up the wellbore, as
well as maintain the integrity of a wellbore. The Company manufactures a wide
range of sizes and types of premium casing. Grant Prideco's casing products
include larger outside diameter, high performance seamless casing for critical
service applications.
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Marine Connectors. The Company added a full line of marine connectors and
related products in 1997. The Company's marine connector product line consists
of downhole conductors for offshore applications. Conductors are used to define
the original architecture of an offshore well and support subsea wellhead
equipment. The Company believes that its XLS(TM) and XLC(TM) technologies have
unique technological capabilities for reliability, cost effectiveness and
operational timesaving features. The market for marine connectors is dependent
on the industry's offshore activity and, like the demand for the Company's
premium tubular product lines, is substantially dependent on the development of
the deep water drilling market.
Sales and Backlog. Total sales of drill pipe, which have in recent years
represented the largest part of sales in the drilling products segment, for the
years ended December 31, 1997, 1996 and 1995 were $249.7 million, $156.5
million, $87.2 million, respectively, representing approximately 28%, 33%, and
32% of the Company's total sales, respectively. The sales backlog for drill pipe
and other drilling and tubular products at December 31, 1997, totaled
approximately $360.0 million, approximately 90% of which is expected to be
shipped during 1998 and the remaining backlog in the first quarter of 1999.
Competition. Competition for the Company's drilling and tubular products is
based on price, quality and service. The market for the Company's drill pipe is
essentially worldwide and the Company competes with four large international and
domestic manufacturers, some of whom are licensees of the Company, various
smaller foreign and domestic fabricators and various manufacturers in China and
the Commonwealth of Independent States ("CIS"). Other large domestic and
international manufacturers not currently in the market also have the ability to
compete with the Company. Market conditions for drill pipe have significantly
improved over the past two years with the decline in excess inventories of used
pipe and the associated increase in demand for new drill pipe. This improvement
has resulted in higher sales, prices and margins.
In the U.S., the Company competes with four major manufacturers of premium
tubulars and connections. Competitors include large domestic and foreign
corporations and small specialty manufacturers. Internationally, the Company
competes with five manufacturers of premium tubulars and connections. Many of
the Company's competitors have greater financial resources than the Company.
The market for premium casing is limited to some extent by transportation
costs. As a result, the Company's sales of these products have primarily been
concentrated in North and South America. The Company's exclusive manufacturing
arrangement with OCTL has added the Eastern Hemisphere markets to the Company's
markets for casing. The Company currently competes with four large manufacturers
for engineered premium connections and with the integrated steel mills and
various other large providers for semifinished casing. Casing may also be
manufactured by the integrated steel mills that provide the green tubing for the
tubular products manufactured by the Company.
Raw Materials. The Company uses plain-end green steel tubing stock and
forging billets as raw material in the manufacturing of drill pipe, casing and
premium tubing. The primary raw material for drill collars is solid steel bars.
Heavyweight drill pipe is manufactured from heavy walled tubular products. The
Company's suppliers are major domestic and international steel mills. The
Company has established relations with several domestic and foreign mill sources
that provide a competitive availability of green tubing stock supplies. A
disruption in supply from these mills could result in delays in manufacturing as
alternative sources of supply are secured.
Facilities. The Company's drill pipe and premium tubulars are manufactured
at 13 locations in Texas, two locations in Louisiana and one location each in
Oklahoma, Canada, Scotland, Mexico, the Netherlands, Singapore and (through
OCTL) India. The Company continues to focus on product development and
manufacturing efficiencies. The Company also has sales offices in Houston and
Dallas, Texas; New Orleans, Louisiana; Abu Dhabi, United Arab Emirates;
Aberdeen, Scotland; Moscow, Russia; Caracas, Venezuela; The Hague, The
Netherlands; Kuala Lumpur, Malaysia; Shanghai, China; and Calgary and Edmonton,
Canada.
Customers. The customers for the Company's drilling and other tubular
products include both domestic and international oil and natural gas companies,
drilling contractors and distributors of oilfield supplies. Because the
Company's drilling and other tubular products are designed primarily for
drilling and production in deep wells and harsh environments, they are generally
used in connection with the exploration and production of natural gas and
international exploration. Accordingly, sales of these products are sensitive to
fluctuations in the price outlook for natural gas and related levels of
exploration activity.
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PRODUCTION EQUIPMENT SEGMENT
The Company's EVI Oil Tools division designs, manufactures and services
artificial lift and completion tools. The Company's artificial lift product line
consists of rod lift, progressing cavity lift, hydraulic lift and gas lift
equipment. This product line utilizes patented and proprietary technology and is
fully integrated from the downhole tools to the above ground equipment. To the
Company's knowledge, none of its competitors has as broad a product line of
artificial lift equipment. The Company's completion products include a full line
of packers, completion systems, flow control equipment, inflatable packers and
well screens and service tools. EVI Oil Tools provides products and services in
124 locations in the U.S., 80 locations in Canada, nine locations in Argentina,
four locations in Venezuela, five locations in Brazil, two in the United Kingdom
and one location each in Ecuador, Barbados, Russia, France, Singapore, Indonesia
and Austria.
Artificial Lift. The Company's artificial lift equipment includes a
complete line of downhole pumps, sucker rods, surface pump drive units,
hydraulic lifts, gas lift equipment and progressing cavity pumps. The Company's
downhole pumps consist of both progressing cavity pumps and rod pumps. The
Company's sucker rod line is comprised of both traditional sucker rods and the
Company's unique patented continuous sucker rod. The Company's surface drive
pumping units consist of the Company's unique RotaFlex(R) mechanical,
long-stroke surface drive pump unit, Rotalift drive heads and traditional
pumpjacks. With the acquisition of Trico Industries, Inc. ("Trico") in December
1997, the Company added over 45 distribution centers in the U.S. servicing rod
pumps and sucker rod product lines. The Company believes that EVI Oil Tools is
among the largest manufacturers of rod lift equipment in the world and provides
the only integrated product line in this class of lift from the above-ground
equipment to the tools submersed in the producing reservoir.
Artificial lift is used for recovering oil from maturing fields that lack
sufficient pressure to flow under their own power. Artificial lift technologies
include rod lift, electrical submersible lift, gas lift and hydraulic lift. The
Company's artificial lift equipment emphasizes rod lift products and utilizes
various proprietary and patented technology. Rod lift is a form of artificial
lift technology in which oil is recovered through a suction process utilizing an
above ground drive system connected to sucker rods to a downhole pump placed in
the reservoir. Rod lift is particularly suited for oil wells with depths of up
to 10,000 feet or production rates of 1,000 barrels per day. The Company
currently estimates that rod lift represents approximately 50% of the total
artificial lift market in the world. Gas lift is generally the desirable form of
artificial lift when natural gas is produced with oil or is available from
nearby wells for injection.
The Company's downhole pumps consist of progressing cavity pumps and
reciprocating pumps. Progressing cavity pumps lift oil by using a rotating
motion and elastomer lined cavities. Reciprocating pumps lift oil by using a
vertical motion and a set of mechanical valves. Both types of pumps are
connected to the above ground pump drive system by either traditional coupled
rods or the Company's continuous sucker rods. The Company produces a complete
line of progressing cavity pumps using proprietary hydraulic gear boxes and
patented vertical electric drives. The Company's progressing cavity pumps are
particularly suited for shallow to medium wells with high volumes of produced
water, low gravity crude or sandy conditions. In December 1997, the Company
acquired BMW Pump, Inc. ("BMW Pump") and BMW Monarch (Lloydminster) Ltd. ("BMW
Monarch"). BMW Pump expanded the Company's line of progressing cavity pumps and
allowed for consolidation of the Company's and BMW Pump's manufacturing and
engineering operations. The Company is currently in the process of consolidating
BMW Monarch's marketing and servicing operations in Canada with the Company's
previously existing operations. In December 1996, the Company entered into a
license and technology transfer agreement with Netzsch-Mohnopumpen
Betelieligungs GMBH & CO. KG ("Netzsch") pursuant to which the Company was
provided with an exclusive license to manufacture in Canada rotors and stators
utilizing technology currently owned by Netzsch. This transfer also included
assistance in the design and construction of a new manufacturing facility for
progressing cavity pumps in Canada, which is expected to commence operations in
the second quarter of 1998.
With the acquisition of Trico, the Company added a full line of hydraulic
lift systems to its line of artificial lift products. Hydraulic lift is a
specialty technology that addresses high volume wells typically in deviated
configurations. Trico is the largest manufacturer of hydraulic lift systems in
the world, and Trico's hydraulic lift technology further enhances the Company's
ability to provide its clients with a complete line of artificial lift
solutions.
The Company manufactures three types of above ground pump drive systems,
the Company's unique patented RotaFlex(R) system, the traditional pumpjack
system and Rotalift drive heads. RotaFlex(R) is a 100% mechanical, long-stroke
surface drive pump unit that is used to artificially lift oil from deep or high
volume wells as opposed to low volume stripper wells. The Company believes that
the RotaFlex(R) system is over 20% more efficient than the traditional
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pumpjack system that is used for lower volume wells. The Company also
manufactures traditional pumpjack units for lower volume wells through its
Griffin Legrand and Ampscot units, the product lines of which are in the process
of being consolidated. Rotalift drive heads are used in conjunction with
progressing cavity pumps. The Company's RotaFlex(R) system and traditional
pumpjack systems compete with the traditional pumping units primarily
manufactured by Lufkin Industries. The Company believes it is the second largest
manufacturer of above ground pump drive systems in the world.
The Company's sucker rods consist of both traditional sucker rods, which
require a coupling every 25 to 30 feet, and the Company's unique continuous
sucker rod. A sucker rod is an integral part of a rod pump system and is used to
connect the surface drive unit of an oil well, such as the Company's RotaFlex(R)
system or a traditional pumpjack drive system, to a subsurface pump.
In January 1998, the Company acquired Taro Industries Limited ("Taro").
This acquisition further enhanced the Company's line of artificial lifting
technology, through the addition of expertise in the areas of memory probes and
optimizers, both hardware and software. These products are critical to providing
well automation for artificial lift. The Company is utilizing this technology in
conjunction with its McAllister and Northlander variable speed drive technology
and equipment to develop an "intelligent" artificial lift system and more
particularly an automated progressing cavity pump.
Completion Equipment. EVI Oil Tools' completion products are used in the
completion phase and throughout the production life of oil and gas wells. The
Company's completion line includes packers, completion systems, flow control
equipment, inflatable packers, well screens and service tools. The Company's
completion product line has been significantly expanded with the Company's Arrow
Completion Systems ("Arrow") and its recent addition of McAllister lines of
completion products. The recent acquisition of Houston Well Screen provided the
Company with a complete line of downhole sand control screens. The scope of the
Company's product line allows it to cover a large range of complex completion
and production needs.
Packers are used in the completion and production of oil and gas wells.
Packers maintain the separation between productive zones and seal off the space
between the tubing and casing. EVI Oil Tools' flow control equipment and service
tools are used for a variety of applications from the initial completion of an
oil or natural gas well to the workover and recompletion of an existing well.
Sand control screens reduce or eliminate sand production from the wellbore,
which extends the life of other production equipment and the producing
reservoir.
Sales and Backlog. Total sales of artificial lift equipment, which
represents the largest part of sales in the production equipment segment, for
the year ended December 31, 1997, 1996 and 1995 were $208.2 million, $116.0
million and $97.9 million, respectively, representing 23%, 24% and 36% of the
Company's total sales, respectively. Backlog of production equipment is
generally not considered to be a meaningful indication of future sales or
results due to the nature of the business.
Competition. EVI Oil Tools distinguishes itself from its competitors in
that it has a fully integrated product line. EVI Oil Tools' integrated product
line offers all artificial lift equipment from the wellhead to the reservoir. To
the Company's knowledge, none of its competitors has as broad a product line.
The Company also believes that growth in the production and completion phase of
the industry will be based in large part on technical innovation as customers
seek more efficient ways to produce oil and natural gas. The Company is
addressing this need through acquisitions of technologically innovative
companies and product lines, as well as through internal development.
The market for artificial lift and completion equipment is very
competitive. Competition is based on product design and quality, ability to meet
delivery requirements and pricing. The Company's pumping units compete primarily
with the conventional pumping units manufactured by Lufkin Industries. The
Company's continuous sucker rods compete with conventional sucker rods, which
are manufactured and sold by both EVI Oil Tools and a number of domestic and
foreign competitors. The Company's packers compete with packers manufactured by
two large manufacturing companies, as well as various smaller specialty and
commodity manufacturers. The Company's gas lift products compete with two large
manufacturing companies as well as various smaller domestic and foreign
producers. There are three major competitors for the Company's flow control
products and service tools. The Company's progressing cavity pumps compete with
various large manufacturers and distributors of progressing cavity pumps and
pump components and various smaller companies. The Company has identified in the
industry six large competitors that individually have significant shares of the
entire artificial lift equipment market (inclusive of all forms of lift).
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Raw Materials. EVI Oil Tools purchases a variety of raw materials for its
manufacturing operations and a variety of parts and components fabricated by
other manufacturers and suppliers. EVI Oil Tools is not dependent on any single
source of supply for any of its raw materials and components. A loss of one or
more of its suppliers could, however, disrupt production.
Facilities. The Company manufactures artificial lift and completion
products at six locations in Texas, one location in Louisiana, one location in
Oklahoma, one location in New Mexico, one location in Wyoming, seven locations
in Canada, one location in Austria, one location in Singapore, two locations in
Argentina and three locations in Brazil.
Customers. EVI Oil Tools' products and services are designed primarily for
oil production from maturing fields. Demand is, therefore, not significantly
affected by short-term changes in exploration and drilling activity. The Company
believes that the crude oil production side of the industry is a growing market
for artificial lift products in that there is an increasing need for artificial
lift to aid production as oil fields mature worldwide. However, low oil prices
may reduce demand for EVI Oil Tools' products due to reduced capital
expenditures by customers and decisions by customers not to pursue additional
work on marginal wells. With the recent declines in the price of oil, the
Company has experienced a softening in demand for various of EVI Oil Tools'
products.
Currently, most of the Company's artificial lift equipment is sold in the
United States, Canada and South America. Approximately 22%, 22% and 12% of the
Company's revenues from the sale of artificial lift and completion products for
1997, 1996 and 1995, respectively, were derived from sales provided outside the
United States and Canada.
MARKET TRENDS
The demand for the Company's drilling products is particularly affected by
the price of natural gas and the level of oil and gas exploration activity,
while the demand for the Company's production equipment is directly dependent on
oil production activity. Exploration and production activities are also affected
by worldwide economic conditions, supply and demand for oil and natural gas,
seasonal trends and the political stability of oil producing countries.
The oil and gas industry has been substantially volatile over the years,
due in large part to volatility in the prevailing prices of oil and natural gas.
In 1996 and much of 1997, the oil and gas service industry experienced a general
improvement in product demand and pricing as relatively stable and improved oil
and or natural gas prices combined with a strong world economy to increase
exploration and development activity worldwide. This trend, together with a
decline in the worldwide inventory of used drill pipe, benefited the Company and
its results in 1997 and 1996.
In recent months, the worldwide price of oil has declined, with prices
having dropped as much as 40% to under $13 per barrel for spot deliveries and
prices for natural gas have weakened slightly on a year to year basis. These
declines have been attributed to, among other things, an excess supply of oil in
the world markets, reduced domestic demand associated with an unseasonably warm
winter and the potential for lower worldwide demand due to the impact of the
economic downturn in Southeast Asia. As prices for oil have continued to
decline, the Company and others in the industry have begun to experience a
softening in demand for their products and services, in particular products
associated with exploration activity and oil production. Although the Company's
backlog for drill pipe remains strong and the softening of the market has mainly
impacted demand for products associated with the production of heavy oil and oil
from marginal wells, a prolonged period of low price oil can be expected to
adversely affect the demand throughout the industry, including those products
manufactured by the Company. In such a case, the Company's revenues and income
could be expected to be similarly affected.
Although the short-term outlook in the industry remains uncertain, absent a
significant downturn in the U.S. and world economies, the Company believes that
market conditions in the industry should improve over the long term as the
demand and supply balance becomes more inline. The timing of such recovery,
however, cannot be predicted with certainty.
PATENTS
The Company's drilling products and production equipment segments utilize
various patents and proprietary technology in the manufacture of their products.
The Company has sought to obtain through acquisitions and internal development
drilling and production technology to address the needs of its customers and
provide innovative solutions. Although the Company considers its patents
important to the operation of its business and a loss of one or more patents
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could adversely affect a particular product, the Company relies in large part on
its proprietary technology and the importance of customer qualification and
acceptance of its products. As a result, the Company does not believe that any
significant portion of its business is materially dependent upon any single
patent or group of patents or generally upon patent protection.
INSURANCE
The Company is required to carry workers' compensation insurance to comply
with state laws and customer requirements. The Company is partially self-insured
for employee health insurance claims and certain workers' compensation claims.
The Company also maintains political risk insurance to insure against certain
risks of doing business in foreign countries.
Although the Company maintains product liability insurance with respect to
its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.
The cost of insurance is subject to substantial fluctuation due to a
variety of factors, some of which are beyond the Company's control. Although the
Company has generally been able to obtain insurance on terms it considers to be
reasonable, there can be no assurance that such insurance will continue to be
available on terms as favorable as those for its existing arrangements. Any
increase in the number or amount of claims or losses could require greater cash
payments and reserves by the Company and could result in the Company having
higher rates, deductibles and retainers for its insurance coverage.
There can be no assurance that the Company's coverage is adequate for the
risks involved, that the coverage limits would not be exceeded or that such
insurance would apply to all such liabilities. Further, there can be no
assurance that such insurance will be sufficient to cover any future losses or
will continue to be available on commercially reasonable terms. Additionally,
insurance cannot provide complete protection against casualty losses. The
occurrence of an adverse claim in excess of the coverage limits maintained by
the Company could have a material adverse effect on the Company's financial
condition and results of operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and natural gas for economic, environmental and other policy
reasons may adversely affect the Company's operations by limiting available
drilling and other opportunities in the energy service industry. The Company is
also subject to various health and safety regulations as established by the
Occupational Safety and Health Administration.
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into or otherwise relating to
the protection of the environment. In recent years, laws and regulations
protecting the environment have generally become more stringent and have sought
to impose greater liability on a larger number of potentially responsible
parties. However, the Company is not currently aware of any situation or
condition that it believes is likely to have a material adverse effect on its
results of operations or financial condition.
The Company's expenditures in 1997 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1998 will not be
material. The Company does not believe that its costs for compliance with
applicable environmental laws and regulations are, on a relative basis, greater
than that of its competitors.
FOREIGN OPERATIONS
The Company's equipment and services are used in approximately 61 countries
by U.S. customers operating abroad and by foreign customers. Sales of equipment
and services outside the U.S. accounted for approximately 51%, 51% and 46% of
total revenues for 1997, 1996 and 1995, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to the
customer by the Company. See Note 14 to the Consolidated Financial Statements of
the Company for financial information related to the Company's revenues by
geographic region.
8
<PAGE> 9
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.
The Company has drill pipe and other products manufactured for it by OCTL
in India under a long-term exclusive manufacturing arrangement with OCTL.
Although the Company has sought to minimize the risks of this operation through
its manufacturing arrangement and insurance, the Company is providing OCTL with
a substantial amount of raw materials and inventory for the products
manufactured by it. Operations in India are subject to various political and
economic risks as well as financial risks with respect to OCTL.
The Company's operations in Singapore, Mexico, Brazil, Venezuela and
Argentina are subject to various political and economic conditions existing in
them which could disrupt operations. The Company generally seeks to obtain,
where economical, insurance against certain political risks and attempts to
structure its contracts and arrangements in the foreign countries in which it
operates in a manner that would minimize the exposure of its assets to losses in
those countries. Such efforts include structuring its sales and service
contracts to be in U.S. dollars where practical and where feasible or desirable
utilizing lease arrangements, manufacturing and distribution alliances and joint
ventures for foreign manufacturing facilities. Although the Company believes
that its exposure to foreign risks is not materially greater than that of its
competitors, there can be no assurance that disruptions will not occur in the
Company's foreign operations or that any losses that do occur will be covered by
insurance.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 7,200
employees. The Company considers its relations with its employees to be
generally satisfactory.
RISK FACTORS
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Actual results could differ materially from those projected or
contemplated in the forward-looking statements as a result of certain of the
risk factors set forth below and incorporated by reference. In addition to the
other information contained herein, the following risk factors should be
considered carefully.
OPERATING RISKS AND INSURANCE
The Company's products are used for the exploration and production of oil
and natural gas. Such operations are subject to hazards inherent in the oil and
gas industry, such as fires, explosions, craterings, blowouts and oil spills,
that can cause personal injury or loss of life, damage to or destruction of
property, equipment, the environment and marine life, and suspension of
operations. Litigation arising from an occurrence at a location where the
Company's products or services are used or provided may in the future result in
the Company being named as a defendant in lawsuits asserting potentially large
claims.
The Company maintains insurance coverage that it believes to be customary
in the industry against these hazards and, whenever possible, obtains agreements
from customers providing for indemnification against liability to others.
However, insurance and indemnification agreements may not provide complete
protection against casualty losses. There can be no assurance that the Company
will be able to maintain adequate insurance in the future at rates it considers
reasonable. Further, there can be no assurance that insurance will continue to
be available on terms as favorable as those for its existing arrangements. The
occurrence of an adverse claim in excess of the coverage limits maintained by
the Company could have a material adverse effect on the Company's financial
condition and results of operations.
9
<PAGE> 10
RISKS OF ENVIRONMENTAL COSTS AND LIABILITIES
The Company's operations are subject to governmental laws and regulations
relating to the protection of the environment and to public health and safety.
The regulations applicable to the Company's operations include certain
regulations controlling the discharge of materials into the environment,
requiring removal or remediation of pollutants and imposing civil and criminal
penalties for violations. Some of the statutory and regulatory programs that
apply to the Company's operations also authorize private suits, the recovery of
natural resource damages by the government, injunctive relief and cease and
desist orders.
Laws and regulations protecting the environment have generally become
more stringent in recent years and could become more stringent in the future.
Some environmental statutes impose strict liability, rendering a person or
entity liable for environmental damage without regard to negligence or fault, on
the part of such person or entity. As a result, the Company could be liable,
under certain circumstances, for environmental damage caused by others or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed.
SUBSTANTIAL COMPETITION
Competition in the oilfield service and equipment segments of the oil and
gas industry is intense and, in certain markets, is dominated by a small number
of large competitors, many of which have greater financial and other resources
than the Company.
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<PAGE> 11
ITEM 2. PROPERTIES
The principal offices of the Company and facilities used by the Company in
its drilling products and production equipment segments are set forth in the
table below:
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ. FT.) (ACRES) TENURE UTILIZATION
- ------------------------------ ----------- ---------- ---------- --------------------------------------------
<S> <C> <C> <C> <C>
DRILLING PRODUCTS:
Navasota, Texas............... 251,600 182.80 Owned Manufacture drill pipe, premium threaded
casing, liners and tubing
Veracruz, Mexico.............. 214,000 42.00 Leased Manufacture tool joints
Muskogee, Oklahoma............ 163,000 97.00 Owned Manufacture TCA premium casing
Houston, Texas................ 148,500 20.00 Leased Manufacture of AB connectors
104,100 21.90 Owned Manufacture of API and premium threaded
couplings
68,500 13.50 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
Bryan, Texas.................. 160,000 55.30 Owned Manufacture premium tubing
Edmonton, Alberta, Canada..... 106,900 10.20 Owned Manufacture drill pipe, premium threaded
casing, liners and tubing
Houma, Louisiana.............. 85,000 9.40 Owned Manufacture downhole accessories
Beaumont, Texas............... 22,400 40.00 Owned Threading of conductor casing
PRODUCTION EQUIPMENT:
San Marcos, Texas............. 140,000 78.00 Owned Manufacture of rod pumps and hydraulic pumps
Woodward, Oklahoma............ 138,800 53.00 Leased Manufacture sucker rod pumps
Greenville, Texas............. 100,000 26.00 Owned Manufacture of sucker rods, couplings,
stabilizer bars and pump parts
Odessa, Texas................. 99,200 7.20 Owned Manufacture of RotaFlex(R) pumping units
Sao Leopoldo, Brazil.......... 86,100 17.00 Owned Manufacture progressing cavity pumps
Huntsville, Texas............. 81,700 12.00 Owned Manufacture downhole packers and completion
systems
Houston, Texas................ 81,000 6.50 Owned Manufacture of steel filter screens
Nisku, Alberta, Canada........ 74,000 8.00 Leased Manufacture of pumpjacks
Caxias do Sul, Brazil......... 62,400 6.00 Leased Manufacture downhole packers and completion
systems
Longview, Texas............... 47,000 22.10 Owned Manufacture pump barrels and plungers
Lloydminster, Alberta,
Canada..................... 47,000 2.70 Owned Manufacture progressing cavity pumps
Santa Teresa, New Mexico...... 43,000 7.50 Owned Manufacture sucker rods
Edmonton, Alberta, Canada..... 42,000 11.00 Owned Manufacture of progressing cavity pumps and
continuous sucker rods
Cochrane, Alberta, Canada..... 41,200 1.90 Owned Manufacture of natural gas compression
systems
Calgary, Alberta, Canada...... 20,800 1.20 Owned Manufacture of inflatable
packers/electronic temperature and pressure
instrumentation
Midland, Texas................ 30,000 3.00 Owned Manufacture and repair pumping unit parts
Neuquen, Argentina............ 23,700 1.60 Owned Manufacture of packers
CORPORATE:
Houston, Texas................ 17,400 -- Leased Company's principal offices
</TABLE>
In addition to the above facilities, the Company has an agreement with OCTL
pursuant to which OCTL's manufacturing facility in Narketpally, India is
dedicated by OCTL to the production of drill pipe and other tubular products
exclusively for the Company. This facility is owned by OCTL and consists of
262,000 sq. ft. located on 60 acres.
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<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known to the Company, it
believes that the ultimate liability, if any, which may result from these
disputes, claims and litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage. See Note 10 to Consolidated
Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1997, to a vote of stockholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "EVI". As of March 10, 1998, there were 1,479
stockholders of record. The following table sets forth, for the periods
indicated, the range of high and low sale prices per share for the Common Stock
as reported on the NYSE. In May 1997, the Company's stockholders approved a
two-for-one stock split of the Common Stock. As a result, all prices have been
restated to reflect the two-for-one stock split.
<TABLE>
<CAPTION>
PRICE
------------------
HIGH LOW
------- -------
<S> <C> <C>
Year ending December 31, 1997
First Quarter ......................... $31 7/8 $23 7/8
Second Quarter ........................ 45 1/2 28
Third Quarter ......................... 64 42 1/16
Fourth Quarter ........................ 73 40 1/4
Year ending December 31, 1996
First Quarter ......................... $14 7/16 $11 1/8
Second Quarter ........................ 17 1/2 12 7/8
Third Quarter ......................... 20 1/4 14
Fourth Quarter ........................ 25 3/4 19 1/2
</TABLE>
The Company has not paid any dividends on the Common Stock since 1984 and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock. The
declaration of all dividends is at the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Board of
Directors at such future time as may be appropriate in light of relevant factors
at the time.
On November 3, 1997, pursuant to the provisions of the Placement Agreement
dated October 28, 1997 (the "Placement Agreement"), by and among the Company,
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Credit Suisse First Boston Corporation, Lehman Brothers Inc.,
Prudential Securities Incorporated and Schroder & Co. Inc. (collectively, the
"Initial Purchasers"), the Company issued and sold to the Initial Purchasers in
a private placement an aggregate principal amount of $350 million of the
Company's 5% Convertible Subordinated Preferred Equivalent Debentures due 2027
(the "Debentures"). An additional $52.5 million principal amount of the
Debentures were subsequently sold to the Initial Purchasers on November 10,
1997, pursuant to an over-allotment option. The Debentures were issued and sold
by the Company to the Initial Purchasers without registration under the
Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering. The Initial
Purchasers resold the Debentures to various qualified institutional buyers,
accredited investors and foreign investors in transactions exempt from
registration under the Securities Act pursuant to Rule 144A and Regulation S
thereunder.
The Debentures (i) mature on November 1, 2027, (ii) bear interest at an
annual rate of 5% payable on February 1, May 1, August 1 and November 1 of each
year, commencing February 1, 1998, (iii) are convertible at a conversion price
of $80 per share of Common Stock, (iv) are redeemable by the Company at any time
on or after
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<PAGE> 13
November 4, 2000, at redemption prices set forth in the Supplemental Indenture
relating to the Debentures, and (v) are subordinated in right of payment of
principal and interest to the prior payment in full of certain existing and
future senior indebtedness of the Company. The terms of the Debentures are more
fully described in the Indenture dated as of October 15, 1997, between the
Company and The Chase Manhattan Bank, as Trustee, as supplemented by the First
Supplemental Indenture dated as of October 28, 1997, which have been filed as
exhibits to this report.
Pursuant to a Registration Rights Agreement dated November 3, 1997, between
the Company and the Initial Purchasers, the Company has agreed to file with the
Securities and Exchange Commission within 90 days of the latest date of original
issuance of the Debentures, to use its reasonable best efforts to cause to be
declared effective within 180 days following the latest date of original
issuance of the Debentures, a registration statement with respect to the resale
of the Debentures and the underlying Common Stock. The Company will be required
to pay liquidated damages to the holders of the Debentures or the underlying
Common Stock under certain circumstances if the Company is not in compliance
with its registration obligations. The terms and provisions of the Registration
Rights Agreement are more fully described in the Registration Rights Agreement
which has been filed as an exhibit to this report.
The net proceeds received by the Company from the sale of the Debentures,
after deducting the expenses of the transaction, were approximately $390.9
million. Approximately $200 million of the net proceeds were used to fund the
Company's acquisitions of Trico, BMW Monarch and BMW Pump. The Company also used
a portion of the net proceeds from the issuance and sale of the Debentures to
purchase of $119.98 million principal amount of the Company's 10 1/4% Senior
Notes due 2004 in December 1997.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of the Company and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The following information may not be deemed indicative of
future operating results of the Company. The information presented has been
restated to reflect the Company's May 1997 two-for-one stock split and the
adoption of Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), Earnings Per Share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 892,264 $ 478,020 $ 271,675 $ 185,285 $ 171,638
Operating Income ............................ 142,004 46,287 17,965 3,638 6,758
Income (Loss) From Continuing Operations..... 83,695 24,505 2,602 (5,692) 77
Basic Earnings (Loss) Per Share From
Continuing Operations ..................... 1.81 0.60 0.09 (0.23) 0.00
Diluted Earnings (Loss) Per Share
From Continuing Operations .............. 1.77 0.59 0.09 (0.23) 0.00
Total Assets ................................ 1,366,066 852,843 453,125 311,497 251,377
Long-Term Debt .............................. 43,198 126,710 124,183 125,108 38,982
5% Convertible Subordinated
Preferred Equivalent Debentures ........... 402,500 -- -- -- --
Stockholders' Equity ........................ 527,233 454,084 228,066 110,913 107,736
Cash Dividends Per Share .................... -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is an international manufacturer and supplier of engineered
oilfield tools and equipment. The Company's products are used both for the
drilling and production phases of oil and natural gas wells. The Company has
achieved significant growth in recent years through a consistent strategy of
synergistic acquisitions and internal development. Acquisitions have focused on
the acquisition of name brand products, the development of complete
13
<PAGE> 14
product lines and savings through consolidation. Internal development has
focused on product development and geographic expansion.
The Company's product lines are divided into a drilling products segment
consisting of drill pipe, premium tubulars and marine connectors, and a
production equipment segment consisting of completion and artificial lift
equipment. The Company's principal products consist of drill pipe and drilling
tools, premium connectors and associated high grade tubulars, marine connectors,
packers and completion tools and artificial lift systems. The Company's growth
strategy has resulted in the Company becoming the largest manufacturer of drill
pipe, drill collars and heavyweight drill pipe in the world, the largest
provider of premium tubular connectors in North America and one of the largest
providers of artificial lift equipment in the world. The production equipment
segment designs, manufactures and services artificial lift and completion
equipment. To the Company's knowledge, none of its competitors has as broad a
product line of rod lift and progressing cavity pumps.
RECENT DEVELOPMENTS
Weatherford Merger
On March 4, 1998, the Company entered into an Agreement and Plan of Merger
with Weatherford providing for the merger of Weatherford with and into the
Company pursuant to an expected tax free Merger in which the stockholders of
Weatherford will receive 0.95 of a share of the Company's Common Stock in
exchange for each outstanding share of Weatherford common stock. Based on the
number of shares of Weatherford common stock outstanding as of March 3, 1998, a
total of approximately 49.1 million shares of Common Stock would be issued in
the Merger. In addition, approximately 1.2 million shares of Common Stock would
be reserved for issuance by the Company for outstanding options under
Weatherford's compensation and benefit plans. The Company will be the surviving
corporation and will be renamed EVI Weatherford, Inc.
Weatherford is a diversified international energy service and
manufacturing company that provides a variety of services and equipment to the
exploration, production and transmission sectors of the oil and gas industry.
Weatherford operates in three industry segments consisting of oilfield services,
oilfield products and gas compression. The acquisition of Weatherford is being
proposed to further the Company's strategy of taking advantage of opportunities
in the oilfield service industry, more particularly its well construction and
production life cycle segments. The Company believes that the combination of the
Company's broad range of completion and artificial lift products with
Weatherford's international oilfield service infrastructure and reputation
should provide the combined entity with a firm foundation for growth. The Merger
also is being pursued by the Company to (i) provide the Company with a greater
and more diversified line of products and services to serve its customers'
needs, (ii) expand the Company's international presence and (iii) provide the
Company with benefits through product leveraging and consolidation savings.
The Weatherford Merger is subject to various conditions, including the
approval by the stockholders of both the Company and Weatherford and the receipt
of all required regulatory approvals and the expiration or termination of all
waiting periods (and extensions thereof) under the Hart-Scott-Rodino Act.
Although there can be no assurance that the Merger will close, the Company
currently anticipates that the Merger will be consummated shortly after the
receipt of such regulatory approvals and the approval of the Merger by the
stockholders of the Company and Weatherford.
1998 and 1997 Acquisitions
In the first quarter of 1998, the Company completed three acquisitions
consisting of (i) Houston Well Screen, a leading provider of downhole sand
control screens, for cash of approximately $27.6 million, (ii) Taro, a Canadian
provider of well monitoring, gas compression and drilling equipment
distribution, for 0.8 million shares of Common Stock and (iii) Ampscot Equipment
Ltd. ("Ampscot"), a Canadian manufacturer of conventional pumping units, for
cash of approximately $55.0 million.
The Company also completed a number of strategic acquisitions during 1997
directed at an expansion of the Company's drilling products segment and
production equipment segment. These acquisitions included: (i) Griffin Legrand
("Griffin"), a Canadian manufacturer of progressing cavity pumps and
conventional pumpjacks, in March 1997, (ii) TA Industries, Inc. ("TA"), a
manufacturer of premium couplings and casing, in April 1997, (iii) XLS Holding,
Inc. ("XL"), a manufacturer of high performance connectors for marine
applications such as conductors, risers and offshore structural components, in
August 1997, (iv) McAllister Petroleum Services, Ltd. ("McAllister"), a Canadian
manufacturer of inflatable packers and electronic temperature
14
<PAGE> 15
and pressure instruments, in August 1997, (v) Trico, a manufacturer and
distributor of sub-surface pumps, sucker rods, accessories and hydraulic lift
systems, in December 1997, (vi) BMW Pump and BMW Monarch, a Canadian-based
manufacturer and supplier of progressing cavity pumps, in December 1997, and
(vii) various small acquisitions intended to expand the Company's manufacturing
capabilities, geographic scope and breadth of product lines. The acquisition of
XL has been accounted for as an immaterial pooling of interests. The other 1997
acquisitions were accounted for using the purchase method of accounting. The
results of operations of all 1997 acquisitions have been included in the
Company's operating results since their respective dates of acquisitions.
The allocation of the purchase price to the fair market value of the net
assets acquired in the BMW Monarch and BMW Pump acquisitions are subject to
revision as the purchase price is subject to adjustment pending the resolution
of certain asset valuations which must be agreed to by the buyer and seller. The
Company believes the ultimate resolution to the cost of the acquisition will not
have a material impact on the assets acquired or the Company's results of
operations as a result of such revision.
The allocation of the purchase price to the fair market values of the net
assets acquired in the Trico acquisition is based on preliminary estimates of
the fair market value of property, plant and equipment and is subject to
revision subsequent to the completion of an independent appraisal. The Company
does not currently expect any material adjustments from the preliminary
estimates used in determining the asset valuations.
The Company recorded approximately $304.9 million in goodwill in
connection with the 1997 acquisitions which substantially increased the
Company's market share in various products and expanded its geographic
distribution capabilities. The charge associated with the amortization of
goodwill and other intangibles was $5.5 million in 1997 and is expected to be
approximately $11.8 million in 1998.
MARKET TRENDS
The demand for the Company's drilling products is particularly affected by
the price of natural gas and the level of oil and gas exploration activity,
while the demand for the Company's production equipment is directly dependent on
oil production activity. Exploration and production activities are also affected
by worldwide economic conditions, supply and demand for oil and natural gas,
seasonal trends and the political stability of oil producing countries.
The oil and gas industry has been substantially volatile over the years,
due in large part to volatility in the prevailing prices of oil and natural gas.
In 1996 and much of 1997, the oil and gas service industry experienced a general
improvement in product demand and pricing as relatively stable and improved oil
and or natural gas prices combined with a strong world economy to increase
exploration and development activity worldwide. This trend, together with a
decline in the worldwide inventory of used drill pipe, benefited the Company and
its results in 1997 and 1996.
In recent months, the worldwide price of oil has declined, with prices
having dropped as much as 40% to under $13 per barrel for spot deliveries and
prices for natural gas have weakened slightly on a year to year basis. These
declines have been attributed to, among other things, an excess supply of oil in
the world markets, reduced domestic demand associated with an unseasonably warm
winter and the potential for lower worldwide demand due to the impact of the
economic downturn in Southeast Asia. As prices for oil have continued to
decline, the Company and others in the industry have begun to experience a
softening in demand for their products and services, in particular products
associated with exploration activity and oil production. Although the Company's
backlog for drill pipe remains strong and the softening of the market has mainly
impacted demand for products associated with the production of heavy oil and oil
from marginal wells, a prolonged period of low price oil can be expected to
adversely affect the demand throughout the industry, including those products
manufactured by the Company. In such a case, the Company's revenues and income
could be expected to be similarly affected.
Although the short-term outlook in the industry remains uncertain, absent
a significant downturn in the U.S. and world economies, the Company believes
that market conditions in the industry should improve over the long term as the
demand and supply balance becomes more inline. The timing of such recovery,
however, cannot be predicted with certainty.
15
<PAGE> 16
CONVERTIBLE DEBENTURES ISSUANCE AND TENDER OF SENIOR NOTES
In November 1997, the Company completed a private placement of $402.5
million principal amount of its 5% Convertible Subordinated Preferred Equivalent
Debentures (the "Debentures"). The net proceeds from the Debentures were $390.9
million. The Debentures bear interest at an annual rate of 5% and are
convertible into the Company's Common Stock at a price of $80 per share. The
Debentures are redeemable by the Company at any time on or after November 4,
2000, at redemption prices set forth in the Supplemental Indenture relating to
the Debentures, and are subordinated in right of payment of principal and
interest to the prior payment in full of certain existing and future senior
indebtedness of the Company. The Company also has the right to defer payments of
interest on the Debentures by extending the quarterly interest payment period on
the Debentures for up to 20 consecutive quarters at anytime when the Company is
not in default in the payment of interest.
In December 1997, the Company completed a cash tender offer (the "Tender
Offer") for the Company's then outstanding $120.0 million 10 1/4% Senior Notes
due 2004 (the "Senior Notes"). An aggregate of $119.98 million principal amount
of the Senior Notes was acquired by the Company pursuant to the Tender Offer.
The acquisition of the Senior Notes resulted in a one-time extraordinary charge,
net of taxes, of $9.0 million, or $0.19 per basic share, for the year ended
December 31, 1997.
STOCK SPLIT
At the Company's annual stockholders meeting on May 6, 1997, the
stockholders approved a two-for-one split of the Common Stock effected through a
stock dividend and a related amendment to the Company's Restated Certificate of
Incorporation that increased the number of authorized shares of the Company's
Common Stock from 40.0 million shares to 80.0 million shares. As a result of the
stock split, all stock and per share data contained herein have been restated to
reflect the effect of the two-for-one stock split.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
General
Income from continuing operations for 1997 was $83.7 million, or $1.81 per
basic share, on revenues of $892.3 million, as compared to income from
continuing operations for 1996 of $24.5 million, or $0.60 per basic share, on
revenues of $478.0 million. The increases in revenues and income from continuing
operations reflect the strength in the Company's markets and the effect of the
1997 acquisitions and a full year of the 1996 acquisitions. During 1997, the
acquisitions of TA, XL, McAllister, Griffin, Trico, BMW Monarch and BMW Pump, in
addition to various small 1997 acquisitions, benefited 1997 revenues by $166.5
million, income from continuing operations by $12.3 million and basic and
diluted earnings per share by $0.27 and $0.26, respectively. During 1996, the
acquisitions of Geremia, Arrow, Superior Tube Limited ("Superior"), Tubular
Corporation of America ("TCA") and ENERPRO International, Inc. ("ENERPRO") in
addition to various small 1996 acquisitions, benefited 1996 revenues by $83.6
million, income from continuing operations by $6.5 million and basic and diluted
earnings per share by $0.16.
Net income for 1997 was $74.7 million, or $1.62 per basic share, compared
to $98.2 million, or $2.41 per basic share, for 1996. Included in net income for
1997 was an extraordinary charge of $9.0 million, or $0.19 per basic share,
related to the tender of the Senior Notes in December 1997. Net income for 1996
included $7.5 million, or $0.18 per basic share, from discontinued operations
related to the Company's Mallard Bay contract drilling division ("Mallard
Division"), which was sold in November 1996, and a gain, net of taxes of $44.6
million, of $66.9 million, or $1.65 per basic share, related to the disposition.
Additionally, the Company incurred an extraordinary charge, net of taxes, of
$0.7 million, or $0.02 per basic share, for the early extinguishment of debt in
1996.
Revenues during 1997 increased approximately 87% from 1996 primarily as a
result of the various acquisitions described above and higher average sales
prices. Cost of goods sold as a percentage of revenues declined from 78.1% of
total revenues in 1996 to 71.7% in 1997 due to stronger prices and sales of
higher margin products. Selling, general and administrative costs attributable
to segments as a percentage of total revenues increased slightly in 1997 due to
the incurrence of costs associated with the assimilation of acquired businesses
and amortization of intangibles.
16
<PAGE> 17
In the fourth quarter of 1996, the Company adopted a plan to close its
Bastrop, Texas, tool joint manufacturing facility and to combine its two packer
facilities through the closure of one facility in Arlington, Texas. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the tool
joint facility closure and relocation of equipment from this facility and $1.5
million related to the consolidation of its packer facilities and the closure of
one of the plants. The Company incurred $3.8 million in 1996 for costs
associated with these actions during 1996, including costs relating to the
relocation of equipment at its Bastrop facility to other facilities. The Company
also accrued $2.0 million as part of the $5.8 million charge for exit costs that
it expected to be incurred in 1997 relating to a closure of its Bastrop and
Arlington facilities. These costs included $0.8 million for severance and
termination costs, $0.9 million for the reduction in the carrying value of its
Bastrop facility in light of the intended disposition of the facility and $0.3
million for the termination of the Arlington lease. Approximately 400 employees
were affected by these closures. The Company had substantially completed the
closure of both the Bastrop and Arlington facilities by the end of the second
quarter of 1997 and incurred substantially all charges related to the closing of
these facilities.
Drilling Products Segment
The Company's drilling products segment reported revenues and operating
income of $618.9 million and $123.8 million, respectively, for 1997, up from
$342.5 million and $44.4 million, respectively, for 1996. These improvements
were primarily due to increased demand for drill pipe and other drilling tools,
strength in premium tubular activity and the Company's acquisition of TA, a
premium tubular couplings and accessories manufacturer in April 1997, and the
third quarter acquisition of XL, a manufacturer of marine connectors. The
increase in demand for drill pipe reflected higher domestic and international
drilling activity, in particular offshore drilling. Premium tubular revenues
increased to approximately $307.9 million during 1997 up from approximately
$157.8 million for 1996. The increase in premium tubular revenues reflected
strong demand in the Gulf of Mexico and the acquisition of TA. During 1997, the
acquisitions of TA, XL and various small acquisitions benefited 1997 revenues
and operating income in this segment by $96.8 million and $16.1 million,
respectively.
Cost of goods sold declined as a percentage of revenues from 81.1% in 1996
to 73.5% in 1997, due to increased pricing on the Company's products and reduced
costs resulting from the expansion of the Company's Mexico tool joint facility.
The Company expects annual cost savings of approximately $7.0 million relating
to the expansion and consolidation of the Mexico facility. In the third quarter
of 1997, the Mexico facility became fully operational, which benefited
operations in the second half of 1997. Selling, general and administrative
expenses for 1997 as a percentage of revenues was 6.5% compared to 6.0% for 1996
and reflected higher selling, general and administrative expenses associated
with the operations of TA as well as the increase in the amortization of
goodwill and other intangibles.
Of the Company's 1997 sales of drill pipe and other tubular products, 64%,
10% and 7% were attributable to sales in the U.S., Canada and Latin America,
respectively. Sales of drill pipe and other tubular products in the U.S., Canada
and Latin America for 1996 represented 59%, 4% and 7%, respectively. U.S. sales
for 1997 and 1996 included sales to U.S. distributors and other U.S. companies
for ultimate use outside the U.S.
Backlog for tubular products at December 31, 1997, was approximately
$360.0 million compared to $170.0 million at December 31, 1996. The Company
currently expects over $320.0 million of this backlog to be shipped within the
next twelve months and the remaining backlog in the first quarter of 1999. The
increase in backlog for tubular products at December 31, 1997, reflects strong
demand for drill pipe. There can be no assurance that this level of backlog will
continue and any material changes in demand for drilling products and rig
utilization could effect the demand for the Company's drill pipe.
Production Equipment Segment
The Company's production equipment segment reported revenues and operating
income of $273.4 million and $25.5 million, respectively, for 1997, up from
$135.5 million and $8.2 million, respectively, for 1996. These improvements are
primarily due to the strong growth in the Canadian and South American markets,
in particular for the Company's Corod and Geremia progressing cavity pump
product lines. During 1997, the acquisitions of McAllister, Griffin, Trico, BMW
Monarch and BMW Pump and various small acquisitions benefited 1997 revenues and
operating income in this segment by $69.7 million and $7.3 million,
respectively. Cost of goods sold declined as a percentage of revenues from 70.7%
in 1996 to 67.6% in 1997, as a result of an improvement in the segment's
domestic cost structure and from the December 1997 acquisitions of Trico, BMW
Pump and BMW Monarch. Selling, general and
17
<PAGE> 18
administrative expenses for 1997 as a percentage of revenues was 23.1% compared
to 23.2% for 1996. The Company will continue in 1998 to focus on reducing
selling, general and administrative expenses through the integration of acquired
operations.
During 1998, the Company plans to continue its effort to integrate its
production equipment segment for its Canadian and U.S. operations. During 1996,
the Company began the construction of a new Canadian manufacturing plant to
produce continuous rods, which is expected to expand capacity by over 150%. The
continuous rod expansion was completed late in the fourth quarter of 1997. The
new Canadian plant will also manufacture rotors and stators for its progressing
cavity pumps pursuant to an exclusive license and technology transfer
arrangement with Netzsch providing for customary royalty on sales of these
products manufactured using this technology. Production of rotors and stators at
this facility is expected to commence in the second quarter of 1998.
Sales of production equipment in North America constituted approximately
78% of total sales in 1997 and 1996, while sales in South America increased
slightly to 18% in 1997 from 17% in 1996 due to the Company's increasing
presence in that region. Canadian sales were $106.8 million for 1997,
representing an increase of approximately 95% from 1996 levels. The increase
primarily results from the Company's 1997 Canadian acquisitions of Griffin,
McAllister, BMW Pump and BMW Monarch.
Other
Corporate expenses as a percentage of revenues for 1997 were 0.8% as
compared to 1.3% for 1996. The percentage decrease from 1996 was primarily
attributable to the growth in 1997 revenues.
Interest expense for 1997 was $23.1 million compared to $16.5 million for
1996. The increase in interest expense in 1997, as compared to 1996, reflects
the Company's increase in indebtedness during 1997 and the Company's $402.5
million principal amount of the Debentures issued in November 1997. Interest
expense for 1998 is expected to increase from 1997 levels as a result of the
Company's Debentures. The increase in 1998 will be partially offset due to the
December 1997 acquisition of approximately $119.98 million principal amount of
the Senior Notes.
In 1997, the Company benefited from a one-time pre-tax gain of $3.4
million relating to the sale by the Company of the Parker Drilling Company
("Parker") common stock.
The Company's effective tax rate on income from continuing operations for
1997 was approximately 35% as compared to 22% for 1996. The 1996 effective rate
was favorably impacted by a $4.0 million tax benefit resulting from the
Company's $6.4 million settlement in October 1996 with the United States
Internal Revenue Service (the "I.R.S.") in connection with the dissolution in
October 1990 of an oil and gas joint venture. The Company also recorded in 1996
a tax charge of approximately $44.6 million associated with the Company's gain
on the sale of its Mallard Division.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
General
Income from continuing operations for 1996 was $24.5 million, or $0.60 per
basic share, on revenues of $478.0 million, as compared to income from
continuing operations for 1995 of $2.6 million, or $0.09 per basic share, on
revenues of $271.7 million. Revenues during 1996 increased approximately 76%
from 1995 as a result of various acquisitions and improved market conditions.
The increase in income from continuing operations for 1996 was primarily
attributable to increased sales and margins of drill pipe and other drilling
products. During 1996, the acquisitions of Geremia, Arrow, Superior, TCA and
ENERPRO, in addition to various small 1996 acquisitions benefited 1996 revenues
by $83.6 million, net income from continuing operations by $6.5 million and
basic and diluted earnings per share by $0.16.
18
<PAGE> 19
Net income for the year ended December 31, 1996, was $98.2 million, or
$2.41 per basic share, compared to net income of $11.3 million, or $0.38 per
basic share, for the year ended December 31, 1995. Included in net income for
1996 was a one-time gain, net of taxes of $44.6 million, of $66.9 million, or
$1.65 per basic share, from the November 1996 sale by the Company of its Mallard
Division for cash of approximately $306.9 million and 3.1 million shares of
Parker preferred stock that were subsequently converted into 3.1 million shares
of Parker common stock in December 1996 and sold in 1997. Also included in net
income for 1996 was income from discontinued operations, net of taxes, of $7.5
million related to the operations of the Mallard Division.
Drilling Products Segment
Sales of drilling products in 1996 were $342.5 million compared to $154.2
million in 1995. Operating income associated with the drilling products segment
in 1996 was $44.4 million as compared to $15.2 million in 1995. Results in the
fourth quarter of 1996 include a $4.3 million charge attributable to the close
of the Company's Bastrop tool joint facility and relocation of its equipment to
other facilities. Results for 1996 reflected a 73% increase in sales of drill
pipe and a 27% increase in sales of premium tubulars. The increase in drill pipe
sales reflected an overall increase in demand for drill pipe and the Company's
June 1995 acquisition of Prideco, Inc. The increase in demand for drill pipe was
due to increased drilling activity, particularly offshore and a continuing
decline in the supply of used drill pipe inventory, against which the Company
has historically competed. The increase in sales of premium tubular products
reflected the acquisitions of ENERPRO, TCA and Superior and an increase in
demand associated with increased natural gas and deep offshore exploration and
production activity. During 1996, the acquisitions of ENERPRO, TCA, and
Superior benefited 1996 revenues by $66.8 million and operating income by $8.0
million.
The improvement in operating income in 1996 reflected the effects of
increased sales, improved pricing and lower average manufacturing costs due to
consolidation of manufacturing processes. In the third and fourth quarters of
1996, the Company implemented price increases on drill pipe, which the Company
began to receive as its 1996 backlog was filled. Price improvements, however,
were partially offset by an increase in the price of raw materials, particularly
"green" tubing, the primary material used by the Company in the production of
its tubular goods.
Of the Company's sales of drill pipe and other drilling tubular products,
59%, 4% and 7% were attributable to sales in the U.S., Canada and Latin America,
respectively. Sales of drill pipe and other drilling tubular products in the
U.S., Canada and Latin America for 1995 represented 62%, 4% and 12%,
respectively, of such sales for 1995. Included in U.S. sales of drill pipe and
other tubular products are goods sold in the U.S. to distributors and other
companies for ultimate use outside the U.S.
Production Equipment Segment
Revenues and operating income at the Company's production equipment
segment were $135.5 million and $8.2 million, respectively, for 1996, compared
to $117.4 million and $7.8 million, respectively, for 1995. As described above,
the production equipment segment recorded a charge of $1.5 million in the fourth
quarter of 1996 associated with the consolidation of two packer manufacturing
facilities arising from the Company's acquisition of the packer manufacturing
operations of Arrow in December 1996. During 1996, the acquisitions of Geremia
and Arrow, in addition to various small 1996 acquisitions, benefited 1996
revenues by $16.9 million and operating income by $1.8 million.
Sales of production equipment in North America constituted approximately
78% of total sales in 1996 compared to 88% of sales in 1995, while sales in
South America increased to 17% in 1996 from 8% in 1995. The increased South
American sales were primarily attributable to revenues from Geremia, which was
acquired in October 1996. Canadian sales were $54.9 million for 1996,
representing an increase of approximately 46% from 1995 levels and reflected
improved Canadian market conditions.
Sales in the U.S. were $50.3 million in 1996, as compared to $65.2 million
in 1995. Revenues in 1996 did not include any sales from the Company's Highland
Pump distribution business, which was sold in the first quarter of 1996.
19
<PAGE> 20
Other
Corporate expenses as a percentage of revenues for 1996 were 1.3% as
compared to 1.9% for 1995. The percentage decrease in 1996 was primarily
attributable to the growth in revenues from the Company's drilling products
segment.
The Company's effective tax rate on income from continuing operations for
1996 was approximately 22%. The effective rate was favorably impacted by a $4.0
million tax benefit in the fourth quarter of 1996 resulting from the Company's
$6.4 million settlement in October 1996 with the United States I.R.S. in
connection with the dissolution in October 1990 of an oil and gas joint venture.
The Company also recorded a tax charge of approximately $44.6 million associated
with the Company's gain on the sale of its Mallard Division in November 1996.
The Company realized a net tax benefit on income from continuing
operations of $0.2 million in 1995 primarily through the benefit of certain net
operating losses that had been previously subject to separate company
limitations.
Interest expense for 1996 of $16.5 million was comparable to $16.3 million
for 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
per Share, which replaces primary earnings per share with basic earnings per
share and requires dual presentation of basic and diluted earnings per share.
The Company adopted SFAS No. 128 in the fourth quarter of fiscal 1997.
Historical earnings per share data has been restated to reflect the adoption of
SFAS No. 128.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting of comprehensive income and its
components in a full set of general-purpose financial statements and is
effective for years beginning after December 15, 1997. The Company will adopt
SFAS No. 130 in the first quarter of 1998. Had SFAS No. 130 been adopted as of
December 31, 1997, the primary adjustments and reclassifications to reflect net
income on a comprehensive income basis for the years presented would have
consisted of foreign currency translation adjustments and the effect of
unrealized and realized gains on marketable securities.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131, effective for years beginning after December
31, 1997, requires segment information to be reported on a basis consistent with
that used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company will adopt SFAS No. 131 in 1998 and
is reviewing its segments in light of SFAS No. 131.
In 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 ("SFAS No. 132"), Employers' Disclosures About Pensions and Other
Postretirement Benefits. SFAS No. 132 standardizes disclosure requirements for
pensions and other postretirement benefits. SFAS No. 132 will be effective for
years beginning after January 15, 1997. Had the Company adopted SFAS No. 132 as
of December 31, 1997, it would have had no impact on the consolidated financial
statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents of $31.9
million compared to $224.0 million at December 31, 1996. The reduction in cash
and cash equivalents since December 31, 1996, was primarily attributable to the
acquisition of the Senior Notes pursuant to the Tender Offer for $119.98 million
and the use of approximately $319.8 million in cash to acquire new businesses
and tax payments of approximately $62.8 million relating to the 1996 sale of the
Company's Mallard Division. The reduction in cash was partially offset by the
net proceeds of $390.9 million relating to the sale of the Debentures in
November 1997.
In November 1997, the Company completed a private placement of $402.5
million principal amount of the Debentures. The Debentures bear interest at an
annual rate of 5% and are convertible at a price of $80 per share of Common
Stock. The Debentures are redeemable by the Company at any time on or after
November 4, 2000, at
20
<PAGE> 21
redemption prices described therein, and are subordinated in right of payment of
principal and interest to the prior payment in full of certain existing and
future senior indebtedness of the Company. The Company also has the right to
defer payments of interest on the Debentures by extending the quarterly interest
payment period on the Debentures for up to 20 consecutive quarters at anytime
when the Company is not in default in the payment of interest.
In April 1997, the Company sold its investment in Parker common stock
pursuant to a public offering effected by Parker. The net proceeds received by
the Company were approximately $23.4 million.
At December 31, 1997, the Company had outstanding $24.2 million in
borrowings under its working capital facilities compared to $2.9 million at
December 31, 1996. In addition, the Company had outstanding approximately $14.9
million and $10.1 million in letters of credit at December 31, 1997 and December
31, 1996, respectively.
In February 1998, the Company entered into a new credit agreement
which provides for borrowings of up to an aggregate of $250.0 million,
consisting of a $200.0 million U.S. credit facility and a $50.0 million Canadian
credit facility and terminated both the $120.0 million U.S. and $31.5 million
Canadian (C$45.0 million) working capital facilities. Borrowings under the new
credit facility bear interest at a variable rate based on prime or LIBOR and are
secured by pledges of various stock of the Company's foreign subsidiaries. In
addition, certain of the Company's foreign subsidiaries are guarantors of the
facility. The Company's credit facility contains customary affirmative and
negative covenants, including debt incurrence tests, interest coverage ratio,
negative pledges, acquisitions over certain levels and certain dispositions of
assets. In addition, the facility requires the Company to maintain a minimum
tangible net worth of $454.0 million as of December 31, 1997 (as defined in the
credit agreement).
The Company's current sources of capital are its current cash, cash
generated from operations and borrowings under its working capital line of
credit. The Company believes that current reserves of cash and short-term
investments, access to its existing credit line and internally generated cash
from operations are sufficient to finance the projected cash requirements of its
current and future operations. The Company is continually reviewing acquisitions
in its markets. Depending upon the size, nature and timing of an acquisition,
the Company could require additional capital in the form of either debt, equity
or a combination of both.
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.
CAPITAL EXPENDITURES
Capital expenditures for property, plant and equipment by the Company
during the year ended December 31, 1997, totaled approximately $62.6 million and
primarily related to plant expansions in Canada, equipment upgrades and Corig
purchases. In 1997, the Company completed the expansion of the Veracruz, Mexico
tool joint manufacturing facility, the Company recorded the obligation of $16.3
million under its lease to reflect the terms thereof. Ongoing routine capital
expenditures for 1998, excluding any capital expenditures relating to the
pending merger of Weatherford, are estimated to be approximately $65.0 million.
Capital expenditures are expected to be funded with available cash, cash flow
from operations and, if desirable, borrowings under its existing line of credit
and other facilities.
In 1997, the Company began modifying its computer system programming to
process transactions in the year 2000. Anticipated spending for this
modification will be expensed as incurred and is not expected to be material.
CHRISTIANA AND GULFMARK MERGERS
In December 1997, the Company entered into a merger agreement with
Christiana Companies, Inc. ("Christiana") and C2, Inc., Wisconsin corporations,
pursuant to which approximately 3.9 million shares of Common Stock will be
issued to the stockholders of Christiana in a merger of a subsidiary of the
Company with and into Christiana ("Christiana Merger"). Prior to the Christiana
Merger, Christiana is required to sell two-thirds of its interest in Total
Logistic Control ("Logistic"), a wholly owned subsidiary of Christiana, to C2,
Inc. for approximately $10.7 million. Following the Logistic sale, the remaining
assets of Christiana will consist of (i) approximately 3.9 million shares of
Common Stock, (ii) a one-third interest in Logistic and (iii) cash and other
assets with a book value of approximately
21
<PAGE> 22
$10.0 million and (iv) a contingent cash payment of up to $10.0 million payable
no earlier than five years after the effective date of the merger to the extent
such funds are not required to satisfy contingent claims against Christiana. It
is anticipated that Christiana will have no material debt as of the consummation
of the Christiana Merger, but will have various tax liabilities which will be
paid with the remaining cash balance in Christiana after the Christiana Merger.
Because the number of shares of Common Stock issuable in the proposed Christiana
Merger approximates the number of shares of Common Stock currently held by
Christiana, the Christiana Merger is expected to have no material effect on the
outstanding number of shares of Common Stock or equity of the Company.
The Christiana Merger is subject to various conditions, including approval
by the stockholders of the Company and Christiana, the receipt of required
regulatory approvals and the expiration or termination of all waiting periods
(and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be
no assurance that the Christiana Merger will close, the Company currently
anticipates that the acquisition will be consummated shortly after receipt of
such regulatory approvals and the approval of the Christiana Merger by the
shareholders of the Company and Christiana, and the approval of the Logistic
sale by the stockholders of Christiana.
On May 1, 1997, the Company acquired GulfMark pursuant to a merger in
which approximately 4.4 million shares of Common Stock were issued to the
stockholders of GulfMark. Prior to the merger, GulfMark effected a spin-off to
its stockholders of its marine transportation services business. The retained
assets of GulfMark that were acquired by the Company in the transaction
consisted of approximately 4.4 million shares of Common Stock, an erosion
control business and certain other miscellaneous assets. Because the number of
shares of Common Stock issued in the GulfMark acquisition approximated the
number of shares of Common Stock held by GulfMark prior to the acquisition, the
GulfMark acquisition had no material effect on the outstanding number of shares
of Common Stock or equity of the Company. The shares of Common Stock received
pursuant to this transaction are classified as "Treasury Stock, at Cost" in the
accompanying Consolidated Balance Sheet.
FORWARD-LOOKING STATEMENTS
Certain statements made herein and in other public filings and releases by
the Company contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
These forward-looking statements may include, but are not limited to, future
sales, earnings, margins, production levels and costs, expected savings from
acquisitions and plant expansions, demand for products, product deliveries,
market trends in the oil and gas industry and the oilfield service sector
thereof, research and development, environmental and other expenditures,
currency fluctuations and various business trends. See "Management's Discussion
and Analysis - General-Market Trends" and "Business-Risk Factors".
Forward-looking statements may be made by management orally or in writing
including, but not limited to, this Management's Discussion and Analysis of
Financial Condition and Results of Operations section and other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and the Securities Act of 1933.
Actual results and trends in the future may differ materially depending on
a variety of factors including, but not limited to, whether and for how long the
current pricing trend for oil will continue and the effect thereof on the demand
and price of the Company's products, changes in the price of oil and gas,
changes in the domestic and international rig count, global trade policies,
domestic and international drilling activities, the impact of the economic
downturn in Southeast Asia on the worldwide economies and associated demand for
oil, world-wide political stability and economic growth, including currency
fluctuations, government export and import policies, technological advances
involving the Company's products, the Company's successful execution of internal
operating plans and manufacturing consolidations and restructurings, performance
issues with key suppliers and subcontractors, the ability of the Company to
maintain price increases and market shares, raw material costs changes,
collective bargaining labor disputes, regulatory uncertainties and legal
proceedings. Future results will also be dependent upon the ability of the
Company to successfully complete and integrate its proposed acquisition of
Weatherford, as well as its ability to continue to identify and complete
successful acquisitions at acceptable prices, integrate those acquisitions with
the Company's other operations and penetrate existing and new markets.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................................... 24
Consolidated Balance Sheets - December 31, 1997 and 1996........................... 25
Consolidated Statements of Income, for each of the three years in the
period ended December 31, 1997................................................... 26
Consolidated Statements of Stockholders' Equity, for each of the three
years in the period ended December 31, 1997...................................... 27
Consolidated Statements of Cash Flows, for each of the three years in
the period ended December 31, 1997............................................... 28
Notes to Consolidated Financial Statements......................................... 29
Financial Statement Schedule:
II. Valuation and Qualifying Accounts and Allowances............................ 53
</TABLE>
All other schedules are omitted because they are not required or because the
required information is included in the financial statements or notes thereto.
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EVI, Inc.:
We have audited the accompanying consolidated balance sheets of EVI, Inc.
(formerly Energy Ventures, Inc.) (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EVI, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. The Financial Statement Schedule has
been subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
January 29, 1998
24
<PAGE> 25
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents .............................................. $ 31,863 $ 223,966
Accounts Receivable, Net of Allowance for Uncollectible Accounts
of $1,006,000 in 1997 and $583,000 in 1996 ........................... 265,307 119,152
Inventories ............................................................ 286,763 157,631
Marketable Securities .................................................. -- 23,841
Deferred Tax Asset ..................................................... 33,638 27,643
Other Current Assets ................................................... 13,454 6,448
----------- -----------
631,025 558,681
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property ..................................... 118,979 51,037
Machinery and Equipment ................................................ 238,860 154,945
Furniture and Vehicles ................................................. 29,398 16,339
----------- -----------
387,237 222,321
Less: Accumulated Depreciation ........................................ 85,520 49,597
----------- -----------
301,717 172,724
----------- -----------
GOODWILL, NET ............................................................... 403,328 102,474
OTHER ASSETS ................................................................ 29,996 18,964
----------- -----------
$ 1,366,066 $ 852,843
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings .................................................. $ 24,243 $ 4,451
Current Portion of Long-Term Debt ...................................... 10,355 3,622
Accounts Payable ....................................................... 156,829 80,783
Accrued Salaries and Benefits .......................................... 33,904 11,817
Current Tax Liability .................................................. 13,913 81,916
Other Accrued Liabilities .............................................. 74,921 50,537
----------- -----------
314,165 233,126
----------- -----------
LONG-TERM DEBT .............................................................. 43,198 126,710
DEFERRED INCOME TAXES AND OTHER ............................................. 78,970 38,923
5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES.................. 402,500 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $1 Par Value, Authorized 80,000,000 Shares, Issued
51,890,823 Shares in 1997 and 45,929,250 Shares in 1996 .............. 51,891 45,930
Capital in Excess of Par Value ......................................... 410,442 258,721
Treasury Stock, at Cost ................................................ (152,344) (2,569)
Retained Earnings ...................................................... 231,943 158,333
Cumulative Foreign Currency Translation Adjustment ..................... (14,699) (8,712)
Unrealized Gain on Marketable Securities ............................... -- 2,381
----------- -----------
527,233 454,084
----------- -----------
$ 1,366,066 $ 852,843
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
<PAGE> 26
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES ................................................... $ 892,264 $ 478,020 $ 271,675
--------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales ......................................... 639,758 373,509 205,230
Selling, General and Administrative Attributable to
Segments ......................................... 103,193 51,885 43,357
Corporate General and Administrative .................. 7,309 6,339 5,123
--------- --------- ---------
750,260 431,733 253,710
--------- --------- ---------
OPERATING INCOME ........................................... 142,004 46,287 17,965
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Income ....................................... 5,699 2,163 21
Interest Expense ...................................... (23,134) (16,454) (16,287)
Gain on Sale of Marketable Securities ................. 3,352 -- --
Other, Net ............................................ 733 (450) 663
--------- --------- ---------
(13,350) (14,741) (15,603)
--------- --------- ---------
INCOME BEFORE INCOME TAXES ................................. 128,654 31,546 2,362
PROVISION (BENEFIT) FOR INCOME TAXES ....................... 44,959 7,041 (240)
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS .......................... 83,695 24,505 2,602
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAXES .......................................... -- 7,468 8,709
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF TAXES .......................................... -- 66,924 --
EXTRAORDINARY CHARGE, NET OF TAXES ......................... (9,010) (731) --
--------- --------- ---------
NET INCOME ................................................. $ 74,685 $ 98,166 $ 11,311
========= ========= =========
BASIC EARNINGS PER SHARE:
Income From Continuing Operations ..................... $ 1.81 $ 0.60 $ 0.09
Income From Discontinued Operations ................... -- 0.18 0.29
Gain on Disposal of Discontinued Operations ........... -- 1.65 --
Extraordinary Charge .................................. (0.19) (0.02) --
--------- --------- ---------
Net Income Per Share .................................. $ 1.62 $ 2.41 $ 0.38
========= ========= =========
Basic Weighted Average Shares Outstanding ............. 46,243 40,706 29,448
========= ========= =========
DILUTED EARNINGS PER SHARE:
Income From Continuing Operations ..................... $ 1.77 $ 0.59 $ 0.09
Income From Discontinued Operations ................... -- 0.18 0.29
Gain on Disposal of Discontinued Operations ........... -- 1.62 --
Extraordinary Charge .................................. (0.19) (0.02) --
--------- --------- ---------
Net Income Per Share .................................. $ 1.58 $ 2.37 $ 0.38
========= ========= =========
Diluted Weighted Average Shares Outstanding ........... 47,367 41,489 29,727
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE> 27
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK CAPITAL IN CURRENCY
--------------------------- EXCESS OF RETAINED TRANSLATION
SHARES $1 PAR PAR EARNINGS ADJUSTMENT
------------ --------- ---------- ---------- ----------
(in thousands, except number of shares)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ... 25,508,498 $ 25,508 $ 42,388 $ 48,856 $ (4,536)
Net Income ..................... -- -- -- 11,311 --
Shares Issued in Connection
with Acquisition ............. 4,510,396 4,510 30,765 -- --
Options Exercised .............. 125,472 126 530 -- --
Issuance of Common Stock ....... 6,900,000 6,900 65,748 -- --
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan.... -- -- -- -- --
Foreign Currency
Translation Adjustment ....... -- -- -- -- (2,379)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 ... 37,044,366 37,044 139,431 60,167 (6,915)
Net Income ..................... -- -- -- 98,166 --
Shares Issued in Connection
with Acquisitions ............ 1,625,420 1,626 22,588 -- --
Options Exercised .............. 359,464 360 2,742 -- --
Issuance of Common Stock ....... 6,900,000 6,900 93,960 -- --
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan ... -- -- -- -- --
Foreign Currency
Translation Adjustment ....... -- -- -- -- (1,797)
Unrealized Gain on
Marketable Securities ........ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ... 45,929,250 45,930 258,721 158,333 (8,712)
Net Income ..................... -- -- -- 74,685 --
Effect of Immaterial Pooling.... 946,294 946 (717) (1,075) --
Replacement Shares (Shares
Acquired) from GulfMark
Merger ....................... 4,471,143 4,471 142,788 -- --
Options Exercised .............. 544,136 544 3,056 -- --
Tax Benefit Associated with
Options Exercised ............ -- -- 6,594 -- --
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan -- -- -- -- --
Foreign Currency
Translation Adjustment ....... -- -- -- -- (5,987)
Realized Gain on Sale of
Marketable Securities ........ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31,1997 .... 51,890,823 $ 51,891 $ 410,442 $ 231,943 $ (14,699)
========== ========== ========== ========== ==========
<CAPTION>
UNREALIZED
TREASURY STOCK GAIN ON TOTAL
------------------------- MARKETABLE STOCKHOLDERS'
SHARES AMOUNT SECURITIES EQUITY
---------- ---------- ---------- ----------
(in thousands, except number of shares)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ... (188,418) $ (1,303) $ -- $ 110,913
Net Income ..................... -- -- -- 11,311
Shares Issued in Connection
with Acquisition ............. -- -- -- 35,275
Options Exercised .............. -- -- -- 656
Issuance of Common Stock ....... -- -- -- 72,648
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan ... (38,784) (358) -- (358)
Foreign Currency
Translation Adjustment ....... -- -- -- (2,379)
---------- ---------- ---------- ----------
Balance at December 31, 1995 ... (227,202) (1,661) -- 228,066
Net Income ..................... -- -- -- 98,166
Shares Issued in Connection
with Acquisitions ............ -- -- -- 24,214
Options Exercised .............. -- -- -- 3,102
Issuance of Common Stock ....... -- -- -- 100,860
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan.... (44,206) (908) -- (908)
Foreign Currency
Translation Adjustment ....... -- -- -- (1,797)
Unrealized Gain on
Marketable Securities ........ -- -- 2,381 2,381
---------- ---------- ---------- ----------
Balance at December 31, 1996 ... (271,408) (2,569) 2,381 454,084
Net Income ..................... -- -- -- 74,685
Effect of Immaterial Pooling.... -- -- -- (846)
Replacement Shares (Shares
Acquired) from GulfMark
Merger ....................... (4,470,860) (147,259) -- --
Options Exercised .............. -- -- -- 3,600
Tax Benefit Associated with
Options Exercised ............ -- -- -- 6,594
Purchase of Treasury Stock,
at Cost, for Executive
Deferred Compensation Plan.... (48,265) (2,516) -- (2,516)
Foreign Currency
Translation Adjustment ....... -- -- -- (5,987)
Realized Gain on Sale of
Marketable Securities ........ -- -- (2,381) (2,381)
---------- ---------- ---------- ----------
Balance at December 31,1997 .... (4,790,533) $ (152,344) $ -- $ 527,233
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
27
<PAGE> 28
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................................... $ 74,685 $ 98,166 $ 11,311
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operating Activities:
Depreciation and Amortization .................................. 33,653 16,771 12,446
Net Income from Discontinued Operations ........................ -- (7,468) (8,709)
Gain on Disposal of Discontinued Operations, Net ............... -- (66,924) --
Gain on Sale of Marketable Securities .......................... (3,352) -- --
Extraordinary Charge on Prepayment of Debt, Net ................ 9,010 731 --
Deferred Income Tax Provision (Benefit) from Continuing
Operations .................................................. 23,911 (7,965) 2,109
Tax Dispute Settlement ......................................... -- (6,412) --
Provision for Uncollectible Accounts Receivable ................ 390 486 252
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable .......................................... (62,922) (20,853) (16,104)
Inventories .................................................. (69,156) (16,296) (33,076)
Other Current Assets ......................................... (7,304) 2,469 (5,283)
Accounts Payable ............................................. 11,335 17,196 17,045
Accrued Salaries and Benefits and Other ...................... (10,710) (10,123) (10,246)
Other Assets ................................................. (5,031) (2,697) 1,661
Other, Net ................................................... (7,842) (1,271) 1,193
--------- --------- ---------
Net Cash Used by Continuing Operations ..................... (13,333) (4,190) (27,401)
Net Cash Provided by Discontinued Operations ............... -- 8,294 10,745
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities ........... (13,333) 4,104 (16,656)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired .................. (319,755) (87,814) (8,105)
Capital Expenditures for Property, Plant and Equipment ........... (62,560) (25,890) (11,132)
Proceeds from Disposal of Discontinued Operations ................ -- 306,854 --
Acquisitions and Capital Expenditures of Discontinued
Operations ..................................................... -- (63,136) (22,884)
Income Taxes Paid on Disposal of Discontinued Operations ......... (62,808) -- --
Proceeds From Sale of Marketable Securities ...................... 23,352 -- --
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities ............. (421,771) 130,014 (42,121)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of 5% Convertible Subordinated Preferred
Equivalent Debentures, Net ..................................... 390,911 -- --
Issuance of Common Stock, Net .................................... -- 100,860 72,648
Tender of Senior Notes ........................................... (119,980) -- --
Termination Costs on Retirement of Debt .......................... (10,752) (1,125) --
Repayments Under Revolving Lines of Credit, Net .................. 21,319 (1,653) (11,105)
Repayments on Term Debt, Net ..................................... (30,475) (11,711) (2,434)
Other Financing Activities, Net .................................. (8,022) 592 298
--------- --------- ---------
Net Cash Provided by Financing Activities .................... 243,001 86,963 59,407
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... (192,103) 221,081 630
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 223,966 2,885 2,255
--------- ========= =========
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $ 31,863 $ 223,966 $ 2,885
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE> 29
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
EVI, Inc., formerly Energy Ventures, Inc. (together with its
subsidiaries, the "Company"), is an international manufacturer and supplier of
oilfield equipment. The Company manufactures drill pipe, premium tubulars and a
complete line of artificial lift and production equipment used in the
exploration and production of oil and natural gas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EVI, Inc.,
and all majority-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
RECLASSIFICATIONS AND RESTATEMENTS
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1997 classifications. The consolidated
financial statements have been restated to reflect the Company's May 1997
two-for-one stock split and the adoption of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), Earnings Per Share. See Note 8.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
MARKETABLE SECURITIES
Investments in marketable securities are accounted for in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), Accounting
for Certain Investments in Debt and Equity Securities, and accordingly, these
investments are recorded at their fair market value with unrealized gains or
losses recorded as a separate component of stockholders' equity. The Company has
classified these investments as available for sale with any other than temporary
decline in fair value of securities charged to earnings. In April 1997, the
Company sold its marketable securities, comprised of approximately 3.1 million
shares of Parker Drilling Company ("Parker") common stock, pursuant to a public
offering effected by Parker. As a result, the Company received net proceeds of
approximately $23.4 million and recognized a pre-tax gain of approximately $3.4
million.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The useful lives of the major classes of property, plant and
equipment are as follows:
<TABLE>
<CAPTION>
LIFE
----------------
<S> <C> <C>
Buildings.............................................. 15 - 40 years
Machinery and equipment................................ 5 - 20 years
Furniture and vehicles................................. 3 - 7 years
</TABLE>
29
<PAGE> 30
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTANGIBLE ASSETS AND AMORTIZATION
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses. The
Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of any applicable assets may not
be recoverable. In assessing recoverability of such assets, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Management believes that there have
been no events or circumstances which warrant revision to the remaining useful
life or which affect the recoverability of goodwill. The goodwill is being
amortized on a straight-line basis over the lesser of the estimated useful life
or 40 years. Other identifiable intangible assets, included as a component of
other assets, are amortized on a straight-line basis over the years expected to
be benefited, ranging from 5 to 15 years.
Amortization expense for goodwill and other intangible assets was
approximately $5.5 million, $2.1 million and $1.3 million for 1997, 1996 and
1995, respectively. Accumulated amortization for goodwill at December 31, 1997
and 1996 was $7.5 million and $3.5 million, respectively.
STOCK-BASED COMPENSATION
The intrinsic value method of accounting is used for stock-based employee
compensation whereby no compensation expense is recognized when the exercise
price of an employee stock option is equal to the market price of the Company's
common stock, $1.00 par value, (the "Common Stock") on the grant date. See Note
8 for pro forma information required under Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the period. Assets and liabilities of these foreign subsidiaries are translated
using the exchange rates in effect at the balance sheet date and the resulting
translation adjustments are included as a separate component of stockholders'
equity. Currency transaction gains and losses are reflected in income for the
period.
ACCOUNTING FOR INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), Accounting for Income Taxes, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
REVENUE RECOGNITION
The Company recognizes revenue as products are shipped or accepted by the
customer. Service revenues are recognized as services are performed.
EARNINGS PER SHARE
In 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 which replaces primary earnings per share with basic earnings per share
and requires dual presentation of basic and diluted earnings per share. The
Company adopted SFAS No. 128 in the fourth quarter of fiscal 1997. All
historical earnings per share data included herein has been restated to reflect
the adoption of SFAS No. 128.
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share is computed by dividing net
30
<PAGE> 31
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
income by the weighted average number of shares of common stock outstanding
during the year adjusted for the dilutive effect of the incremental shares that
would have been outstanding under the Company's stock option plans (see Note 8).
The effect of the 5% Convertible Subordinated Preferred Equivalent Debentures
(the "Debentures") on diluted earnings per share is anti-dilutive and, thus, has
no impact.
The following reconciles basic and diluted weighted average shares:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Basic weighted average number of
shares outstanding ....................... 46,243 40,706 29,448
Dilutive effect of stock option plans ...... 1,124 783 279
--------- --------- ---------
Dilutive weighted average number of
shares outstanding ....................... 47,367 41,489 29,727
========= ========= =========
</TABLE>
FUTURE REPORTING REQUIREMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting of comprehensive income and its
components in a full set of general-purpose financial statements and is
effective for years beginning after December 15, 1997. The Company will adopt
SFAS No. 130 in the first quarter of 1998. Had SFAS No. 130 been adopted as of
December 31, 1997, the primary adjustments and reclassifications to reflect net
income on a comprehensive income basis for the years presented would have
consisted of foreign currency translation adjustments and the effect of
unrealized and realized gains on marketable securities.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131, effective for years beginning after December
31, 1997, requires segment information to be reported on a basis consistent with
that used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company will adopt SFAS No. 131 in 1998 and
is reviewing its segments in light of SFAS No. 131.
In 1998 the FASB issued Statement of Accounting Standards No. 132 ("SFAS
No. 132"), Employers' Disclosures About Pensions and Other Postretirement
Benefits. SFAS No. 132 standardizes disclosure requirements for pensions and
other postretirement benefits. SFAS No. 132 will be effective for years
beginning after January 15, 1997. Had the Company adopted SFAS No. 132 as of
December 31, 1997, it would have had no impact on the consolidated financial
statements of the Company.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Cash paid during the years ended December 31, 1997, 1996, and 1995 for
interest and income taxes (net of refunds) was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Interest paid........................................... $ 23,801 $ 15,242 $ 15,254
Income taxes paid, net of refunds....................... $ 83,286 $ 6,715 $ 1,529
</TABLE>
During the years ended December 31, 1997, 1996 and 1995 there were
noncash investing activities of $24.4 million, $1.7 million and $3.6 million,
respectively, relating to capital leases.
31
<PAGE> 32
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The following summarizes investing activities relating to acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Fair value of assets, net of cash acquired ... $ 212,731 $ 103,138 $ 42,583
Goodwill ..................................... 304,926 68,352 22,477
Total liabilities ............................ (197,902) (59,462) (21,680)
Common Stock issued .......................... -- (24,214) (35,275)
--------- --------- ---------
Cash consideration, net of cash acquired ..... $ 319,755 $ 87,814 $ 8,105
========= ========= =========
</TABLE>
During the year ended December 31, 1997, there were noncash financing
activities of $6.6 million relating to tax benefits received from the exercise
of nonqualified stock options. These benefits were recorded as a reduction of
income taxes payable and an increase to additional paid-in capital.
3. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Raw materials and components ............. $ 141,349 $ 88,595
Work in process .......................... 46,498 20,889
Finished goods ........................... 88,522 39,129
Supplies ................................. 10,394 9,018
---------- ----------
$ 286,763 $ 157,631
========== ==========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
4. ACQUISITIONS AND DISPOSITIONS
On December 3, 1997, the Company completed the acquisition of all of the
outstanding shares of BMW Monarch (Lloydminster) Ltd. ("BMW Monarch") and BMW
Pump, Inc. ("BMW Pump") for aggregate consideration of approximately $91.5
million in cash and $14.3 million in assumed debt. BMW Pump is a Canadian-based
manufacturer of progressing cavity pumps and BMW Monarch is a Canadian supplier
of progressing cavity pumps as well as other production related oilfield
products.
The allocation of the purchase price to the fair market value of the net
assets acquired in the BMW Monarch and BMW Pump acquisitions are subject to
revision as the purchase price is subject to adjustment pending the resolution
of certain asset valuations which must be agreed to by the buyer and seller. The
Company believes the ultimate resolution to the cost of the acquisition will not
have a material impact on the assets acquired or the Company's results of
operations as a result of such revision.
On December 2, 1997, the Company completed the acquisition of all of the
capital stock of Trico Industries, Inc., ("Trico") in exchange for $105.0
million in cash and the assumption of $8.7 million of debt. Trico is a
Texas-based manufacturer and distributor of sub-surface reciprocating pumps,
sucker rods, accessories and hydraulic lift systems. The allocation of the
purchase price to the fair market values of the net assets acquired in the Trico
acquisition is based on preliminary estimates of the fair market value of
property, plant and equipment and is subject to revision subsequent to the
completion of an independent appraisal. The Company does not currently expect
any material adjustments from the preliminary estimates used in determining the
asset valuations.
On August 25, 1997, the Company completed the acquisition of XLS Holding,
Inc. ("XL") in a transaction accounted for as a pooling of interests. XL
designs, manufactures and markets high performance connectors for
32
<PAGE> 33
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
marine applications such as conductors, risers and offshore structural
components. In connection with the acquisition, the Company issued approximately
0.9 million shares of Common Stock in exchange for all of the equity interests
of XL. As the effect of this business combination is not significant, prior
period financial statements were not restated.
On August 8, 1997, the Company completed the acquisition of McAllister
Petroleum Services, Ltd. ("McAllister"), a Calgary, Canada-based manufacturer
and marketer of inflatable packers and electronic temperature/pressure
instrumentation, for approximately $24.6 million.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
Common Stock were issued to the stockholders of GulfMark. Prior to the merger,
GulfMark effected a spin-off to its stockholders of its marine transportation
services business. The retained assets of GulfMark that were acquired by the
Company in this transaction consisted of approximately 4.4 million shares of
Common Stock, an erosion control company and certain other miscellaneous assets.
The 4.4 million shares of Common Stock acquired are classified as "Treasury
Stock, at Cost" on the accompanying consolidated balance sheet. Because the
number of shares of Common Stock issued in the GulfMark acquisition approximated
the number of shares of Common Stock held by GulfMark prior to the acquisition,
the GulfMark acquisition had no material effect on the outstanding number of
shares of Common Stock or equity of the Company.
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA"), a
manufacturer of premium couplings and premium accessories, for approximately
$44.1 million in cash and $19.7 million of assumed debt.
On March 14, 1997, the Company acquired the assets of Griffin Legrand
("Griffin") for total cash consideration of approximately $20.5 million.
Griffin, based in Calgary, Canada, designs, manufactures and markets progressing
cavity pumps and conventional pumping units.
On December 10, 1996, the Company acquired Arrow Completion Systems
("Arrow"), a Texas-based packer manufacturer for total cash consideration of
approximately $22.0 million.
On October 1, 1996, the Company acquired the stock of Irmaos Geremia Ltd.
("Geremia"), a Porto Alegre, Brazil-based designer, manufacturer and marketer of
progressing cavity pumps, for approximately $24.5 million in cash and assumed
debt.
On September 4, 1996, the Company acquired Superior Tube Limited
("Superior"), an Alberta, Canada-based premium tubular manufacturer, for total
cash consideration of approximately $16.0 million.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA") for approximately 1.0 million shares of Common Stock, $14.4 million
in cash, a $0.7 million note due January 1997 and assumed debt of approximately
$15.0 million.
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for 0.6
million shares of Common Stock and the assumption of approximately $3.1 million
in indebtedness.
In February 1996, the Company sold its United States retail store
distribution system to Continental Emsco for approximately $7.5 million. The
consideration received in the sale approximated the net book value of the assets
sold, resulting in no material gain or loss.
The Company has also effected various other 1997 and 1996 acquisitions for
a total consideration of approximately $39.1 million and $5.1 million,
respectively.
The acquisitions discussed above, with the exception of XL which was
accounted for as an immaterial pooling of interests, were accounted for using
the purchase method of accounting. The results of operations of all acquisitions
are included in the Consolidated Statements of Income from their respective
dates of acquisition.
33
<PAGE> 34
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the August 1996 TCA
acquisition, the May 1997 GulfMark acquisition and the December 1997
acquisitions of Trico, BMW Pump and BMW Monarch had occurred on January 1, 1996.
All other 1997 and 1996 acquisitions are not material individually nor in the
aggregate for each applicable year, therefore pro forma information is not
presented. The pro forma information set forth below is not necessarily
indicative of the results that actually would have been achieved had such
transaction been consummated as of January 1, 1996, or that may be achieved in
the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996
------------- --------------
(unaudited)
(in thousands, except per
share amounts)
<S> <C> <C>
Revenues..................................................... $1,048,388 $ 692,849
Income from continuing operations............................ 92,720 37,005
Net income................................................... 83,710 110,666
Earnings per common share from continuing operations:
Basic...................................................... 2.01 0.90
Diluted.................................................... 1.96 0.88
</TABLE>
5. PLANT CLOSURES
The Company adopted a plan to close its Bastrop, Texas tool joint
manufacturing facility and to combine its two packer facilities through the
closure of one facility in Arlington, Texas in the fourth quarter of 1996. In
connection with these decisions, the Company incurred a charge of $5.8 million
associated with these closures. Of this charge, $4.3 million related to the tool
joint facility closure and relocation of equipment from this facility and $1.5
million related to the consolidation of its packer facilities and the closure of
one of the plants. The Company incurred $3.8 million in 1996 for costs
associated with these actions during 1996, including costs relating to the
relocation of equipment at its Bastrop facility to other facilities. The Company
also accrued $2.0 million as part of the $5.8 million charge for exit costs that
it expected to be incurred in 1997 relating to the closure of its Bastrop and
Arlington facilities. Such costs included $0.8 million for severance and
termination costs, $0.9 million for the reduction in the carrying value of its
Bastrop facility in light of the intended plan of disposition of the facility
and $0.3 million for the termination of the Arlington lease. Approximately 400
employees were affected by these closures. The closure of both the Bastrop and
Arlington facilities had been substantially completed by June 1997.
6. DISCONTINUED OPERATIONS
On November 11, 1996, the Company completed the sale of its contract
drilling segment which was comprised of the Mallard Bay contract drilling
division ("Mallard Division") to Parker, in exchange for cash of approximately
$306.9 million and approximately 3.1 million shares of Parker common stock
valued by the Company at approximately $20.0 million. The Company reported a net
gain on the disposal of the Mallard Division of $66.9 million, net of taxes of
$44.6 million.
34
<PAGE> 35
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The results of operations for the Mallard Division are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes". Condensed results of the Mallard Division discontinued operations
were as follows:
<TABLE>
<CAPTION>
ELEVEN
MONTHS ENDED YEAR ENDED
NOVEMBER 11, DECEMBER 31,
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Revenues ................................ $ 81,310 $ 79,912
---------- ----------
Income before income taxes .............. 11,490 14,029
Provision for income taxes .............. 4,022 5,320
---------- ----------
Net income .............................. $ 7,468 $ 8,709
========== ==========
</TABLE>
7. DEBT
SHORT-TERM BORROWINGS AND LINES OF CREDIT
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Revolving credit facilities ........................... $ 24,243 $ 2,924
Other ................................................. -- 1,527
---------- ----------
$ 24,243 $ 4,451
========== ==========
Weighted average interest rate on short-term
borrowings outstanding during the year .............. 6.63% 8.48%
Average borrowings during the year .................... $ 14,277 $ 23,871
Maximum borrowings outstanding during the year ........ $ 47,688 $ 57,619
</TABLE>
In June 1996, the Company entered into a $120.0 million working capital
facility and terminated the Company's prior U.S. working capital facility which
resulted in an extraordinary charge of approximately $0.7 million, net of taxes
of $0.4 million. The facility contains customary affirmative and negative
covenants relating to working capital, earnings and net worth. Borrowings under
this facility accrued interest at a variable rate based on prime or LIBOR, 8.75%
at December 31, 1997, and were due on demand. At December 31, 1997, no debt was
outstanding on this facility, however, approximately $5.5 million had been used
to support outstanding letters of credit.
In August 1997, the Company entered into a Canadian line of credit
agreement which provides for up to $31.5 million ($45.0 million Canadian). The
facility contains customary affirmative and negative covenants relating to
working capital, earnings and net worth. Borrowings accrued interest at a
variable rate, approximately 5.46% at December 31, 1997 and were due on demand.
In February 1998, the Company entered into a new $250.0 million working
capital facility, consisting of a $200.0 million U.S. and a $50.0 million
Canadian credit facilities, and terminated both the $120.0 million U.S. and
$31.5 million Canadian working capital facilities (See Note 13).
35
<PAGE> 36
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Debentures with an effective interest rate of 5%, due 2027 .............. $402,500 $ --
======== ========
Senior Notes with an effective interest rate of 10 1/4%, due 2004 ....... $ 20 $120,000
Industrial Revenue Bonds with a variable interest rate, 4.46%
at December 31, 1997, due 2002 ........................................ 8,730 --
Capital lease obligations under various agreements ...................... 27,383 5,475
Other ................................................................... 17,420 4,857
-------- --------
53,553 130,332
Less: amounts due in one year .......................................... 10,355 3,622
-------- --------
Long-term debt .......................................................... $ 43,198 $126,710
======== ========
</TABLE>
In November 1997, the Company completed a private placement of $402.5
million principal amount of 5% Convertible Subordinated Preferred Equivalent
Debentures (the "Debentures"). The net proceeds from the Debentures were $390.9
million. The Debentures are convertible at a price of $80 per share of Common
Stock. The Debentures are redeemable by the Company at any time on or after
November 4, 2000, at redemption prices described therein, and are subordinated
in right of payment of principal and interest to the prior payment in full of
certain existing and future senior indebtedness of the Company. The Company also
has the right to defer payments of interest on the Debentures by extending the
quarterly interest payment period on the Debentures for up to 20 consecutive
quarters at anytime when the Company is not in default in the payment of
interest. As evidenced by market transactions, the estimated fair value of the
Debentures was $368.8 million as of December 31, 1997.
In December 1997, the Company completed a cash tender offer and consent
solicitation (the "Tender Offer") relating to the Company's outstanding $120.0
million 10 1/4% Senior Notes due 2004 (the "Senior Notes"). An aggregate of
$119.98 million principal amount of the Senior Notes were validly tendered by
the Company pursuant to the Tender Offer. The prepayment of the Senior Notes
resulted in an extraordinary charge, net of taxes of $5.6 million, of $9.0
million, or $0.19 per basic share, for the year ended December 31, 1997. The
extraordinary charge consists of prepayment fees, other professional fees and
the write off of unamortized debt issuance costs. At December 31, 1996, the
estimated fair value of the Senior Notes was $126.0 million.
In connection with the Company's acquisition of Trico on December 2,
1997, the Company assumed $8.7 million of Variable Rate Demand Industrial
Development Revenue Refunding Bonds (the "Bonds"). The interest rate is
floating, 4.46% at December 31, 1997. Contract terms require interest only
payments to maturity, occurring in December 2002. In connection with the Bonds,
the Company has a letter of credit of $9.2 million.
Upon the completion of the expansion of the Veracruz, Mexico tool joint
manufacturing facility, the Company recorded the obligation of $16.3 million
under its lease to reflect the terms thereof.
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C> <C>
1998.................................................... $ 10,355
1999.................................................... 8,963
2000.................................................... 7,853
2001.................................................... 4,675
2002.................................................... 12,354
Thereafter.............................................. 411,853
----------
$ 456,053
==========
</TABLE>
36
<PAGE> 37
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
8. STOCKHOLDERS' EQUITY
STOCK SPLIT
At the Company's annual stockholders meeting on May 6, 1997, the
stockholders approved a two-for-one split of the Common Stock, through a stock
dividend and related amendment to the Company's Restated Certificate of
Incorporation that increased the number of authorized shares of Common Stock
from 40.0 million shares to 80.0 million shares. As a result of the stock split,
all stock and per share data contained herein have been restated to reflect the
effect of the two-for-one stock split.
PUBLIC STOCK OFFERINGS
On July 25, 1996, the Company completed a public offering of 6.9 million
shares of Common Stock. The net proceeds of this offering were approximately
$100.9 million. The Company also completed a public offering early in the fourth
quarter of 1995, of 6.9 million shares of Common Stock. The net proceeds of that
offering were approximately $72.6 million.
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non-qualified stock option plan. The plan
expired in May 1991.
The Company maintains a Non-Employee Director Stock Option Plan
("Director Plan"), a non-qualified stock option plan. Under the Director Plan,
options to purchase up to an aggregate of 1.0 million shares of Common Stock may
be granted to non-employee directors of the Company. Options to purchase 10,000
shares of Common Stock are automatically granted to each non-employee director
on the date of their initial election and their re-election. At December 31,
1997, approximately 0.6 million shares were available for the granting of
options.
The Company also has in effect a 1992 Employee Stock Option Plan ("ESO
Plan"). Under the ESO Plan, options to purchase up to an aggregate of 2.0
million shares of Common Stock may be granted to officers and key employees of
the Company (including directors who are also key employees) and its
subsidiaries. At December 31, 1997, approximately 0.3 million were available for
granting of such options.
Stock options vest after one to five years and expire after ten years
from the date of grant. Information about the above stock option plans for the
three years ended December 31, 1997, is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER RANGE OF EXERCISE
OF EXERCISE PRICE
SHARES PRICES PER SHARE
------------ ------------------------ ---------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1994................ 1,279,472 $ 1.35 - $ 11.94 $ 7.26
Granted ........................................ 254,000 6.88 - 9.00 8.45
Exercised........................................ (125,472) 1.35 - 8.25 5.23
----------
Options outstanding, December 31, 1995................ 1,408,000 4.69 - 11.94 7.60
Granted ........................................ 570,000 13.07 - 14.75 13.27
Exercised........................................ (359,464) 5.75 - 11.94 8.63
----------
Options outstanding, December 31, 1996................ 1,618,536 4.69 - 14.75 9.37
Granted ........................................ 302,000 27.81 - 32.19 28.83
Exercised........................................ (544,136) 4.69 - 14.63 6.61
----------
Options outstanding, December 31, 1997................ 1,376,400 4.69 - 32.19 14.72
==========
Options exercisable as of December 31, 1997........... 599,000 4.69 - 14.63 9.72
==========
</TABLE>
The 1.4 million options outstanding at December 31, 1997, have a weighted
average remaining contractual life of 5.1 years. The 0.6 million options
exercisable at December 31, 1997, have a weighted average remaining
37
<PAGE> 38
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
contractual life of 4.0 years. The weighted average fair value of the options
granted in 1997, 1996 and 1995 were $17.49, $8.89 and $5.24, respectively.
STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its stock options under the fair value method as provided therein. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for options issued in 1997, 1996 and 1995, respectively:
risk-free interest rates: 6.5%, 6.3% and 6.5%; expected lives of seven years;
expected volatility of 49%, 53% and 52% and no expected dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS No. 123, only the effects of awards granted after January 1,
1995 are considered in the pro forma calculation.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- -------------------------- ---------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (in thousands)...... $ 74,685 $ 72,338 $ 98,166 $ 96,938 $ 11,311 $ 10,979
Basic earnings per share....... 1.62 1.56 2.41 2.38 0.38 0.37
Diluted earnings per share..... 1.58 1.53 2.37 2.34 0.38 0.37
</TABLE>
PREFERRED STOCK
The Company is authorized to issue up to 3.0 million shares of $1.00 par
value preferred stock. As of December 31, 1997, none had been issued.
PROFIT SHARING PLANS
The Company and certain of its subsidiaries have adopted retirement plans
which qualify under Section 401(k) of the Internal Revenue Code. The plans
generally provide for 40% matching contributions by the Company, up to a maximum
liability of 1.2% of each participating employee's annual compensation. The
Company, under each plan, also has the right to make additional discretionary
matching contributions. Total contributions by the Company under these plans
were $0.8 million, $0.5 million and $0.2 million during 1997, 1996 and 1995,
respectively.
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under
the EDC Plan. The funds provided to such trust are invested by a trustee
independent of the Company primarily in Common Stock of the Company which is
purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Stock held by the
trust has been consolidated for accounting purposes and is included in the
accompanying Consolidated Statements of Stockholders' Equity as "Treasury Stock,
at Cost" and reflected as such on the Consolidated Balance Sheets.
38
<PAGE> 39
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
9. INCOME TAXES
The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Domestic..................................................... $ 86,712 $ 22,755 $ (2,840)
Foreign...................................................... 41,942 8,791 5,202
---------- ---------- ----------
$ 128,654 $ 31,546 $ 2,362
========== ========== ==========
</TABLE>
Total income tax provision (benefit) was recorded as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Income (loss) from continuing operations..................... $ 44,959 $ 7,041 $ (240)
Discontinued operations...................................... -- 4,022 5,320
Gain on disposal of discontinued operations.................. -- 44,600 --
Extraordinary charge......................................... (5,640) (394) --
---------- --------- ----------
$ 39,319 $ 55,269 $ 5,080
========== ========= ==========
</TABLE>
The Company's provision (benefit) for income taxes of continuing operations
for the three years ended December 31, 1997, consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Current
U.S. Federal and State..................................... $ 14,754 $ 12,161 $ (3,666)
Foreign.................................................... 6,294 2,845 1,317
---------- ---------- ----------
21,048 15,006 (2,349)
---------- ---------- ----------
Deferred
U.S. Federal and State..................................... 14,419 (9,215) (17)
Foreign.................................................... 9,492 1,250 2,126
---------- ---------- ----------
23,911 (7,965) 2,109
---------- ---------- ----------
$ 44,959 $ 7,041 $ (240)
========== ========== ==========
</TABLE>
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing operations
before income taxes for the three years ended December 31, 1997, in the
accompanying Consolidated Statements of Income is analyzed below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Statutory federal income tax rate............................ 35.0% 35.0% 35.0%
Effect of state income tax, net.............................. -- 1.1 3.4
Effect of non-deductible expenses............................ 0.9 1.8 14.9
Utilization of net operating loss carryforward............... (0.3) (1.3) (37.7)
Effect of foreign income tax, net............................ -- (0.6) (11.8)
Foreign losses benefited..................................... -- (1.8) (6.4)
Foreign Sales Corporation benefit............................ (0.3) (1.0) (3.3)
Research and development credit benefit...................... -- -- (8.2)
Benefit of tax dispute settlement............................ -- (12.7) --
Other........................................................ (0.3) 1.8 3.9
---- ---- -----
35.0% 22.3% (10.2)%
==== ==== =====
</TABLE>
39
<PAGE> 40
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations.
Generally, deferred tax assets and liabilities are classified as current or
noncurrent according to the classification of the related asset or liability for
financial reporting. The components of the net deferred tax asset (liability)
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses................................ $ 3,362 $ 7,505
Accrued liabilities and reserves..................................... 34,995 36,976
Foreign taxes on unremitted foreign earnings......................... 16,985 7,443
Tax benefit transfer leases acquired................................. 3,991 4,807
Valuation allowance.................................................. (2,212) (2,630)
------------ ------------
Total deferred tax assets.............................................. 57,121 54,101
------------ ------------
Deferred tax liabilities:
Property and equipment............................................... (31,851) (21,452)
Unremitted foreign earnings.......................................... (23,517) (7,971)
Inventory basis differences.......................................... (12,010) (11,191)
Goodwill basis differences........................................... (4,593) (5,561)
Other................................................................ (385) (2,131)
------------ ------------
Total deferred tax liability........................................... (72,356) (48,306)
------------ ------------
Net deferred tax asset (liability)..................................... $ (15,235) $ 5,795
============ ============
</TABLE>
At December 31, 1997, the Company had $7.9 million of U.S. net operating
losses which were generated by certain subsidiaries prior to their acquisition.
The use of these pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code and is also restricted to the taxable
income of one subsidiary. These U.S. carryforwards, if not utilized, will expire
between 2001 and 2009. The Company also had approximately $0.8 million of
foreign net operating loss carryforwards of which $0.4 million will expire
between 1998 and 2001 and the remainder can be carried forward indefinitely.
The realization of a portion of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the carryforward
amounts. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
The Company has a valuation allowance to reflect the estimated amount of
deferred tax assets for which realization is uncertain. The net change in the
valuation allowance for the year ended December 31, 1997 was a decrease of $0.4
million. The net change principally relates to a reduction in the valuation
allowance required for certain deferred tax assets which realization became
certain during 1997.
On October 11, 1996, the Company entered into a $3.9 million tax settlement
plus accrued interest of $2.5 million with the United States Internal Revenue
Service ("I.R.S.") relating to a dispute regarding the tax impact to the Company
upon the dissolution of an oil and gas joint venture in 1990. The tax liability
with respect to the dissolution had been previously provided for as a deferred
tax liability in the Company's consolidated financial statements. This
settlement resulted in the Company recognizing a $4.0 million tax benefit in
1996 due to the elimination of certain previously accrued deferred taxes that
will no longer be required to be paid as a result of this settlement.
40
<PAGE> 41
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. DISPUTES, LITIGATION AND CONTINGENCIES
LITIGATION AND OTHER DISPUTES
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations with or
without consideration of insurance coverage.
INSURANCE
The Company is partially self-insured for employee health insurance
claims and for workers' compensation claims for certain of its employees.
Although the Company believes that adequate reserves have been provided for
expected liabilities arising from its self-insured obligations, it is reasonably
possible that management's estimates of these liabilities will change over the
near term as circumstances develop.
11. COMMITMENTS
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $7.0 million, $5.2
million and $3.8 million for the years ended December 31, 1997, 1996, and 1995,
respectively.
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C> <C>
1998 ................................................................ $ 8,725
1999 ................................................................ 7,094
2000 ................................................................ 3,999
2001 ................................................................ 2,472
2002 ................................................................ 1,120
Thereafter........................................................... 5,355
----------
$ 28,765
==========
</TABLE>
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL") pursuant to which OCTL
manufactures drill pipe and premium tubulars for the Company on an exclusive
basis at OCTL's plant in India.
12. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $1.8 million, $1.6 million and $0.6
million during 1997, 1996 and 1995, respectively, with a law firm in which a
director of the Company is a partner.
In 1997, the Company paid Lehman Brothers Inc., an affiliate of Lehman
Brothers Holdings Inc., a major stockholder of the Company, approximately $2.0
million for dealer management fees associated with the Tender Offer of the
Senior Notes and the Debenture offering. The Company incurred fees of
approximately $6.7 million associated with the Company's public offering and the
disposition of the Mallard Division in 1996, and underwriting fees of $4.0
million associated with its public offering in 1995. The fee arrangements
associated with these transactions were on terms standard in the industry.
13. SUBSEQUENT EVENTS
On December 12, 1997, the Company entered into an agreement to acquire
Christiana Companies, Inc. ("Christiana") pursuant to a tax free merger (the
"Christiana Merger"), in which approximately 3.9 million shares of the Company's
Common Stock will be issued to the stockholders of Christiana. Prior to the
Christiana Merger, Christiana will sell two-thirds of its interest (the
"Logistic Sale") in Total Logistic Control, LLC ("Logistic"), to C2,
41
<PAGE> 42
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Inc. for consideration of approximately $10.7 million. Following the Logistic
Sale, the remaining assets of Christiana will consist of (i) approximately 3.9
million shares of the Company's Common Stock, (ii) a one-third interest in
Logistic, (iii) cash and other assets with a book value of approximately $10.0
million and (iv) a contingent cash payment of up to $10.0 million payable no
earlier than five years after the effective date of the Christiana Merger to the
extent such funds are not required to satisfy contingent claims against
Christiana. Because the number of shares of Common Stock to be issued in the
acquisition approximate the number of shares to be acquired, the Christiana
Merger will have no material impact on the outstanding number of shares or
equity of the Company.
The Christiana Merger is subject to various conditions, including approval
by the stockholders of the Company and Christiana and the receipt of required
regulatory approvals and the expiration or termination of all waiting periods
(and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be
no assurance that the Christiana Merger will close, the Company currently
anticipates that the acquisition will be consummated shortly after receipt of
such regulatory approvals and the approval of the Christiana Merger by the
stockholders of the Company and Christiana, and the approval of the Logistic
Sale by the stockholders of Christiana.
On January 12, 1998, the Company completed the acquisition of the Houston
Well Screen group of companies ("HWS") from Van der Horst Limited, a Singapore
company, for a net purchase price of approximately $27.6 million in cash. The
HWS acquisition includes the purchase of Van der Horst USA Inc., which is the
holding company of Houston Well Screen Company and of Houston Well Screen Asia
Pte Ltd. which has operations in Singapore and Indonesia. HWS makes wedge-wire
screen products for use in oil and gas production and other applications.
On January 15, 1998, the Company completed the acquisition of Taro
Industries Limited ("Taro"), an Alberta corporation in which approximately 0.8
million shares of the Company's Common Stock have been issued to the
shareholders of Taro in exchange for their shares of Taro stock. Taro is a
Canadian provider of well automation, gas compression, and drilling equipment
distribution and will be integrated into the Company's production equipment
segment.
EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S REPORT
In February 1998, the Company entered into a new credit agreement which
provides for borrowings of up to an aggregate of $250.0 million, consisting of a
$200.0 million U.S. credit facility and a $50.0 million Canadian credit facility
and terminated both the $120.0 million U.S. and $31.5 million Canadian working
capital facilities. Borrowings under the new credit facility bear interest at a
variable rate based on either prime or LIBOR and are secured by pledges of
various stock of the Company's domestic and foreign subsidiaries. In addition,
certain of the Company's domestic subsidiaries are guarantors of the facility.
The Company's credit facility contains customary affirmative and negative
covenants, including debt incurrence tests, interest coverage ratio, negative
pledges, acquisitions over certain levels and certain dispositions of assets. In
addition, the facility requires the Company to maintain a minimum tangible net
worth of at least $454.0 million at December 31, 1997 (as defined in the credit
agreement).
On February 19, 1998, the Company completed the acquisition of Ampscot
Equipment Ltd., an Alberta corporation ("Ampscot") for approximately $55.0
million in cash. Ampscot is a Canadian-based manufacturer of pumping units.
On March 4, 1998, the Company entered into an Agreement and Plan of Merger
with Weatherford Enterra, Inc. ("Weatherford") providing for the merger of
Weatherford with and into the Company pursuant to an expected tax free merger
(the "Merger") in which the stockholders of Weatherford will receive 0.95 of a
share of the Company's Common Stock in exchange for each outstanding share of
Weatherford common stock, $0.10 par value ("Weatherford common stock"). Based on
the number of shares of Weatherford common stock outstanding as of March 3,
1998, a total of approximately 49.1 million shares of the Company's Common Stock
would be issued in the Merger. In addition, approximately 1.2 million shares of
the Company's Common Stock would be reserved for issuance by the
42
<PAGE> 43
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Company for outstanding options under Weatherford's benefit plans. The Company
will be the surviving corporation and will be renamed EVI Weatherford, Inc.
The Merger is subject to various conditions, including approval by the
stockholders of the Company and Weatherford and the receipt of all required
regulatory approvals and the expiration or termination of all waiting periods
(and extensions thereof) under the Hart-Scott-Rodino Act. Although there can be
no assurance that the Merger will close, the Company currently anticipates that
the Merger will be consummated shortly after the receipt of such regulatory
approvals and the approval of the Merger by the stockholders of the Company and
Weatherford.
14. SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates through two business segments: drilling products and
production equipment. The drilling products segment manufactures drill pipe and
high performance tubulars and the production equipment segment manufactures a
complete line of artificial lift and production equipment. The Company's
products are used in the exploration and production of oil and natural gas.
Financial information by industry segment for each of the three years ended
December 31, 1997, is summarized below. Identifiable assets exclude net assets
relating to the Mallard Division of approximately $95.5 million at December 31,
1995. Corporate assets principally include cash and cash equivalents and tax
assets and liabilities.
<TABLE>
<CAPTION>
DRILLING PRODUCTION
PRODUCTS EQUIPMENT CORPORATE TOTAL
----------- ------------ ---------- -------------
(in thousands)
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated customers............ $ 618,855 $ 273,409 $ -- $ 892,264
Operating income (loss).................... 123,810 25,503 (7,309) 142,004
Identifiable assets........................ 675,812 678,782 11,472 1,366,066
Depreciation and amortization.............. 23,610 9,951 92 33,653
Capital expenditures and other acquisitions
of property, plant, and equipment........ 107,071 62,987 1,324 171,382
1996
Sales to unaffiliated customers............ $ 342,530 $ 135,490 $ -- $ 478,020
Operating income (loss).................... 44,394 8,237 (6,344) 46,287
Identifiable assets........................ 388,096 225,579 239,168 852,843
Depreciation and amortization.............. 11,046 5,642 83 16,771
Capital expenditures and other acquisitions
of property, plant, and equipment........ 62,008 27,871 68 89,947
1995
Sales to unaffiliated customers............ $ 154,241 $ 117,434 $ -- $ 271,675
Operating income (loss).................... 15,248 7,843 (5,126) 17,965
Identifiable assets........................ 218,592 130,266 8,776 357,634
Depreciation and amortization.............. 7,170 5,187 89 12,446
Capital expenditures and other acquisitions
of property, plant, and equipment........ 25,422 7,939 18 33,379
</TABLE>
During 1996, the Company incurred a charge of $5.8 million associated with
plant closures. Of this charge, $4.3 million related to the closure of a tool
joint facility within the drilling products segment and $1.5 million related to
the closure of a packer facility within the production equipment segment.
Operating income for 1996 for the drilling products and production equipment
segments include accruals included within the $5.8 million charge of $1.5
million and $0.5 million, respectively, for such plant closures.
43
<PAGE> 44
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
MAJOR CUSTOMERS AND CREDIT RISK
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. Foreign sales also present
various risks, including risks 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 consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1997, 1996 and 1995, there was no individual customer who accounted
for 10% of consolidated revenues.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 61
countries by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the United States accounted for 51%, 51% and 46%
of total revenues in 1997, 1996 and 1995, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to the
customer by the Company.
44
<PAGE> 45
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Financial information by geographic segment for each of the three years
ended December 31, 1997, is summarized below. Intergeographic revenues are
accounted for at prices that approximate arm's length market prices. Certain
prior year balances have been restated to conform with current year
presentation.
<TABLE>
<CAPTION>
FOREIGN
----------------------------------------------
UNITED LATIN
STATES CANADA MEXICO AMERICA OTHER ELIMINATIONS TOTAL
--------- --------- --------- --------- -------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Operating revenues from
unaffiliated customers..... $ 611,251 $ 152,495 $ 15,716 $ 45,123 $ 67,679 $ -- $ 892,264
Transfers between
geographic areas........... 20,041 11,664 44,339 7,753 -- (83,797) --
--------- --------- --------- --------- -------- -------- ---------
Total revenues............... 631,292 164,159 60,055 52,876 67,679 (83,797) 892,264
Operating income ............ 106,430 21,192 3,081 6,575 4,726 -- 142,004
Identifiable assets.......... 772,991 328,355 82,924 106,758 75,038 -- 1,366,066
Export sales of U.S.
companies.................. -- 15,539 -- 28,987 69,913 -- 114,439
1996
Operating revenues from
unaffiliated customers..... $ 355,150 $ 65,113 $ 9,138 $ 14,571 $ 34,048 $ -- $ 478,020
Transfers between
geographic areas........... 1,890 -- 12,505 -- -- (14,395) --
--------- --------- --------- --------- -------- -------- ---------
Total revenues............... 357,040 65,113 21,643 14,571 34,048 (14,395) 478,020
Operating income............. 34,717 6,985 1,860 2,204 521 -- 46,287
Identifiable assets.......... 636,557 89,609 24,349 71,003 31,325 -- 852,843
Export sales of U.S.
companies.................. -- 2,975 -- 29,049 78,341 -- 110,365
1995
Operating revenues from
unaffiliated customers..... $ 225,090 $ 37,575 $ 4,907 $ 3,188 $ 915 $ -- $ 271,675
Transfers between
geographic areas........... 4,540 -- 14,973 -- 241 (19,754) --
--------- --------- --------- --------- -------- -------- ---------
Total revenues............... 229,630 37,575 19,880 3,188 1,156 (19,754) 271,675
Operating income............. 12,358 4,386 800 712 (291) -- 17,965
Identifiable assets.......... 285,512 30,197 12,300 8,768 20,857 -- 357,634
Export sales of U.S.
companies.................. -- 6,982 -- 19,842 36,179 -- 63,003
</TABLE>
45
<PAGE> 46
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1997 and 1996.
<TABLE>
<CAPTION>
1ST QTR.(1) 2ND QTR.(1) 3RD QTR.(1) 4TH QTR. TOTAL
------------ -------------- ------------- ------------ ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1997
Revenues......................... $ 164,640 $ 211,468 $ 236,760 $ 279,396 $ 892,264
Gross Profit..................... 42,369 55,518 69,556 85,063 252,506
SG&A 19,032 25,194 28,940 37,336 110,502
Operating Income................. 23,337 30,324 40,616 47,727 142,004
Interest Expense................. (4,411) (5,207) (5,592) (7,924) (23,134)
Income from Continuing
Operations..................... 14,345 19,062 23,094 27,194 83,695
Net Income....................... 14,345 19,062 23,094 18,184(2) 74,685
Depreciation and Amortization.... 6,845 8,319 8,967 9,522 33,653
Basic EPS:
Income from Continuing
Operations................... $ 0.31 $ 0.42 $ 0.50 $ 0.58 $ 1.81
Net Income..................... 0.31 0.42 0.50 0.39(2) 1.62
Diluted EPS:
Income from Continuing
Operations................... 0.31 0.41 0.49 0.57 1.77
Net Income..................... 0.31 0.41 0.49 0.38(2) 1.58
1996
Revenues......................... $ 90,326 $ 98,937 $ 134,376 $ 154,381 $ 478,020
Gross Profit..................... 21,036 24,044 29,328 30,103 104,511
SG&A 12,859 13,759 14,672 16,934 58,224
Operating Income................. 8,177 10,285 14,656 13,169 46,287
Interest Expense................. (3,828) (4,292) (4,145) (4,189) (16,454)
Income from Continuing
Operations..................... 2,747 4,046 6,917 10,795 24,505
Net Income....................... 4,347(3) 5,063(3)(4) 9,759(3) 78,997(3)(5) 98,166
Depreciation and Amortization.... 3,351 3,740 4,241 5,439 16,771
Basic EPS:
Income from Continuing
Operations................... $ 0.08 $ 0.11 $ 0.16 $ 0.24 $ 0.60
Net Income..................... 0.12(3) 0.14(3)(4) 0.23(3) 1.73(3)(5) 2.41
Diluted EPS:
Income from Continuing
Operations................... 0.07 0.11 0.16 0.23 0.59
Net Income..................... 0.12(3) 0.13(3)(4) 0.22(3) 1.69(3)(5) 2.37
</TABLE>
(1) The first, second and third quarters of 1997 quarterly financial data has
been restated from amounts previously reported in the Company's respective
Forms 10-Q to reclassify certain amounts to conform with prior periods'
presentation and to classify the Veracruz, Mexico facility as a capital
lease to reflect the terms thereof.
(2) Includes the extraordinary charge, net of taxes, of approximately $9.0
million related to the repayment of the Senior Notes in the fourth quarter
of 1997.
46
<PAGE> 47
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(3) Includes income from discontinued operations, net of taxes, of approximately
$1.6 million, $1.7 million, $2.8 million and $1.3 million recorded in the
first, second, third and fourth quarters of 1996, respectively.
(4) Includes the extraordinary charge, net of taxes, of approximately $0.7
million recorded in the second quarter of 1996.
(5) Includes the gain on disposal of discontinued operations, net of taxes, of
approximately $66.9 million recorded in the fourth quarter of 1996.
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information on directors and
executive officers of the Registrant is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information on executive compensation
is incorporated by reference from the Registrant's Definitive Proxy Statement to
be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information on certain relationships
and related transactions is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or incorporated
herein by reference:
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule of
the Company are listed on the index on page 19.
REPORTS ON FORM 8-K
Current Report on Form 8-K dated October 20, 1997, as amended by Form 8-K/A
dated October 20, 1997, filing (i) third quarter 1997 earnings (ii) the December
31, 1996 financial statements restated for the May 1997 two-for-one stock split
and (iii) the announcement of the signing of agreements to acquire Trico
Industries, Inc., BMW Pump, Inc., and BMW Monarch (Lloydminster) Ltd.
Current Report on Form 8-K dated October 24, 1997, filing the financial
statements of the businesses and assets of GulfMark International, Inc. acquired
by the Company on May 1, 1997 (the "GulfMark Retained Assets") for the quarter
ended March 31, 1997.
Current Report on Form 8-K dated November 5, 1997, reporting the issuance
of an aggregate principal amount of $350.0 million of the Company's 5%
Convertible Subordinated Preferred Equivalent Debentures due 2027 (the
"Debentures") in a private placement on November 3, 1997 and containing certain
pro forma financial statements of the Company after giving effect to the
issuance of the Debentures.
Current Report on Form 8-K dated November 12, 1997, reporting the
issuance of an additional aggregate principal amount of $52.5 million of the
Company's Debentures in a private placement to cover over-allotments on
48
<PAGE> 49
November 10, 1997 and containing certain pro forma financial statements of the
Company after giving effect to the issuance of the Debentures.
Current Report on Form 8-K dated November 18, 1997, announcing the
commencement of a cash tender offer and consent solicitation relating to all of
the Company's outstanding 10 1/4% Senior Notes due 2004 and 10 1/4% Senior Notes
due 2004, Series B (the "Senior Notes") and containing certain pro forma
financial statements of the Company after giving effect to the Company's
acquisition of the Senior Notes.
Current Report on Form 8-K dated November 24, 1997, announcing the signing
of an agreement to acquire Taro Industries Limited.
Current Report on Form 8-K dated December 2, 1997, announcing the
completion of the acquisitions of Trico Industries, Inc., BMW Pump, Inc., and
BMW Monarch (Lloydminster) Ltd.
Current Report on Form 8-K dated December 31, 1997, announcing (i) the
signing of a merger agreement on December 12, 1997 to acquire Christiana
Companies, Inc., (ii) the completion of the cash tender offer and consent
solicitation relating to the Company's Senior Notes on December 15, 1997, and
(iii) an agreement to acquire the Houston Well Screen group of companies from
Van der Horst Ltd.
EXHIBITS
2.1 Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit No. 2.1 to Amendment
No. 1 to Form 8-K on Form 8-K/A, File 1-13086, filed March
9, 1998).
2.2 Share Purchase Agreement made and entered into as of
January 30, 1998, by and among the shareholders of Nika
Enterprises Ltd., an Alberta corporation, listed on the
signature pages thereto and EVI Oil Tools Canada Ltd., an
Alberta corporation (incorporated by reference to Exhibit
No. 2.1 to the Form 8-K, File 1-13086, filed March 3,
1998).
2.3 Agreement and Plan of Merger dated December 12, 1996, by
and among EVI, Inc., Christiana Acquisition, Inc.,
Christiana Companies, Inc. and C2, Inc. (incorporated by
reference to Exhibit No. 2.1 to Form 8-K, File 1-13086,
filed December 31, 1997).
2.4 Agreement dated December 12, 1997, by and among EVI, Inc.,
Christiana Companies, Inc., Total Logistic Control LLC and
C2, Inc. (incorporated by reference to Exhibit No. 2.2 to
Form 8-K, File 1-13086, filed December 31, 1997).
2.5 Letter Agreement dated December 12, 1997, by and among
EVI, Inc., Christiana Acquisition, Inc., Christiana
Companies, Inc. and C2, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December
31, 1997).
2.6 Stock Purchase Agreement dated as of October 9, 1997,
between EVI, Inc. and PACCAR Inc (incorporated by
reference to Exhibit No. 2.1 to Form 8-K, File 1-13086,
filed October 21, 1997).
2.7 Stock Purchase Agreement dated as of October 9, 1997,
among certain shareholders of BMW Monarch (Lloydminster)
Ltd., the shareholders of BMW Pump Inc., the shareholder
of Makelki Holdings Ltd., the shareholder of 589979
Alberta Ltd., the shareholders of 600969 Alberta Ltd., the
shareholders of 391862 Alberta Ltd. and EVI, Inc.
(incorporated by reference to Exhibit No. 2.2 to Form 8-K,
File 1-13086, filed October 21, 1997).
2.8 Agreement and Plan of Merger dated as of July 16, 1997, as
amended, by and among XLS Holding, Inc., EVI, Inc. and
GPXL, Inc. (incorporated by reference to Exhibit No. 2.1
to Form 8-K, File 1-13086, filed August 26, 1997).
2.9 Stock Purchase Agreement dated as of February 21, 1997,
among Seigo Arai, Kanematsu USA Inc. and Energy Ventures,
Inc. (incorporated by reference to Exhibit No. 2.1 to Form
8-K, File 1-13086, filed March 17, 1997).
2.10 Agreement and Plan of Merger dated as of December 5, 1996,
among Energy Ventures, Inc., GulfMark Acquisition Co.,
GulfMark International, Inc. and New GulfMark
International, Inc. (incorporated by reference to Exhibit
No. 2.2 to Form 8-K, File 1-13086, filed December 26,
1996).
49
<PAGE> 50
2.11 Agreement and Plan of Distribution dated as of December 5,
1996, by and among GulfMark International, Inc., New
GulfMark International, Inc. and Energy Ventures, Inc.
(incorporated by reference to Exhibit No. 2.3 to Form 8-K,
File 1-13086, filed December 26, 1996).
2.12 First Amendment to Agreement and Plan of Merger dated as
of March 27, 1997, by and among Energy Ventures, Inc.,
GulfMark Acquisition Co., GulfMark International, Inc. and
GulfMark Offshore, Inc. (incorporated by reference to
Exhibit No. 2.3 to the Registration Statement on Form S-4
(Reg. No. 333-24133)).
2.13 Stock Purchase Agreement dated as of September 14, 1996,
by and among Parker Drilling Company and Energy Ventures,
Inc. (incorporated by reference to Exhibit 2.1 to Form
8-K, File 1-13086, filed October 3, 1996).
2.14 Agreement and Plan of Merger dated as of June 20, 1996
between Energy Ventures, Inc., TCA Acquisition, Inc. and
Tubular Corporation of America (incorporated by reference
to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed June
24, 1996).
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit No. 3.2 to
the Form 10-K, File 1-13086, filed May 14, 1997).
3.2 By-laws of the Company, as amended (incorporated by
reference to Exhibit No. 3.2 to Form 10-K, File 1-13086,
filed March 1, 1994).
4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the
Restated Certificate of Incorporation, as amended, and
By-laws of the Registrant defining the rights of the
holders of Common Stock.
4.2 Credit Agreement dated as of February 17, 1998, among EVI,
Inc., EVI Oil Tools Canada Ltd., the Subsidiary Guarantors
defined therein, Chase Bank of Texas, National
Association, as U.S. Administrative Agent, The Bank of
Nova Scotia, as Documentation Agent and Canadian Agent,
ABN AMRO Bank, N.V., as Syndication Agent, and the other
Lenders defined therein, including the form of Note
(incorporated by reference to Exhibit No. 4.1 to the Form
8-K, File 1-13086, filed March 3, 1998).
4.3 Indenture dated March 15, 1994, among Energy Ventures,
Inc., as Issuer, the Subsidiary Guarantors party thereto,
as Guarantors, and Chemical Bank, as Trustee (incorporated
by reference to Form 8-K, File 1-13086, filed April 5,
1994).
4.4 Specimen 10 1/4% Senior Note due 2004 of Energy Ventures,
Inc. (incorporated by reference to Form 8-K, File 1-13086,
filed April 5, 1994).
4.5 First Supplemental Indenture by and among Energy Ventures,
Inc., Prideco and Chemical Bank, as trustee, dated June
30, 1995 (incorporated by reference to Exhibit No. 4.4 to
the Registration Statement on Form S-3 (Reg. No.
33-61933)).
4.6 Second Supplemental Indenture by and among Energy
Ventures, Inc., EVI Arrow, Inc., EVI Watson, Inc. and The
Chase Manhattan Bank, as trustee, dated effective as of
December 6, 1996 (incorporated by reference to Exhibit 4.6
to Form 10-K, File 1-13086, filed March 20, 1997).
4.7 Third Supplemental Indenture by and among EVI, Inc.,
Ercon, Inc. and The Chase Manhattan Bank, as trustee,
dated effective as of May 1, 1997 (incorporated by
reference to Exhibit 99.2 to Form 8-K, File 1-13086, filed
October 27, 1997).
4.8 Fourth Supplemental Indenture by and among EVI, Inc., XLS
Holding, Inc., XL Systems, Inc. and The Chase Manhattan
Bank, as trustee, dated effective as of August 25, 1997
(incorporated by reference to Exhibit 99.3 to Form 8-K,
File 1-13086, filed October 27, 1997).
4.9 Fifth Supplemental Indenture by and between EVI, Inc. and
The Chase Manhattan Bank dated as of December 12, 1997
(including the Form of Note and Form of Exchange Note)
(incorporated by reference to Exhibit 4.1 to Form 8-K,
File 1-13086, filed December 31, 1997).
4.10 Indenture dated as of October 15, 1997, between EVI, Inc.
and The Chase Manhattan Bank, as Trustee (incorporated by
reference to Exhibit No. 4.13 to the Registration
Statement on Form S-3 (Reg. No. 333-45207)).
4.11 First Supplemental Indenture dated as of October 28, 1997,
between EVI, Inc. and The Chase Manhattan Bank, as Trustee
(including form of Debenture) (incorporated by reference
to Exhibit 4.2 to Form 8-K, File 1-13086, filed November
5, 1997).
4.12 Registration Rights Agreement dated November 3, 1997, by
and among EVI, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Lehman Brothers
Inc., Prudential Securities Incorporated and Schroder
& Co. Inc. (incorporated by reference to Exhibit 4.3 to
Form 8-K, File 1-13086, filed November 5, 1997).
*10.1 Executive Deferred Compensation Stock Ownership Plan and
related Trust Agreement (incorporated by reference to Form
10-Q, File 1-13086, filed November 16, 1992).
*10.2 First Amendment to Energy Ventures, Inc. Executive
Deferred Compensation Stock Ownership Plan dated June 28,
1993 (incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8 (Reg. No. 33-65790)).
*10.3 Non-Employee Director Deferred Compensation Plan
(incorporated by reference to Form 10-Q, File 1-13086,
Filed November 16, 1992).
*10.4 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File
1-13086, filed August 8, 1991).
*10.5 1992 Employee Stock Option Plan, as amended (incorporated
by reference to Exhibit No. 4.7 to the Registration
Statement on Form S-8 (Reg. No. 333-13531)).
*10.6 Energy Ventures, Inc. Employees Stock Option Plan
(incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-8 (Reg. No. 33-31662)).
*10.7 Form of Stock Option Agreement under the Company's
Employees' Stock Option Plan (incorporated by reference to
Exhibit No. 4.2 to the Registration Statement on Form S-8
(Reg. No. 33-31662)).
*10.8 Amended and Restated Non-Employee Director Stock Option
Plan (incorporated by reference to Form 10-Q, File
1-13086, filed August 12, 1995).
+*10.9 Employment Agreements with each of Bernard J.
Duroc-Danner, James G. Kiley, Frances R. Powell, John C.
Coble and Robert Stiles.
10.10 Lease Agreement dated September 30, 1993, among T.F. de
Mexico, S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A.
de C.V., as Lessee, Energy Ventures, Inc. as Guarantor,
and Revemex, S.A. de C.V. as Owner of subleased assets
(incorporated by reference to Form 10-K, File 1-13086,
filed March 1, 1994).
+10.11 Modification dated November 21, 1996, to Lease Agreement
dated September 30, 1993, among T.F. de Mexico, S.A. de
C.V., Grant Prideco S.A. de C.V., Energy Ventures, Inc.,
as Guarantor, Steel Pipes of Mexico, S.A. and Grant
Prideco, Inc.
10.12 The Woodward, Oklahoma Lease agreements as amended
(incorporated by reference to Form 10-K, File 1-13086,
filed March 23, 1995).
10.13 Manufacturing and Sales Agreement dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited (incorporated by reference to Exhibit No.
10.34 to Form 10-K, File 1-13086, filed March 20, 1996).
10.14 Amended and Restated Lease Agreement dated May 3, 1996,
between Baker Hughes Oilfield Operations, Inc. and Grant
Prideco, Inc. (incorporated by reference to Exhibit No.
10.14 to Form 10-K, as amended by Form 10-K/A, File
1-13086, filed March 24, 1997).
10.15 Asset Purchase Agreement dated as of June 21, 1996, by and
between Energy Ventures, Inc. and Mallard Bay Drilling,
Inc. and Noble Drilling (West Africa) Inc. and Noble
Drilling Corporation (incorporated by reference to Exhibit
No. 2.3 to Form 8-K, File 1-13086, filed June 24, 1996).
+21.1 Subsidiaries of EVI, Inc.
+23.1 Consent of Arthur Andersen LLP.
+27.1 Financial Data Schedule.
- ---------------------
*Management Contract or Compensatory Plan or Arrangement
+Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holder of long-term debt of the Company and its subsidiaries
because the total amount of securities authorized under any of such
instruments does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to furnish a copy
of any such agreements to the Securities and Exchange Commission upon
request.
50
<PAGE> 51
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EVI, INC.
BY: /s/ BERNARD J. DUROC-DANNER
----------------------------
BERNARD J. DUROC-DANNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Date: March 26, 1998
-------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
BY: /s/ BERNARD J. DUROC-DANNER President and Chief Executive Officer March 26, 1998
-------------------------------------- (Principal Executive Officer)
BERNARD J. DUROC-DANNER and Director
BY: /s/ JAMES G. KILEY Vice President and Chief Financial Officer March 26, 1998
-------------------------------------- (Principal Financial Officer)
JAMES G. KILEY
BY: /s/ FRANCES R. POWELL Vice President, Accounting and Controller March 26, 1998
-------------------------------------- (Principal Accounting Officer)
FRANCES R. POWELL
BY: /s/ DAVID J. BUTTERS Director March 26, 1998
-------------------------------------- and Chairman of the Board
DAVID J. BUTTERS
BY: /s/ URIEL E. DUTTON Director March 26, 1998
--------------------------------------
URIEL E. DUTTON
BY: /s/ SHELDON S. GORDON Director March 26, 1998
--------------------------------------
SHELDON S. GORDON
BY: /s/ SHELDON B. LUBAR Director March 26, 1998
--------------------------------------
SHELDON B. LUBAR
BY: /s/ ROBERT B. MILLARD Director March 26, 1998
--------------------------------------
ROBERT B. MILLARD
BY: /s/ ROBERT A. RAYNE Director March 26, 1998
--------------------------------------
ROBERT A. RAYNE
</TABLE>
52
<PAGE> 52
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES COLLECTIONS DEDUCTIONS PERIOD
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for uncollectible accounts
receivable................................ $ 583 $ 390 $ 112 $ (79) $ 1,006
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts
receivable................................ $ 362 $ 486 $ 4 $ (269) $ 583
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts
receivable................................ $ 551 $ 252 $ 92 $ (533) $ 362
</TABLE>
53
<PAGE> 53
INDEX TO EXHIBITS
2.1 Agreement and Plan of Merger dated as of March 4, 1998, by
and between EVI, Inc. and Weatherford Enterra, Inc.
(incorporated by reference to Exhibit No. 2.1 to Amendment
No. 1 to Form 8-K on Form 8-K/A, File 1-13086, filed March
9, 1998).
2.2 Share Purchase Agreement made and entered into as of
January 30, 1998, by and among the shareholders of Nika
Enterprises Ltd., an Alberta corporation, listed on the
signature pages thereto and EVI Oil Tools Canada Ltd., an
Alberta corporation (incorporated by reference to Exhibit
No. 2.1 to the Form 8-K, File 1-13086, filed March 3,
1998).
2.3 Agreement and Plan of Merger dated December 12, 1996, by
and among EVI, Inc., Christiana Acquisition, Inc.,
Christiana Companies, Inc. and C2, Inc. (incorporated by
reference to Exhibit No. 2.1 to Form 8-K, File 1-13086,
filed December 31, 1997).
2.4 Agreement dated December 12, 1997, by and among EVI, Inc.,
Christiana Companies, Inc., Total Logistic Control LLC and
C2, Inc. (incorporated by reference to Exhibit No. 2.2 to
Form 8-K, File 1-13086, filed December 31, 1997).
2.5 Letter Agreement dated December 12, 1997, by and among
EVI, Inc., Christiana Acquisition, Inc., Christiana
Companies, Inc. and C2, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 1-13086, filed December
31, 1997).
2.6 Stock Purchase Agreement dated as of October 9, 1997,
between EVI, Inc. and PACCAR Inc (incorporated by
reference to Exhibit No. 2.1 to Form 8-K, File 1-13086,
filed October 21, 1997).
2.7 Stock Purchase Agreement dated as of October 9, 1997,
among certain shareholders of BMW Monarch (Lloydminster)
Ltd., the shareholders of BMW Pump Inc., the shareholder
of Makelki Holdings Ltd., the shareholder of 589979
Alberta Ltd., the shareholders of 600969 Alberta Ltd., the
shareholders of 391862 Alberta Ltd. and EVI, Inc.
(incorporated by reference to Exhibit No. 2.2 to Form 8-K,
File 1-13086, filed October 21, 1997).
2.8 Agreement and Plan of Merger dated as of July 16, 1997, as
amended, by and among XLS Holding, Inc., EVI, Inc. and
GPXL, Inc. (incorporated by reference to Exhibit No. 2.1
to Form 8-K, File 1-13086, filed August 26, 1997).
2.9 Stock Purchase Agreement dated as of February 21, 1997,
among Seigo Arai, Kanematsu USA Inc. and Energy Ventures,
Inc. (incorporated by reference to Exhibit No. 2.1 to Form
8-K, File 1-13086, filed March 17, 1997).
2.10 Agreement and Plan of Merger dated as of December 5, 1996,
among Energy Ventures, Inc., GulfMark Acquisition Co.,
GulfMark International, Inc. and New GulfMark
International, Inc. (incorporated by reference to Exhibit
No. 2.2 to Form 8-K, File 1-13086, filed December 26,
1996).
<PAGE> 54
2.11 Agreement and Plan of Distribution dated as of December 5,
1996, by and among GulfMark International, Inc., New
GulfMark International, Inc. and Energy Ventures, Inc.
(incorporated by reference to Exhibit No. 2.3 to Form 8-K,
File 1-13086, filed December 26, 1996).
2.12 First Amendment to Agreement and Plan of Merger dated as
of March 27, 1997, by and among Energy Ventures, Inc.,
GulfMark Acquisition Co., GulfMark International, Inc. and
GulfMark Offshore, Inc. (incorporated by reference to
Exhibit No. 2.3 to the Registration Statement on Form S-4
(Reg. No. 333-24133)).
2.13 Stock Purchase Agreement dated as of September 14, 1996,
by and among Parker Drilling Company and Energy Ventures,
Inc. (incorporated by reference to Exhibit 2.1 to Form
8-K, File 1-13086, filed October 3, 1996).
2.14 Agreement and Plan of Merger dated as of June 20, 1996
between Energy Ventures, Inc., TCA Acquisition, Inc. and
Tubular Corporation of America (incorporated by reference
to Exhibit No. 2.1 to Form 8-K, File 1-13086, filed June
24, 1996).
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit No. 3.2 to
the Form 10-K, File 1-13086, filed May 14, 1997).
3.2 By-laws of the Company, as amended (incorporated by
reference to Exhibit No. 3.2 to Form 10-K, File 1-13086,
filed March 1, 1994).
4.1 See Exhibit Nos. 3.1 and 3.2 for provisions of the
Restated Certificate of Incorporation, as amended, and
By-laws of the Registrant defining the rights of the
holders of Common Stock.
4.2 Credit Agreement dated as of February 17, 1998, among EVI,
Inc., EVI Oil Tools Canada Ltd., the Subsidiary Guarantors
defined therein, Chase Bank of Texas, National
Association, as U.S. Administrative Agent, The Bank of
Nova Scotia, as Documentation Agent and Canadian Agent,
ABN AMRO Bank, N.V., as Syndication Agent, and the other
Lenders defined therein, including the form of Note
(incorporated by reference to Exhibit No. 4.1 to the Form
8-K, File 1-13086, filed March 3, 1998).
4.3 Indenture dated March 15, 1994, among Energy Ventures,
Inc., as Issuer, the Subsidiary Guarantors party thereto,
as Guarantors, and Chemical Bank, as Trustee (incorporated
by reference to Form 8-K, File 1-13086, filed April 5,
1994).
4.4 Specimen 103% Senior Note due 2004 of Energy Ventures,
Inc. (incorporated by reference to Form 8-K, File 1-13086,
filed April 5, 1994).
4.5 First Supplemental Indenture by and among Energy Ventures,
Inc., Prideco and Chemical Bank, as trustee, dated June
30, 1995 (incorporated by reference to Exhibit No. 4.4 to
the Registration Statement on Form S-3 (Reg. No.
33-61933)).
4.6 Second Supplemental Indenture by and among Energy
Ventures, Inc., EVI Arrow, Inc., EVI Watson, Inc. and The
Chase Manhattan Bank, as trustee, dated effective as of
December 6, 1996 (incorporated by reference to Exhibit 4.6
to Form 10-K, File 1-13086, filed March 20, 1997).
4.7 Third Supplemental Indenture by and among EVI, Inc.,
Ercon, Inc. and The Chase Manhattan Bank, as trustee,
dated effective as of May 1, 1997 (incorporated by
reference to Exhibit 99.2 to Form 8-K, File 1-13086, filed
October 27, 1997).
4.8 Fourth Supplemental Indenture by and among EVI, Inc., XLS
Holding, Inc., XL Systems, Inc. and The Chase Manhattan
Bank, as trustee, dated effective as of August 25, 1997
(incorporated by reference to Exhibit 99.3 to Form 8-K,
File 1-13086, filed October 27, 1997).
4.9 Fifth Supplemental Indenture by and between EVI, Inc. and
The Chase Manhattan Bank dated as of December 12, 1997
(including the Form of Note and Form of Exchange Note)
(incorporated by reference to Exhibit 4.1 to Form 8-K,
File 1-13086, filed December 31, 1997).
4.10 Indenture dated as of October 15, 1997, between EVI, Inc.
and The Chase Manhattan Bank, as Trustee (incorporated by
reference to Exhibit No. 4.13 to the Registration
Statement on Form S-3 (Reg. No. 333-45207)).
4.11 First Supplemental Indenture dated as of October 28, 1997,
between EVI, Inc. and The Chase Manhattan Bank, as Trustee
(including form of Debenture) (incorporated by reference
to Exhibit 4.2 to Form 8-K, File 1-13086, filed November
5, 1997).
4.12 Registration Rights Agreement dated November 3, 1997, by
and among EVI, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston Corporation, Lehman Brothers
Inc., Prudential Securities Incorporated and Schroder
& Co. Inc. (incorporated by reference to Exhibit 4.3 to
Form 8-K, File 1-13086, filed November 5, 1997).
*10.1 Executive Deferred Compensation Stock Ownership Plan and
related Trust Agreement (incorporated by reference to Form
10-Q, File 1-13086, filed November 16, 1992).
*10.2 First Amendment to Energy Ventures, Inc. Executive
Deferred Compensation Stock Ownership Plan dated June 28,
1993 (incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8 (Reg. No. 33-65790)).
*10.3 Non-Employee Director Deferred Compensation Plan
(incorporated by reference to Form 10-Q, File 1-13086,
Filed November 16, 1992).
*10.4 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File
1-13086, filed August 8, 1991).
*10.5 1992 Employee Stock Option Plan, as amended (incorporated
by reference to Exhibit No. 4.7 to the Registration
Statement on Form S-8 (Reg. No. 333-13531)).
*10.6 Energy Ventures, Inc. Employees Stock Option Plan
(incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-8 (Reg. No. 33-31662)).
*10.7 Form of Stock Option Agreement under the Company's
Employees' Stock Option Plan (incorporated by reference to
Exhibit No. 4.2 to the Registration Statement on Form S-8
(Reg. No. 33-31662)).
*10.8 Amended and Restated Non-Employee Director Stock Option
Plan (incorporated by reference to Form 10-Q, File
1-13086, filed August 12, 1995).
+*10.9 Employment Agreements with each of Bernard J.
Duroc-Danner, James G. Kiley, Frances R. Powell, John C.
Coble and Robert Stiles.
10.10 Lease Agreement dated September 30, 1993, among T.F. de
Mexico, S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A.
de C.V., as Lessee, Energy Ventures, Inc. as Guarantor,
and Revemex, S.A. de C.V. as Owner of subleased assets
(incorporated by reference to Form 10-K, File 1-13086,
filed March 1, 1994).
+10.11 Modification dated November 21, 1996, to Lease Agreement
dated September 30, 1993, among T.F. de Mexico, S.A. de
C.V., Grant Prideco S.A. de C.V., Energy Ventures, Inc.,
as Guarantor, Steel Pipes of Mexico, S.A. and Grant
Prideco, Inc.
10.12 The Woodward, Oklahoma Lease agreements as amended
(incorporated by reference to Form 10-K, File 1-13086,
filed March 23, 1995).
10.13 Manufacturing and Sales Agreement dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited (incorporated by reference to Exhibit No.
10.34 to Form 10-K, File 1-13086, filed March 20, 1996).
10.14 Amended and Restated Lease Agreement dated May 3, 1996,
between Baker Hughes Oilfield Operations, Inc. and Grant
Prideco, Inc. (incorporated by reference to Exhibit No.
10.14 to Form 10-K, as amended by Form 10-K/A, File
1-13086, filed March 24, 1997).
10.15 Asset Purchase Agreement dated as of June 21, 1996, by and
between Energy Ventures, Inc. and Mallard Bay Drilling,
Inc. and Noble Drilling (West Africa) Inc. and Noble
Drilling Corporation (incorporated by reference to Exhibit
No. 2.3 to Form 8-K, File 1-13086, filed June 24, 1996).
+21.1 Subsidiaries of EVI, Inc.
+23.1 Consent of Arthur Andersen LLP.
+27.1 Financial Data Schedule.
- ---------------------
*Management Contract or Compensatory Plan or Arrangement
+Filed herewith
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and Bernard J. Duroc-Danner (the
"Executive"), is effective as of March 16, 1998.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three year(s) after such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Chairman and Chief
Executive Officer and (B) the Executive's services shall be performed
at the location where the Executive was employed immediately preceding
the date hereof or any office or location less than 35 miles from such
location.
<PAGE> 2
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the current base
salary being received by the Executive ("Annual Base Salary"), which
shall be paid at a monthly rate. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the date hereof
and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review.
Any increase in Annual Base Salary may not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase. The term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies"
-2-
<PAGE> 3
shall include any company controlled by, controlling or under common
control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
-3-
<PAGE> 4
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
-4-
<PAGE> 5
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period and (II) the Annual Bonus paid or
payable,
-5-
<PAGE> 6
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12- month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x)
-6-
<PAGE> 7
equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in
any transaction reported on the New York Stock Exchange during the
60-day period prior to and including the Executive's Date of
Termination. Such cash payments shall be made within 30 days after the
date of the Executive's election; provided, however, that if the
Executive's Date of Termination is within six months after the date of
grant of a particular option held by the Executive and the Executive is
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
which is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination and not
then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships which the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the EDC and the 401(k) Plan
and any other similar plans, including any stock options or restricted
stock held by the Executive, not already vested shall be 100% vested,
to the extent such vesting is permitted under the Code (as defined
below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
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<PAGE> 8
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the
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<PAGE> 9
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits provided under this
Agreement or such other agreement, whichever one, in its entirety, the Executive
chooses, but not both agreements, and when the Executive has made such election,
the other agreement shall be superseded in its entirety and shall be of no
further force and effect. The Executive also agrees that to the extent he or she
may be eligible for any severance pay or similar benefit under any laws
providing for severance or termination benefits, such other severance pay or
similar benefit shall be coordinated with the benefits owed hereunder, such that
the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
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<PAGE> 10
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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<PAGE> 11
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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<PAGE> 12
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information which is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Bernard J. Duroc-Danner
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: James G. Kiley
with a copy to: Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Bernard J. Duroc-Danner
-------------------------------------
Bernard J. Duroc-Danner
EVI, INC.
By /s/ James G. Kiley
----------------------------------
Name: James G. Kiley
-------------------------------
Title: Vice President and CFO
------------------------------
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<PAGE> 15
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and James G. Kiley (the "Executive"), is
effective as of March 16, 1998.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three year(s) after such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Senior Vice President
and Chief Financial Officer and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the date hereof or any office or location less than 35 miles
from such location.
<PAGE> 16
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the current base
salary being received by the Executive ("Annual Base Salary"), which
shall be paid at a monthly rate. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the date hereof
and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review.
Any increase in Annual Base Salary may not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase. The term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies"
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<PAGE> 17
shall include any company controlled by, controlling or under common
control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
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<PAGE> 18
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
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<PAGE> 19
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period and (II) the Annual Bonus paid or
payable,
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including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12- month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x)
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<PAGE> 21
equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in
any transaction reported on the New York Stock Exchange during the
60-day period prior to and including the Executive's Date of
Termination. Such cash payments shall be made within 30 days after the
date of the Executive's election; provided, however, that if the
Executive's Date of Termination is within six months after the date of
grant of a particular option held by the Executive and the Executive is
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
which is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination and not
then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships which the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the EDC and the 401(k) Plan
and any other similar plans, including any stock options or restricted
stock held by the Executive, not already vested shall be 100% vested,
to the extent such vesting is permitted under the Code (as defined
below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
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<PAGE> 22
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the
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<PAGE> 23
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits provided under this
Agreement or such other agreement, whichever one, in its entirety, the Executive
chooses, but not both agreements, and when the Executive has made such election,
the other agreement shall be superseded in its entirety and shall be of no
further force and effect. The Executive also agrees that to the extent he or she
may be eligible for any severance pay or similar benefit under any laws
providing for severance or termination benefits, such other severance pay or
similar benefit shall be coordinated with the benefits owed hereunder, such that
the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
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<PAGE> 24
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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<PAGE> 25
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information which is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: James G. Kiley
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
with a copy to: Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ James G. Kiley
---------------------------------
James G. Kiley
EVI, INC.
By /s/ Bernard J. Duroc-Danner
------------------------------
Name: Bernard J. Duroc-Danner
---------------------------
Title: President and CEO
--------------------------
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EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and Frances R. Powell (the "Executive"),
is effective as of March 16, 1998.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three year(s) after such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Corporate Controller
and such other executive positions as may be assigned to her and (B)
the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the date hereof or any
office or location less than 35 miles from such location.
<PAGE> 30
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the current base
salary being received by the Executive ("Annual Base Salary"), which
shall be paid at a monthly rate. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the date hereof
and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review.
Any increase in Annual Base Salary may not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase. The term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies"
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shall include any company controlled by, controlling or under common
control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
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(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
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(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period and (II) the Annual Bonus paid or
payable,
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including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12- month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x)
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equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in
any transaction reported on the New York Stock Exchange during the
60-day period prior to and including the Executive's Date of
Termination. Such cash payments shall be made within 30 days after the
date of the Executive's election; provided, however, that if the
Executive's Date of Termination is within six months after the date of
grant of a particular option held by the Executive and the Executive is
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
which is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination and not
then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships which the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the EDC and the 401(k) Plan
and any other similar plans, including any stock options or restricted
stock held by the Executive, not already vested shall be 100% vested,
to the extent such vesting is permitted under the Code (as defined
below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
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(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the
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Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits provided under this
Agreement or such other agreement, whichever one, in its entirety, the Executive
chooses, but not both agreements, and when the Executive has made such election,
the other agreement shall be superseded in its entirety and shall be of no
further force and effect. The Executive also agrees that to the extent he or she
may be eligible for any severance pay or similar benefit under any laws
providing for severance or termination benefits, such other severance pay or
similar benefit shall be coordinated with the benefits owed hereunder, such that
the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
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Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information which is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Frances R. Powell
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
with a copy to: Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Frances R. Powell
---------------------------------
Frances R. Powell
EVI, INC.
By /s/ Bernard J. Duroc-Danner
------------------------------
Name: Bernard J. Duroc-Danner
---------------------------
Title: President and CEO
--------------------------
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<PAGE> 43
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and John C. Coble (the "Executive"), is
effective as of March 16, 1998.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three year(s) after such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be Vice President,
Tubular Division and such other similar position relating to the
Company's Grant Prideco tubular division and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the date hereof or any office or
location less than 35 miles from such location.
<PAGE> 44
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the date hereof, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the current base
salary being received by the Executive ("Annual Base Salary"), which
shall be paid at a monthly rate. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the date hereof
and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review.
Any increase in Annual Base Salary may not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase. The term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies"
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<PAGE> 45
shall include any company controlled by, controlling or under common
control with the Company.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
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<PAGE> 46
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
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<PAGE> 47
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period and (II) the Annual Bonus paid or
payable,
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<PAGE> 48
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than 12 full months or during which the Executive was
employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive under a plan
sponsored by the Company (together with any accrued interest
or earnings thereon), and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12- month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x)
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<PAGE> 49
equals the purchase price per share covered by the option and (y)
equals the highest reported sale price of a share of Common Stock in
any transaction reported on the New York Stock Exchange during the
60-day period prior to and including the Executive's Date of
Termination. Such cash payments shall be made within 30 days after the
date of the Executive's election; provided, however, that if the
Executive's Date of Termination is within six months after the date of
grant of a particular option held by the Executive and the Executive is
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
which is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination and not
then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships which the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the EDC and the 401(k) Plan
and any other similar plans, including any stock options or restricted
stock held by the Executive, not already vested shall be 100% vested,
to the extent such vesting is permitted under the Code (as defined
below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
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<PAGE> 50
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same position had the employment
of the Executive not been so terminated as a result of a breach by the
Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the
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<PAGE> 51
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement. It is expressly agreed by the Executive that he or she shall have no
right to receive, and hereby waives any entitlement to, any severance pay or
similar benefit under any other plan, policy, practice or program of the
Company. In addition, if the Executive has an employment or similar agreement
with the Company at the Date of Termination, he or she agrees that he or she
shall have the right to receive all of the benefits provided under this
Agreement or such other agreement, whichever one, in its entirety, the Executive
chooses, but not both agreements, and when the Executive has made such election,
the other agreement shall be superseded in its entirety and shall be of no
further force and effect. The Executive also agrees that to the extent he or she
may be eligible for any severance pay or similar benefit under any laws
providing for severance or termination benefits, such other severance pay or
similar benefit shall be coordinated with the benefits owed hereunder, such that
the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
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Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information which is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: John C. Coble
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
with a copy to: Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ John C. Coble
-------------------------------------
John C. Coble
EVI, INC.
By /s/ Bernard J. Duroc-Danner
----------------------------------
Name: Bernard J. Duroc-Danner
-------------------------------
Title: President and CEO
------------------------------
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EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and Robert Stiles (the "Executive"), is
effective as of March 16, 1998.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
previously determined that it is in the best interests of the Company and its
stockholders to retain the Executive and to induce the employment of the
Executive for the long term benefit of the Company;
WHEREAS, the Board does not contemplate the termination of the
Executive during the term hereof and the Board and the Executive expect that the
Executive will be retained for at least the three year period contemplated
herein; and
WHEREAS, to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment.
(a) The Company hereby agrees that the Company or an
affiliated company will continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company or an affiliate subject to
the terms and conditions of this Agreement, during the Employment Period (as
defined below).
(b) The "Employment Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three year(s) after such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Contract Period shall not be so extended.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties and responsibilities) shall be an executive officer
of the Company and (B) the Executive's services shall be performed, at
the election of the Company, at either the Houston or Dallas, Texas
Greater Metropolitan areas.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to
<PAGE> 58
devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to
use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the date hereof, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the date hereof shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary equal to the current base
salary being received by the Executive ("Annual Base Salary"), which
shall be paid at a monthly rate. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the date hereof
and thereafter at least annually; provided, however, that a salary
increase shall not necessarily be awarded as a result of such review.
Any increase in Annual Base Salary may not serve to limit or reduce any
other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase. The term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible
for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period on the same basis as other executive
officers under the Company's executive officer annual incentive
program. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to a Company sponsored
deferred compensation plan in effect.
(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to the Executive's peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect on the date hereof. As used in this Agreement,
the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
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<PAGE> 59
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible to participate in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to the Executive's peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than such plans, practices, policies
and programs in effect for the Executive on the date hereof.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive on the date
hereof.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits (including, without
limitation, financial planning services, payment of club dues, a car
allowance or use of an automobile and payment of related expenses, as
appropriate) in accordance with the most favorable plans, practices,
programs and policies of the Company in effect on the date hereof.
(vii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies in effect for the Executive on the date
hereof.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective 30 days after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that within the 30-day period after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 calendar days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other
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than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer
of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or of a senior officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
2(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the date hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
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<PAGE> 61
(v) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination during the
Employment Period by the Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 10(b) of the Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified
therein, as the case may be;
(ii) if the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination; and
(iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as the
case may be.
4. Obligations of the Company Upon Termination.
(a) Good Reason; Other than For Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) The Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
highest Annual Bonus received by the Executive over the
preceding three year period and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the
most
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<PAGE> 62
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (3)
any compensation previously deferred by the Executive under a
plan sponsored by the Company (together with any accrued
interest or earnings thereon), and any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"), and
(B) an amount equal to three times the sum
of (i) the then current Annual Base Salary of the Executive
and (ii) the Highest Annual Bonus, and
(C) an amount equal to the total of the
employer matching contributions credited to the Executive
under the Company's 401(k) Savings Plan (the "401(k) Plan") or
any other deferred compensation plan during the 12- month
period immediately preceding the month of the Executive's Date
of Termination multiplied by three, such amount to be grossed
up so that the amount the Executive actually receives after
payment of any federal or state taxes payable thereon equals
the amount first described above.
(ii) For a period of three years from the Executive's
Date of Termination (the "Remaining Contract Term") or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in Section 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated; provided, however, that
with respect to any of such plans, programs, practices or policies
requiring an employee contribution, the Executive shall continue to pay
the monthly employee contribution for same, and provided further, that
if the Executive becomes reemployed by another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility;
(iii) The Company shall, at its sole expense as
incurred, provide the Executive with outplacement services, the scope
and provider of which shall be selected by the Executive in his sole
discretion;
(iv) With respect to all options to purchase Common
Stock held by the Executive pursuant to a Company stock option plan on
or prior to the Date of Termination, irrespective of whether such
options are then exercisable, the Executive shall have the right,
during the 60-day period after the Date of Termination, to elect to
surrender all or part of such options in exchange for a cash payment by
the Company to the Executive in an amount equal the number of shares of
Common Stock subject to the Executive's option multiplied by the
difference between (x) and (y) where (x) equals the purchase price per
share covered by the option and (y) equals the highest reported sale
price of a share of Common Stock in any transaction reported on the New
York Stock Exchange during the 60-day period prior to and including the
Executive's
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Date of Termination. Such cash payments shall be made within 30 days
after the date of the Executive's election; provided, however, that if
the Executive's Date of Termination is within six months after the date
of grant of a particular option held by the Executive and the Executive
is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, any cash payments related thereto shall be made on the date
which is six months and one day after the date of grant of such option
to the extent necessary to prevent the imposition of the disgorgement
provisions under Section 16(b). Notwithstanding the foregoing, if any
right granted pursuant to the foregoing would make any change of
control transaction ineligible for pooling of interests accounting
treatment under APB No. 16 that but for this Section 4(a)(iv) would
otherwise be eligible for such accounting treatment, the Executive
shall receive shares of Common Stock with a Fair Market Value equal to
the cash that would otherwise be payable hereunder in substitution for
the cash, provided that any such shares of Common Stock so granted to
the Executive shall be registered under the Securities Act of 1933, as
amended; any options outstanding as of the Date of Termination and not
then exercisable shall become fully exercisable as of the Executive's
Date of Termination, and to the extent the Executive does not elect to
surrender same for a cash payment (or the equivalent number of shares
of Common Stock) as provided above, such options shall remain
exercisable for one year after the Executive's Date of Termination or
until the stated expiration of the stated term thereof, whichever is
shorter; restrictions applicable to any shares of Common Stock granted
to the Executive by the Company shall lapse, as of the date of the
Executive's Date of Termination;
(v) All country club memberships, luncheon clubs and
other memberships which the Company was providing for the Executive's
use at the time Notice of Termination is given shall, to the extent
possible, be transferred and assigned to the Executive at no cost to
the Executive (other than income taxes owed), the cost of transfer, if
any, to be borne by the Company;
(vi) The Company shall either transfer to the
Executive ownership and title to the Executive's company car at no cost
to the Executive (other than income taxes owed) or, if the Executive
receives a monthly car allowance in lieu of a Company car, pay the
Executive a lump sum in cash within 30 days after the Executive's Date
of Termination equal to the Executive's annual car allowance multiplied
by three;
(vii) All benefits under the EDC and the 401(k) Plan
and any other similar plans, including any stock options or restricted
stock held by the Executive, not already vested shall be 100% vested,
to the extent such vesting is permitted under the Code (as defined
below);
(viii) To the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(ix) The foregoing payments are intended to
compensate the Executive for a breach of the Company's obligations and
place Executive in substantially the same
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position had the employment of the Executive not been so terminated
as a result of a breach by the Company.
(b) Death. If Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash
within 30 days after the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the Executive's peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, in effect on the date hereof or, if more favorable,
those in effect on the date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days after the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(c) shall include, without limitation, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable benefits generally provided by the Company and
its affiliated companies to the Executive's disabled peer executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in effect generally on the date hereof or, if
more favorable, those in effect at the time of the Disability.
(d) Cause; Other Than for Good Reason. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than the
obligation to pay to the Executive (x) his or her Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
after the Date of Termination subject to such other options or restrictions as
provided by law.
5. Other Rights. Except as provided hereinafter, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor,
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Except as provided hereinafter, amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent
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<PAGE> 65
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement. It is expressly agreed by
the Executive that he or she shall have no right to receive, and hereby waives
any entitlement to, any severance pay or similar benefit under any other plan,
policy, practice or program of the Company. In addition, if the Executive has an
employment or similar agreement with the Company at the Date of Termination, he
or she agrees that he or she shall have the right to receive all of the benefits
provided under this Agreement or such other agreement, whichever one, in its
entirety, the Executive chooses, but not both agreements, and when the Executive
has made such election, the other agreement shall be superseded in its entirety
and shall be of no further force and effect. The Executive also agrees that to
the extent he or she may be eligible for any severance pay or similar benefit
under any laws providing for severance or termination benefits, such other
severance pay or similar benefit shall be coordinated with the benefits owed
hereunder, such that the Executive shall not receive duplicate benefits.
6. Full Settlement.
(a) No Rights of Offset. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.
(b) No Mitigation Required. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
(c) Legal Fees. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expense which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company or the Executive of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereto (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
7. Certain Additional Payments by the Company.
(a) Although this Agreement is not being entered into in
connection with or contingent upon a change of control of the Company, anything
in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation, any income taxes (and any interest
and penalties imposed with
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<PAGE> 66
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $50,000 (taking
into account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination shall be made
by Arthur Andersen LLP or, as provided below, such other certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days after the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment (or an additional Gross-Up
Payment) in the event the IRS seeks higher payment. Such notification shall be
given as soon as practicable, but no later than ten business days after the
Executive is informed in writing of such claim, and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
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<PAGE> 67
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claims; provided, however, that the
Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
costs and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, provided that it shall not apply to information which is or shall
become public knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement), information that is developed
by the Executive independently of such information, or knowledge or data or
information that is disclosed to the Executive by a third party under no
obligation of confidentiality to the Company. After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Robert Stiles
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
with a copy to: Curtis W. Huff
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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<PAGE> 70
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Robert Stiles
------------------------------------------
Robert Stiles
EVI, INC.
By /s/ Bernard J. Duroc-Danner
---------------------------------------
Name: Bernard J. Duroc-Danner
------------------------------------
Title: President and CEO
-----------------------------------
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<PAGE> 1
EXHIBIT 10.11
AGREEMENT TO MODIFY THE LEASING CONTRACT AND THE CONTRACT OF FABRICATION
("MAQUILA") CELEBRATED, ON ONE HAND, BY THE TF OF MEXICO, S.A. DE C.V.
(HEREINAFTER "TF"), REPRESENTED BY THEIR LEGAL REPRESENTATIVES GENTLEMEN
GUILLERMO P. VOGUEL HINOJOSA AND MARIO O. LALLA, ON THE OTHER HAND, GRANT
PRIDECO, S.A. FROM C.V. (FROM NOW ON "GRANT MEXICO") REPRESENTED BY THEIR LEGAL
REPRESENTATIVES, MR. JOE MIKUSH, AND ON THE OTHER HAND STEEL PIPES OF MEXICO,
S.A. (HEREINAFTER "TAMSA"), AS A MAJOR SHAREHOLDER OF TF, REPRESENTED BY THEIR
LEGAL REPRESENTATIVES GENTLEMEN GUILLERMO P. VOGEL HINOJOSA AND MARIO O. LALLA,
ON THE OTHER HAND, GRANT PRIDECO INC. (HEREINAFTER, "GRANT PRIDECO"), AS A MAJOR
SHAREHOLDER OF GRANT MEXICO, REPRESENTED BY MR. JOHN G. COBLE AND ENERGY
VENTURES INC. AS A GUARANTOR (HEREINAFTER "ENERGY"), REPRESENTED BY MR. GHAZI
HASHEM, IN ACCORDANCE WITH THE FOLLOWING STATEMENTS AND CLAUSES.
WITNESSETH:
TF And "Grant Mexico" state the following:
I. As of date 30 of September of 1993 and effective from September 1 of 1993, TF
and Grant Mexico entered a contract of lease of the Industrial Plant composed of
the lands, buildings, installations, machinery, equipment and goods described in
the contract itself (from now on the contract of lease) and as of September 30
of 1993, both companies executed a contract of fabrication ("maquila") forming
part of the Contract of Lease as Annex "P" (from now on the "Contract of
Fabrication").
II. That due to the industrial complementarily and strategic alliance created
between the TAMSA companies and Great Prideco, main shareholders respectively of
TF and Grant Mexico, which has represented important benefits for both
industrial groups and in conformity with Clause Twentieth Third of the Contract
of Lease, both parties hereto agree as follows:
1
<PAGE> 2
MODIFICATORY CLAUSES
FIRST - TF and Grant Mexico agree to modify the Second Clause of the Contract of
Lease as it is written bellow:
a) Grant Mexico will pay TF an Annual Base Rent of U.S. Dls. $2,000,000.00 (two
million dollars) for the time term starting October 1st of 1996 and ending the
30th of September of 1997. This rent will be covered in quarterly payments the
first working day of each quarter, and will be escalated according to the
"Consumer Price Index For All Urban Consumers" issued by the "United States
Department of Labor Bureau of Labor Statistics" from now on "CPI" and which
would be available and published starting from the CPI of August of 1996. That
is to say, the payable rent in October of 1996 will be adjusted with the
inflation of August of 1996 that is published in September of 1996 and the
payable rent in January of 1997 will be adjusted with the inflation
corresponding to the quarter September, November of 1996, that is published in
December of 1996, and so successively in the posterior quarters during which
this Contract continues to be valid. It is understood and accepted by the
parties that this formula of calculation could originate the time term
displacement of a month in the calculation of the escalation of each due quarter
because of the date of publication of the CPI. In case of that time term
displacement, the calculation of the escalation will be made with the last CPI
that had been published and any difference in favor or against Grant Mexico,
according to the CPI with the inflation of the quarter that should have
considered to calculate the escalation, will be reimbursed to or paid by Grant
Mexico immediately, when said CPI is published.
2
<PAGE> 3
The schedule of quarterly payments is as follows:
1) First payment (quarter October-December of 1996) U.S. Dls. $350,000.00 (three
hundred fifty thousand dollars).
2) Second payment (quarter January-March of 1997) U.S. Dls. $650,000.00 (six
hundred and fifty thousand dollars).
3) Third payment (quarter April-June of 1997 U.S. $500,000.00 (five hundred
thousand dollars).
4) Fourth payment (quarter July-September of 1997) U.S. Dls. $500,000.00 (five
hundred thousand dollars)
b) Starting from the 1st. of October, 1997, the Annual Base Rent will be of U.S.
Dls. $3,000,000.00 (three million dollars) payable in four equal anticipated
payments from the first working day of each quarter and according to the CPI, as
it was established in the first paragraph of the preceding clause. c) The cost
of the Rent doesn't include the Sales Tax. Grant Mexico will be obliged to pay
such tax, as well as any other that could result as a consequence of this
Contract of Lease and of the established fiscal laws of Grant Mexico as a
Lessee.
SECOND - TF and Grant Mexico agree to modify the Fourth Clause of the Contract
of Lease, so that it will be as follows:
"FOURTH - TIME TERM OF THE LEASE"
The contract of lease will be valid for an indefinite time, with the
understanding that
3
<PAGE> 4
at the moment of termination of the present Contract of Lease for any cause, the
Contract of Fabrication "Maquila" that is attached as annex "P" will be
considered as terminated automatically. For the purpose of considering as
terminated this Contract of Lease, the parties are obliged to observe the
following:
1. In the case that neither Grant Mexico nor TF has incurred in any causal of
noncompliance of this Contract of Lease and of the Contract of Fabrication
"Maquila", any of the parties could consider as terminated the present Contract
of Lease by means of a written notification sent to the other party. In one or
another case, the lease will be in force in the specified terms, including the
quarterly escalations to the rents, based on the CPI, and subject to the payment
of the rent corresponding to the following quarterly period to: a) Until April
30 of the year 2001, if the notification of cancellation is issued between the
1st. of May, 1996 and October 31st 1998; or b) For a term of up to 2-1/2 (two
and one-half) years, counted starting from the notification of cancellation,
whenever it is issued after October 31st of 1998
Grant Mexico gives up any right that could correspond to it, in order to acquire
in a preferred way whatever asset or industrial plant, matter of the present
Contract of Lease.
2. In case that Grant Mexico terminates in an anticipated form the lease
foreseen by this Contract and in the terms provided thy this Clause or in case
that the lease finishes in an anticipated way by causes attributable to Grant
Mexico, Grant Mexico
4
<PAGE> 5
will have the obligation of paying TF in addition to the ordinary payment of the
rent, an extraordinary amount equivalent to 6 (six) months of rent, payable on
the date that the termination of the lease becomes effective.
3. Grant Mexico is obliged to submit for expressed approval of TF whatever new
investment of any specific type desired to carry out in the Industrial Plant,
matter of the contract of lease. TF for its part will give an answer in a term
not greater than 30 (thirty) days starting from the date of the requisition
receipt, whenever this requisition refers to investments destined to the
fabrication of perforation pipe joints, ballasted drill bits ("lastrabarrenas")
or flanges (hereinafter the successive "Current Destination of the Plant"). In
case that TF doesn't answer to the requisition of Grant Mexico within the term
of 30 (thirty days) it will be understood that TF has given their approval to
the Grant Mexico proposal.
Grant Mexico and TF are obliged to work jointly in order to evaluate the cost of
the specific investments carried out starting May 2nd of 1996, or any investment
that Grant Mexico desires to carry out in the Industrial Plant, based on the
fact that all the investments will be depreciated in a term of 5 (five) years,
with exception of constructions, which will depreciate in a term of 8 (eight)
years, and that said plan of investments will be signed by common consent by
authorized personnel of TF. The specific investments carried out already
starting from May 2 of 1996, are described in detail in the Annex "Carried out
Investments." This annex will form part of this Agreement and the mentioned
investments will follow the established procedures established in this clause 3.
5
<PAGE> 6
The not obtaining of said authorization at the moment of beginning of the
referred investments, will be cause of anticipated and immediate termination of
the Contract, nevertheless having as the only exception the investments that are
intended for the Current Destination of the Plant and whenever they don't exceed
in an accumulated way, U.S Dls. $1,000,000.00 (one million dollars). In case of
having the previously described exception, this investment will be regularized
according to the established procedure and within the thirty following days from
the beginning of the realization of the investments.
In the case of termination by any reason whatsoever, Grant Mexico will have the
option of retiring the carried out investment according to the program of
written approval by TF according to the terms of this Clause, or, could ask TF
to reimburse the remnant part of any investment approved by the parties and that
has not been still totally depreciated at the moment of the effective reception
of the Industrial Plant by TF. The value of the reimbursement will be the amount
previously authorized in writing by TF, remaining after the depreciation
specified in this Clause.
4. The stipulations contained in this contract of Lease, will continue effective
even after the finishing of the lease, until the complete satisfaction of any
liability pending of execution by any of the parties according to this lease,
including, without any limitation, the obligations of Grant Mexico to
reintegrate the given goods in lease and of indemnifying TF and, in its turn,
the obligation of TF of reimbursing Grant Mexico, in the terms and for the
causes foreseen in this Contract.
6
<PAGE> 7
THIRD. - TF and Grant Mexico agree to modify the first sentence of the first
paragraph of Clause Sixth of the Contract of Lease in the Following Terms:
a) Grant Mexico is obliged to fabricate and repair, for the benefit of TF/TAMSA,
the perforation pipes joints to satisfy the sales market requirements of the
United Mexican States and the Argentina Republic, which will be especially
marketed through TAMSA.
b) Also, Grant Mexico will utilize and operate the Industrial Plant for the
fabrication of flanges, perforation pipe joints and any other goods that could
be manufactured considering the nature and capacities of the Industrial Plant.
Also it will take care of the repair of perforation pipes, with the
understanding however, of that Grant Mexico will only be licensed to manufacture
and or repair perforation pipe joints for their sale in the export market
(except the Argentina Republic) and for the effects of the fabrication
("maquila") to which refers the paragraph a) of this Clause and to the Clause
Seventeen of the present Contract."
FOURTH - Since the Contract of Fabrication ("Maquila") constitutes the Annex "P"
that forms integrated part of the Contract of Lease that in this Agreement is
modified in some of its clauses, TF as well as Grant Mexico agree to modify the
First Clause, first paragraph; Third Clause, third paragraph; Fourth Clause,
first paragraph, Fifth Clause; Thirteenth Clause and Annex "1" of the mentioning
Annex "P", in order that it becomes as follows.
FIRST CLAUSE - (Modifying the first paragraph): Grant Mexico is obliged to
fabricate
7
<PAGE> 8
"maquilar" benefit of TF, at TAMSA's request, during the validity of the present
contract, the finishing and/or repair of perforation pipes, destined to cover
the necessities of the Mexican and Argentines markets, in accordance to the
joints that are included in the catalogs of Grant Prideco, in any moment, and
which will be destined to cover the requirements of the market from the United
Mexican States and of the Argentina Republic.
THIRD CLAUSE - (Adding a third paragraph); Grant Mexico authorizes TF to
indicate in its offers and sales promotions of perforation pipes in Mexico and
Argentina, the characteristics and specifications of the joints and that they
have been made by Grant Mexico.
FOURTH CLAUSE - (Adding a First Paragraph) - TF agrees to pay Grant Mexico for
its activities of fabrication ("maquila"), the costs that are described in Annex
"1" that form part of the present Contract.
A) In case that necessities for products of exclusive property exist, like the
Hi Torque gear joint, Hydril wedge thread gear joints special hardness tool
joints and tool joints with control yields, Grant Mexico commits itself to
respect the existing requirements of the Contract of fabrication ("Maquila")
establishing that TF will pay the cost previously agreed in Mexican pesos, plus
one reasonable margin of profit to be defined by mutual agreement between the
parties and determined in dollars from the United States of America, in line
with the current relationship cost/margin of profit. In case of special
requirements of the Mexican and/or Argentine markets including additional costs,
the parties agree that the cost in pesos will be adjusted in accordance to these
additional costs.
8
<PAGE> 9
FIFTH CLAUSE - The programs of fabrication ("maquilado") will be endorsed by
specific purchase orders including the specifications, time terms and conditions
of delivery as well as the agreed costs already in the Annex "1", issued by the
Supply Management of TFI/TAMSA. The purchase orders accepted by Grant Mexico
will be delivered within the least possible time period after the date that
Grant Mexico receives the requisitions notifications, provided that TF submits
to Grant Mexico the programs of fabrication ("maquilado") as stated in the
following paragraph. Grant Mexico commits to fabricate ("maquilar") up to 2,500
perforation pipe joints per month, whenever TF submits the programs of
fabrication ("maquilado") at least ninety days before. For greater quantities,
Grant Mexico has the right to verify its production readiness. However, the
parties accept that TF has the right, within this period, to carry out any
change in the programs of fabrication ("maquilado") when they are required by
"Petroleos Mexicanos" (Pemex), with the understanding that:
The respective change won't exceed the previously established monthly maximum of
2500 joints perforation pipe. Nevertheless, the parties agree that in the
assumption that additional necessities at 2500 joints surge and whenever it is
so accepted in writing by Grant Mexico, it commits itself to manufacture them in
the terms of this Contract.
In case of that the required change by Pernex implicates a cancellation of the
order, if TF notifies Grant Mexico this cancellation after 45 (forty five) days
of the date of placement of the referred order and if the pipe work carried out
by Grant Mexico is not susceptible of being marketed, TF is obliged to redeem
Grant Mexico the comparative costs to materials and work executed until the date
that Grant Mexico receives the notification of cancellation
9
<PAGE> 10
by Tamsa. This disposition applies to special products, like HiTorque, HYDRlL
thread or any other product that could not be sold to customers different to
Pemex under commercial conditions.
In case of noncompliance by Grant Mexico in the agreed delivery times or in the
fabrication ("maquila") specifications, Grant Mexico is obliged to reimburse TF
all the expenses and the fines that it had to cover as a consequence of
noncompliance with the terms of the purchase orders or contracts that have taken
place with others in regard to the fabrication ("maquila"), with the sole
exception of fortuitous cases or force majeure or the lack of the opportune
supply of the seamless steel pipes, or that they don't fulfill the required
specifications. With the purpose that the supply of seamless steel pipes is
considered to be done in due time, TF will carry out said supply to Grant
Mexico, according to the programs of supply that are established and negotiated
between both parties.
The parties agree that any noncompliance to the terms and conditions foreseen by
the present Contract, that is not corrected within the 60 (sixty) days of having
been notified in writing by the other party, will be considered as a causal of
rescission of the Contract of Lease and the Contract of Fabrication ("Maquila")
which is included as Annex "P". This correction period of 60 (sixty) days
mentioned in the previous paragraph, won't apply for the dates and terms already
agreed for the delivery of the fabrication mentioned in this clause, neither
will be considered for the term payment of invoices as foreseen in the first
paragraph of the Seventh Clause of the present Contract of Fabrication
("Maquila").
10
<PAGE> 11
THIRTEEN
The present contract of fabrication has an indefinite validity and the
provisions foreseen in the first paragraph of the Fourth Clause of the Contract
of Lease will result applicable to the present contract in regards to the
requirements for its termination, with the understanding that whichever of the
contracts, Lease or Fabrication ("Maquila") will finish automatically at the
moment that any of the two finishes, whatever the reason of termination.
It is understood that in the case of maintaining their validity the Contract of
Lease as referred in the Second Declaration, the present Contract will be
continued automatically for the same period and should finish at the same time
exactly as the Contract of Lease of which the Contract of Fabrication will form
part as Annex "P".
FIFTH - Outside of the modifications that in this Agreement are approved by both
parties, the rest of the clauses of the Contract of Lease and the Contract of
Fabrication ("Maquila"), executed on the thirtieth of September of 1993, they
remain valid and applicable and, therefore those that determine and specify the
causes of noncompliance and the obligations and rights corresponding to each
party.
11
<PAGE> 12
Four copies of the present Modification Agreement are signed in the Federal
District of Mexico City. United Mexican States, on the twenty first day of the
month of November of 1996 by TF, and in Houston, Texas, United States of
America, at the eighteenth day of the month of November of 1996.
By:
TF DE MEXICO S.A. DE C.V.
By:
GRANT PRIDECO S.A. DE C.V.
By:
ENERGY VENTURES INC.
Guarantor
By:
STEEL PIPES OF MEXICO, S.A.
By:
GRANT PRIDECO, INC.
12
<PAGE> 13
Annex "Carried Out Investments"
According to what was specified in the Modification Agreement to the Contract of
Lease, forth clause "Term of Lease" paragraph 3, we attach a detailed list of
the carried out or in execution investments that have the approval of TF.
(a) Updating of the Coating Plant.
1. Purchase of a furnace used for pipe burning.
2. Purchase of an used conveyor utilized for final fusion bonding
of coated pipes.
3. Purchase of a used blasting system.
4. Purchase of an used air compressor - 950 CFM
(b) Increasing of capacity of machining, forging and welding of joints.
1. Enlargement of roof in order to house the equipment destined
to the fabrication of joints 1,956 square meters (21,027
square feet).
2. Installation of 17 lathes and conveyors for handling of pipes
from other plants.
13
<PAGE> 14
3. Installation of four coating machines brought from Grant Prideco.
4. Installation of four ovens for thermal treatment (3 transferred
bought)
5. Purchase and installation of additional system for phosphatizing.
6. Enlargement of roof in order to house the equipment destined
to the caulking of unions (10" Ajax:). 575 square meters
(6.181 square feet)
7. Installation of Ajax [caulking machine] of 10" and related
equipment.
8. Enlargement of roof in order to house double line of welding
767 square meters (8245 square feet).
9. Installation of double line of welding, excluding welder in
order to increase capacity of welding.
(c) Increasing capacity of flanges fabrication.
1. Purchase and installation of 8 CNC used semi-automatic lathes
and drilling rig destined to increase the production capacity
of flanges.
14
<PAGE> 1
EXHIBIT 21.1
EVI, INC. AND SUBSIDIARIES
Jurisdiction
391862 Alberta Ltd Alberta
589879 Alberta Ltd Alberta
600969 Alberta Ltd Alberta
708621 Alberta Ltd Alberta
721260 Alberta Ltd Alberta
Ampscot Equipment Ltd. Alberta
Anbert Cilindros S.A.I.C. Argentina
Ancil S.A.I.C. Argentina
Baktexas Azerbajian
BMW Monarch (Lloydminster) Ltd. Alberta
BMW Pump Inc. Alberta
Channelview Real property, Inc. Delaware
Christiana Acquisition, Inc. Wisconsin
Citra Grant Prideco Marketing Ltd. Jersey Islands
Drill Tube International, Inc. Texas
Dongying Shengli-Highland Company Ltd. China
Energy Ventures (Cyprus) Limited Cyprus
Energy Ventures Far East Limited Hong Kong
Energy Ventures Foreign Sales Corp. Barbados
Energy Ventures Mid East, Inc. Cayman Islands
Enerpro de Mexico S.A. de CV. Mexico
Ercon, Inc. Delaware
EVI (Barbados), SRL Barbados
EVI Arrow, Inc. Delaware
EVI Brasil Comercia Ltda. Brazil
EVI Cayman, Ltd. Cayman Islands
EVI International Inc. Delaware
EVI Management, Inc. Delaware
EVI Oil Tools Canada Ltd. Alberta
EVI Oil Tools de Venezuela, S.A. Venezuela
EVI Oil Tools do Brasil Comercio
e Servicios Ltda. (Marservice Ltd.) Brazil
EVI Oil Tools do Brasil Industria
e Comercio Ltda. Brazil
EVI Oil Tools Limited Scotland
EVI Oil Tools, Inc. Delaware
EVI Watson Packers, Inc. Delaware
EVI, Inc. Delaware
Grant Prideco (Singapore) PTE Ltd Singapore
Grant Prideco de Venezuela, S.A. Venezuela
Grant Prideco Limited Scotland
Grant Prideco S.A. Mexico
Grant Prideco, Inc. Delaware
Grant Prideco, S.A. Switzerland
Grant Tubular Finishing Limited Hungary
Griffin Legrand LP Alberta
Houston Well Screen Asia PTE Ltd. Singapore
Houston Well Screen Co. Texas
Houston Well Screen Export, Inc. Barbados
Kobe International Ltd. Bahamas
KSP Logistics Co., Ltd. Thailand
<PAGE> 2
EVI, INC. SUBSIDIARIES
KSP Services International Co., Ltd. Thailand
Legrand (Cyprus) Ltd Cyprus
Legrand International (1977) Ltd. Barbados
Makelki Holdings Ltd. Alberta
McAllister Petroleum Services (Cyprus) Limited Cyprus
McAllister Petroleum Services Ltd. Alberta
Nika Enterprises Ltd. Alberta
Petroleum Equipment Supply Company Louisiana
Prideco Europe Limited Scotland
PT Hawes Utama Indonesia Indonesia
SBS Drilling - And Production - Systems Ltd & Co., KC Austria
SBS Drilling - And Production - Systems, Ltd Cayman
Schoeller-Bleckmann Motovilithinskije Sucker Rod Gmbh Austria
TA Industries, Inc. Delaware
Taro Industries Limited Alberta
Texas Arai, Inc. Delaware
Trico Industries, Inc. California
Tube-Alloy Capital Corporation Texas
Tube-Alloy Corporation Louisiana
Tube-Alloy Corporation International Texas
Van der Horst U.S.A., Inc. Delaware
Venstar, Ltd. United Kingdom
XL Systems International, Inc. Delaware
XL Systems, Inc. Texas
XLS Holding, Inc. Texas
XLS Systems Antilles N.V. Netherlands Antilles
XLS Systems Europe, B.V. Netherlands
Venstar, Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 29, 1998 included in this Form 10-K
into the Company's previously filed Registration Statement File Nos.
33-31662, 33-56384, 33-56386, 33-65790, 33-64349, 333-13531, 333-24133,
333-44345 and 333-45207.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1998
<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>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 31,863 223,966 2,885
<SECURITIES> 0 0 0
<RECEIVABLES> 266,313 119,735 76,779
<ALLOWANCES> 1,006 583 362
<INVENTORY> 286,763 157,631 124,772
<CURRENT-ASSETS> 631,025 558,681 309,185
<PP&E> 301,717 172,724 100,159
<DEPRECIATION> 0<F1> 0<F1> 0<F1>
<TOTAL-ASSETS> 1,366,066 852,843 453,125
<CURRENT-LIABILITIES> 314,165 233,126 78,291
<BONDS> 445,698 126,710 124,183
0 0 0
0 0 0
<COMMON> 51,891 45,930<F2> 37,044<F2>
<OTHER-SE> 475,342 408,154<F2> 191,022<F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,366,066 852,843 453,125
<SALES> 892,264<F3> 478,020<F3> 271,675<F3>
<TOTAL-REVENUES> 892,264 478,020 271,675
<CGS> 639,758<F3> 373,509<F3> 205,230<F3>
<TOTAL-COSTS> 639,758 373,509 205,230
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 23,134 16,454 16,287
<INCOME-PRETAX> 128,654 31,546 2,362
<INCOME-TAX> 44,959 7,041 (240)
<INCOME-CONTINUING> 83,695 24,505 2,602
<DISCONTINUED> 0 7,468 8,709
<EXTRAORDINARY> 9,010 731 0
<CHANGES> 0 0 0
<NET-INCOME> 74,685 98,166 11,311
<EPS-PRIMARY> 1.62 2.41<F2><F4> 0.38<F2><F4>
<EPS-DILUTED> 1.58 2.37<F2><F4> 0.38<F2><F4>
<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>Restated to reflect EVI, Inc.'s two-for-one stock split.
<F3>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.
<F4>Restated to reflect SFAS No. 128
</FN>
</TABLE>
