<PAGE> 1
DRAFT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-13086
EVI, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 04-2515019
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027-3415
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 297-8400
--------------------------------------------------
(Registrant's telephone number, include area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Outstanding at May 6, 1998
- ----------------------------- --------------------------
Common Stock, par value $1.00 47,852,591
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ............................... $ 25,182 $ 31,863
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $1,049,000 and $1,006,000, Respectively .. 270,320 265,307
Inventories ............................................. 316,202 286,763
Other Current Assets .................................... 63,453 47,092
----------- -----------
675,157 631,025
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST,
NET OF ACCUMULATED DEPRECIATION ......................... 327,816 301,717
GOODWILL, NET ................................................. 493,470 403,328
OTHER ASSETS .................................................. 54,015 29,996
----------- -----------
$ 1,550,458 $ 1,366,066
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving
Lines of Credit ...................................... $ 133,638 $ 24,243
Current Maturities of Long-Term Debt .................... 9,858 10,355
Accounts Payable ........................................ 148,501 156,829
Accrued Salaries and Benefits ........................... 18,765 33,904
Current Tax Liabilities ................................. 25,612 13,913
Other Accrued Liabilities ............................... 84,885 74,921
----------- -----------
421,259 314,165
----------- -----------
LONG-TERM DEBT ................................................ 42,075 43,198
DEFERRED INCOME TAXES AND OTHER ............................... 95,624 78,970
5% CONVERTIBLE SUBORDINATED PREFERRED
EQUIVALENT DEBENTURES ................................... 402,500 402,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $1 Par Value, Authorized 80,000,000 Shares,
Issued 52,673,461 and 51,890,823, Respectively ....... 52,674 51,891
Capital in Excess of Par Value .......................... 441,767 410,442
Treasury Stock, at Cost ................................. (152,602) (152,344)
Retained Earnings ....................................... 263,220 231,943
Cumulative Foreign Currency Translation Adjustment ...... (16,059) (14,699)
----------- -----------
589,000 527,233
----------- -----------
$ 1,550,458 $ 1,366,066
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE> 3
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------------
1998 1997
------------- -------------
(in thousands, except per share
amounts)
<S> <C> <C>
REVENUES ............................................. $ 316,840 $ 164,640
--------- ---------
COSTS AND EXPENSES:
Cost of Sales .................................. 214,581 122,271
Selling, General and Administrative Attributable
to Segments ................................. 44,789 17,311
Corporate General and Administrative ........... 2,148 1,721
--------- ---------
OPERATING INCOME ..................................... 55,322 23,337
--------- ---------
OTHER INCOME (EXPENSE):
Interest Income ................................ 168 2,579
Interest Expense ............................... (7,993) (4,411)
Other, Net ..................................... 621 735
--------- ---------
INCOME BEFORE INCOME TAXES ........................... 48,118 22,240
PROVISION FOR INCOME TAXES ........................... 16,841 7,895
--------- ---------
NET INCOME ........................................... $ 31,277 $ 14,345
========= =========
EARNINGS PER SHARE:
Basic .......................................... $ 0.66 $ 0.31
========= =========
Diluted ........................................ $ 0.65 $ 0.31
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic .......................................... 47,732 45,672
========= =========
Diluted ........................................ 48,333 46,765
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE> 4
EVI, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................. $ 31,277 $ 14,345
Adjustments to Reconcile Net Income to Net Cash
Used by Operating Activities:
Depreciation and Amortization ............................ 13,145 6,845
Deferred Income Tax Provision ............................ 2,540 1,826
Change in Operating Assets and Liabilities, Net of Effects
of Businesses Acquired ................................. (54,471) (45,055)
--------- ---------
Net Cash Used by Operating Activities .................. (7,509) (22,039)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Income Taxes Paid on Gain on Disposal of Discontinued
Operations ............................................... -- (62,808)
Acquisition of Businesses, Net of Cash Acquired ............ (78,056) (30,179)
Capital Expenditures for Property, Plant and
Equipment ................................................ (18,278) (7,271)
Other, Net ................................................. 418 92
--------- ---------
Net Cash Used by Investing Activities .................... (95,916) (100,166)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Revolving Lines of Credit, Net ............ 109,395 3,904
Repayments on Term Debt, Net ............................... (13,231) (1,246)
Proceeds from Exercise of Stock Options .................... 838 --
Acquisitions of Treasury Stock ............................. (258) (425)
--------- ---------
Net Cash Provided by Financing Activities ................ 96,744 2,233
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (6,681) (119,972)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 31,863 223,966
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 25,182 $ 103,994
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid .............................................. $ 7,131 $ 7,221
Income Taxes Paid, Net of Refund ........................... $ 5,599 $ 63,379
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE> 5
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) General
The unaudited consolidated condensed financial statements included herein
have been prepared by EVI, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements reflect all adjustments which the Company considers necessary for the
fair presentation of such financial statements for the interim periods
presented. Although the Company believes that the disclosures in these financial
statements are adequate to make the interim information presented not
misleading, certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1997. The results of
operations for the three month period ended March 31, 1998 are not necessarily
indicative of the results expected for the full year.
(2) Comprehensive Income
Comprehensive income as defined by Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, is net income plus direct
adjustments to stockholders' equity. The cumulative translation adjustment of
certain foreign entities is the only such direct adjustment recorded by the
Company.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
(in thousands)
Comprehensive income:
Net income.................................... $ 31,277 $ 14,345
Cumulative translation adjustment............. (1,360) --
---------- ----------
Total comprehensive income...................... $ 29,917 $ 14,345
========== ==========
</TABLE>
(3) Inventories
Inventories by category are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(in thousands)
<S> <C> <C>
Raw materials and components.................... $ 183,955 $ 151,743
Work in process................................. 42,372 46,498
Finished goods.................................. 89,875 88,522
---------- ----------
$ 316,202 $ 286,763
========== ==========
</TABLE>
Work in process and finished goods inventories include the cost of
material, labor and plant overhead.
(4) Acquisitions
On February 19, 1998, the Company acquired Ampscot Equipment Ltd., an
Alberta corporation ("Ampscot") for approximately $57.1 million in cash. Ampscot
is a Canadian-based manufacturer of pumping units.
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, $1.00 par value ("Common Stock"),
have been issued or are reserved for issuance 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.
5
<PAGE> 6
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 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 $96.8
million in cash and $14.3 million in assumed debt. 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.
On May 1, 1997, the Company acquired GulfMark International, Inc.
("GulfMark") pursuant to a merger in which approximately 4.4 million shares of
the Company's 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 the Company's Common Stock, an erosion control company and
certain other miscellaneous assets.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Condensed Statements of Income from their respective dates of
acquisition.
The following presents the consolidated financial information for the
Company on a pro forma basis as if the May 1, 1997 acquisition of GulfMark and
the December 1997 acquisitions of Trico, BMW Monarch and BMW Pump had occurred
on January 1, 1997. Such acquisitions have been included in the historical
financial results for the three months ended March 31, 1998; therefore, pro
forma information for such period is not presented. All other 1997 and 1998
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 transactions been consummated as
of January 1, 1997, or that may be achieved in the future.
<TABLE>
<CAPTION>
Three Months
Ended
March 31,1997
----------------------
(in thousands,
except per share
amounts)
<S> <C>
Revenues......................................... $ 216,091
Net income from continuing operations............ $ 15,856
Earnings per common share from continuing
operations:
Basic.......................................... $ 0.35
Diluted........................................ $ 0.34
</TABLE>
(5) Long-Term Debt
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 its prior 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.
6
<PAGE> 7
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(6) Earnings Per Share
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 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. The effect of the
Company's 5% Convertible Subordinated Preferred Equivalent Debentures due 2027
(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>
March 31,
----------------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Basic weighted average number of
shares outstanding........................... 47,732 45,672
Dilutive effect of stock option plans............ 601 1,093
-------- ---------
Dilutive weighted average number of
shares outstanding........................... 48,333 46,765
======== =========
</TABLE>
(7) Supplemental Cash Flow Information
The following summarizes investing activities relating to acquisitions:
<TABLE>
<CAPTION> Three Months Ended
March 31,
-----------------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Fair value of assets, net of cash acquired....... $ 63,489 $ 20,477
Goodwill......................................... 94,430 20,109
Total liabilities................................ (48,968) (10,407)
Common Stock issued.............................. (30,895) --
--------- -----------
Cash consideration, net of cash acquired......... $ 78,056 $ 30,179
========= ===========
</TABLE>
(8) Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related
Information, in the first quarter of 1998. SFAS No. 131 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
segment. Quarterly disclosures are not required in the first year of adoption.
The adoption of SFAS No. 131 has not resulted in a change in the manner the
Company reports segment information and related disclosures.
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 annual disclosure requirements for pensions
and other postretirement benefits. SFAS No. 132 is effective for years beginning
after December 15, 1997. SFAS No. 132 has no impact on the consolidated
condensed financial statements of the Company.
(9) Reclassifications and Restatements
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 1998 classifications.
7
<PAGE> 8
EVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(10) Subsequent Events
On March 4, 1998, the Company entered into an Agreement and Plan of
Merger, as amended, 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. Based on the number of shares of Weatherford
common stock outstanding as of April 22, 1998, a total of approximately 48.8
million shares of Common Stock would be issued in the Merger. In addition,
approximately 1.4 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.
The Weatherford Merger is subject to various conditions, including the
approval by the stockholders of both the Company and Weatherford. The Company
and Weatherford have each set May 27, 1998 as the meeting date for the special
meeting of their stockholders to consider and vote on the Merger.
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, (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 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 and the receipt of required
regulatory approvals. 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. The Company currently expects that a meeting of its stockholders to
consider the Christiana Merger will be held in the third quarter of 1998.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
EVI, Inc. (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 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 in the world, the largest manufacturer of premium tubular connectors in
North America and one of the largest providers of artificial lift and completion
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
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. Based on the
number of shares of Weatherford common stock outstanding as of April 22, 1998, a
total of approximately 48.8 million shares of Common Stock would be issued in
the Merger. In addition, approximately 1.4 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 Merger with 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 Merger is subject to various conditions, including the approval by the
stockholders of both the Company and Weatherford. The Company and Weatherford
have each set May 27, 1998 as the meeting date for the special meeting of their
stockholders to consider and vote on the Merger.
Recent Acquisitions
In the first quarter of 1998, the Company completed three acquisitions of
operating businesses within its production equipment segment: (i) Houston Well
Screen, a leading provider of downhole sand control screens for approximately
$27.6 million cash; (ii) Taro Industries, Limited ("Taro"), a Canadian provider
of well monitoring, gas compression and drilling equipment distribution for
approximately 0.8 million shares of Common Stock; and (iii) Ampscot Equipment
Ltd. ("Ampscot"), a Canadian manufacturer of conventional pumping units for
approximately $57.1 million cash. The Company also acquired a business relating
to its tubular products operations that expanded the Company's manufacturing
capacity for cash
9
<PAGE> 10
consideration of $9 million plus liabilities of approximately $21 million. The
1998 acquisitions were accounted for using the purchase method of accounting.
The results of operations of all 1998 acquisitions have been included in the
Company's operating results since their respective dates of acquisitions. These
acquisitions substantially increased the Company's market share in the
traditional pumpjack market, expanded the Company's production equipment product
line, added gas compression to the Company's product offerings, expanded the
Company's presence in Canada and expanded the Company's tubular manufacturing
capacity.
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.
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. Lower oil prices have resulted in a
reduction in the rig count and related drilling activity in the United States
and Canada, reductions in the exploration and development budgets of producers
and a substantial decline in the development of heavy and marginal oil reserves
in the United States and Canada. 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. This reduction in demand has
particularly affected the demand for many of the Company's artificial lift
products, in particular progressing cavity pumps and other rod lift products
used for the production of heavy oil and oil from marginal wells. 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 oil, 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 and is
expected to be characterized by a softening in demand for certain products,
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 in balance. The timing of
such recovery, however, cannot be predicted with certainty.
Results of Operations
General
Net income for the first quarter 1998 was $31.3 million, or $0.65 per
diluted share, on revenues of $316.8 million, as compared to net income for the
first quarter 1997 of $14.3 million, or $0.31 per diluted share, on revenues of
$164.6 million. The increases in revenues and net income reflect continued
revenue and margin improvement in the Company's drilling products segment as
well as the beneficial effect of the Company's 1997 and 1998 acquisitions. The
net effect of these acquisitions on revenues and net income for the quarter
ended March 31, 1998, compared to the first quarter of 1997 was an increase in
revenues of $122.0 million and an increase in net income of $10.4 million.
Cost of goods sold as a percentage of revenues declined from 74% of total
revenues in the first quarter of 1997 to 68% in the first quarter of 1998
primarily 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 from 11% in the first quarter of 1997 to 14% in the
first quarter 1998 due to the incurrence of costs associated with the
assimilation of acquired businesses and amortization of goodwill and other
intangibles. Goodwill associated with the Company's 1997 and first quarter 1998
acquisitions was approximately $399.4 million and the charge associated with the
amortization of this goodwill and other intangibles was $2.9 million in the
first quarter of 1998 as compared to $0.9 million in the first quarter of 1997.
10
<PAGE> 11
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Drilling Products Segment
The Company's drilling products segment reported revenues and operating
income of $192.9 million and $46.3 million, respectively, for the first quarter
1998, up from $117.8 million and $21.5 million, respectively, for the first
quarter 1997. These improvements were primarily due to continued strong demand
and backlog for drill pipe and other drilling tools, increased sales of premium
tubular products and the effects of the Company's acquisition of TA Industries,
Inc. ("TA"), a premium tubular couplings and accessories manufacturer in April
1997, and the third quarter acquisition of XLS Holdings, Inc. ("XL"), a
manufacturer of subsea equipment. Premium tubular revenues increased to
approximately $80.1 million in the first quarter of 1998 up from approximately
$58.9 million for 1997. The net effect of the acquisitions of TA and XL on
revenues and net income in this segment for the quarter ended March 31, 1998,
compared to the first quarter of 1997 was an increase in revenues of $30.4
million and an increase in operating income of $4.7 million. The increase in
premium tubular and subsea equipment revenues also reflects continued strong
demand for these products in offshore production.
Cost of goods sold declined as a percentage of revenues from 76.0% in 1997
to 70.3% in 1998, due to increased pricing on the Company's products and reduced
costs resulting from the expansion of the Company's Mexico tool joint facility,
which provided savings of at least $1.2 million in the first quarter of 1998.
Selling, general and administrative expenses as a percentage of revenues
represented 5.8% for the first quarter 1998 and 1997.
Of the Company's 1998 first quarter sales of drill pipe and other tubular
products, 73%, 8% and 8% were attributable to sales originating in the United
States, Canada and Latin America, respectively, compared to 67%, 8% and 10%,
respectively, for the first quarter of 1997. United States sales include export
sales and sales to distributors and other United States companies for ultimate
use outside the United States.
Backlog for tubular products at March 31, 1998, was approximately $352.1
million compared to $360.0 million at December 31, 1997. The Company currently
expects that over $264.0 million of this backlog will be shipped by December 31,
1998, with the remainder to be shipped within the first six months of 1999.
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
affect the demand for the Company's drill pipe.
Production Equipment Segment
The Company's production equipment segment reported revenues and operating
income of $123.9 million and $11.2 million, respectively, for the first quarter
1998, up from $46.8 million and $3.6 million, respectively, for the first
quarter 1997. These improvements were due to the Company's 1997 and 1998
acquisitions and growth in the Latin American markets. The 1997 and 1998
acquisitions generated revenues and operating income for this segment of $85.9
million and $11.9 million in the first quarter of 1998. The improvements
attributable to the businesses acquired in these acquisitions were partially
offset by substantial declines in demand for the Company's progressing cavity
pump line of artificial lift products due to lower oil prices and an associated
drop in heavy oil drilling activity in Canada and California and other marginal
oil production activity. Although the Company believes that demand for these
products should increase with any material increases in the price of oil from
their current low levels, there can be no assurance as to the timing or extent
of such improvements.
Cost of goods sold declined as a percentage of revenues from 69.9% in the
first quarter 1997 to 63.8% in the first quarter 1998, as a result of an
improvement in the segment's domestic cost structure and from the December 1997
acquisitions of Trico Industries, Inc. and the 1998 acquisitions of Taro and
Ampscot. Selling, general and administrative expenses for the first quarter 1998
as a percentage of revenues was 27.1% compared to 22.4% for the first quarter
1997. The increase in selling, general and administrative expenses for this
segment reflects higher costs associated with overlapping operations at various
acquired companies pending the consolidation of those operations and increased
amortization of goodwill and other intangibles relating to the Company's 1997
and first quarter 1998 acquisitions in this segment. The Company intends to
continue to focus on reducing selling, general and administrative expenses in
this segment through the integration of acquired operations.
Sales of production equipment originating in North America approximated 81%
of this segment's sales in this first quarter of 1998 compared to 79% in the
first quarter of 1997, while sales originating in Latin America decreased to 16%
of total sales during the first quarter of 1998 from 21% of total sales during
the first quarter of 1997. Canadian
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<PAGE> 12
sales were $69.1 million for the first quarter of 1998 compared to $16.7 million
for the first quarter of 1997. The increase is sales was attributable to the
Company's 1997 and 1998 acquisitions in Canada in this segment.
Other
Corporate expenses as a percentage of revenues for the first quarter 1998
were 0.7% as compared to 1.0% for the first quarter 1997. The percentage
decrease from 1997 was primarily attributable to the growth in 1998 revenues.
Interest expense for the first quarter 1998 was $8.0 million compared to
$4.4 million for the first quarter 1997. The increase in interest expense in the
first quarter 1998, as compared to the first quarter 1997, reflects the issuance
by the Company of $402.5 million principal amount of its 5% Convertible
Subordinated Preferred Equivalent Debentures due 2027 (the "Debentures") issued
in November 1997, a portion of which was utilized to purchase substantially all
of the $120.0 million principal amount of the Company's then outstanding 10 1/4
% Senior Notes due 2004. The remaining proceeds from the issuance of the
Debentures were used to fund acquisitions and reduce bank debt.
The Company's effective tax rate on net income the first quarter 1998 was
35% as compared to 35.5% for the first quarter 1997.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash and cash equivalents of $25.2
million compared to $31.9 million at December 31, 1997. At March 31, 1998, the
Company had outstanding $133.6 million in borrowings under its working capital
facilities compared to $24.2 million at December 31, 1997. In addition, the
Company had outstanding approximately $12.3 million and $14.9 million in letters
of credit at March 31, 1998 and December 31, 1997, respectively.
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 of the Company. The Debentures are redeemable by the Company at any time
on or after November 4, 2000, at redemption prices described in the 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.
The Company currently has a credit facility with a group of financial
institutions that provides for borrowings of up to an aggregate of $250.0
million. Borrowings under this facility bear interest at a variable rate based
on prime or LIBOR and are currently 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 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 $469.6 million
as of March 31, 1998 (as defined in the credit agreement). The Company is
currently negotiating an amendment to this credit facility that would, upon the
closing of the Company's proposed merger with Weatherford, consolidate
Weatherford's current credit facility with the Company's facility.
The Company's current sources of capital are its current cash, cash
generated from operations and borrowings under its credit facility. 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, however, 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.
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<PAGE> 13
Acquisitions and Capital Expenditures and Other
In the first quarter of 1998, the Company completed three acquisitions in
its production equipment segment consisting of (i) Houston Well Screen for cash
of approximately $27.6 million, (ii) Taro for 0.8 million shares of Common Stock
and (iii) Ampscot for cash of approximately $57.1 million. The Company also
acquired a business relating to its tubular products operations that expanded
the Company's manufacturing capacity for cash consideration of $9 million plus
liabilities of approximately $21 million.
Capital expenditures for property, plant and equipment by the Company
during the quarter ended March 31, 1998, totaled approximately $18.3 million and
was primarily related to ongoing routine capital expenditures for 1998. Ongoing
routine capital expenditures for 1998, excluding any capital expenditures
relating to the pending merger of Weatherford, are estimated to be approximately
$45 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 Merger
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 $10.0 million and (iv) a contingent
cash payment of up to $10.0 million payable 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 and the receipt of required
regulatory approvals. 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 approval and the
approval of the Christiana Merger by the shareholders of the Company and
Christiana. The Company currently expects that a meeting of its stockholders to
consider the Christiana Merger will be held in the third quarter of 1998.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS No. 130"), Reporting Comprehensive Income, in the first quarter of 1998.
SFAS No. 130 establishes standards for the reporting of comprehensive income and
its components in a financial statement that is displayed with the same
prominence as other financial statements.
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related
Information, in the first quarter of 1998. SFAS No. 131 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
segment. Quarterly disclosures are not required in the first year of adoption.
The adoption of SFAS No. 131 has not resulted in a change in the manner the
Company reports segment information and related disclosures.
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 annual disclosure
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<PAGE> 14
requirements for pensions and other postretirement benefits. SFAS No. 132 is
effective for years beginning after December 15, 1997. SFAS No. 132 has no
impact on the consolidated condensed financial statements of the Company.
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 the proposed merger with Weatherford, the effects of the
proposed merger with Weatherford on sales, business, expenses, cash flow and
products, 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. 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, changes in the price of oil
and gas, the impact of recent declines in the price of oil on the demand for the
Company's products, the impact and duration of the declines in drilling for
heavy oil in Canada and California and the impact of reduced activity with
respect to the production of marginal oil reserves, changes in the domestic and
international rig count, global trade policies, domestic and international
drilling activities, world-wide political stability and economic growth,
including currency fluctuations, government export and import policies,
technological advances involving the Company's products and services, the
Company's successful execution of internal operating plans and manufacturing
consolidations and restructurings, changes in the market for the Company's
drilling tools and other products, 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 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. Many of
these factors are described in greater detail in the Company's Form 10-K, as
amended, for the year ended December 31, 1997, and Current Reports on Form 8-K
dated January 28, 1998, February 3, 1998, February 19, 1998, as amended, March
5, 1998, as amended, April 20, 1998 and April 22, 1998, as amended.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Dividend Restrictions
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
("New Credit Facilities"), and terminated both of the Company's prior working
capital facilities. Under the Prior Credit Facilities, the Company and the
Company's principal operating subsidiaries were subject to certain prohibitions
and restrictions on the declaration, payment and amount of dividends,
distributions and other restricted payments that the Company and its principal
operating subsidiaries could make to stockholders. The Company's New Credit
Facilities do not contain such prohibitions and restrictions, however, it does
contain customary affirmative and negative covenants, including debt incurrence
tests, interest coverage ratio, negative pledges, acquisitions over certain
levels, certain dispositions of assets and minimum tangible net worth test.
Acquisition of Taro Industries
On January 15, 1998, the Company completed the acquisition of Taro
Industries Limited, an Alberta corporation ("Taro"), pursuant to a plan of
arrangement (the "Plan of Arrangement"), under which a Canadian subsidiary of
the Company was amalgamated with Taro. Under the Plan of Arrangement,
approximately 765,000 shares of the Company's common stock, $1.00 par value (the
"Taro Shares"), were issued or reserved for issuance by the Company to the
securityholders of Taro in exchange for their Taro common shares. The issuance
of the Taro Shares was exempt from registration under the Securities Act of 1933
(the "Act") in reliance upon Section 3(a)(10) of the Act as the Plan of
Arrangement was approved pursuant to Section 186 of the Business Corporations
Act, S.A. 1981, by the Court of Queen's Bench of Alberta, Judicial District of
Calgary, following a hearing upon the fairness of the terms and conditions of
the Plan of Arrangement at which all persons to whom the Taro Shares were
proposed to be issued had a right to appear. A copy of the Plan of Arrangement
is filed as Exhibit 2.1 hereto and is incorporated herein by reference.
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<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Amended and Restated Arrangement Agreement by and between Taro
Industries Limited, and EVI, Inc. and 756745 Alberta Ltd. and
759572 Alberta Ltd. dated as of December 5, 1997 (incorporated
by reference to Exhibit No. 2.4 to Form 8-K, File 1-13086, filed
December 31, 1997).
2.2 Amendment No. 1 dated as of April 17, 1998, to the 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.
2.2 to Form 8-K, File 1-13086, filed April 21, 1998).
2.3 Amendment No. 2 dated as of April 22, 1998, to the Agreement and Plan
of Merger dated as of March 4, 1998, as amended, by and between EVI,
Inc. and Weatherford Enterra, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 1-13086, filed April 23, 1998).
10.1 Employment Agreement dated March 16, 1998, by and between the Company
and Curtis W. Huff.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
1) Current Report on Form 8-K/A dated January 14, 1998, amending Current
Report on Form 8-K dated May 1, 1997, relating to the audited
financial statements of GulfMark Retained Assets and certain pro forma
financial information of the Company.
2) Current Report on Form 8-K dated January 28, 1998, announcing the
acquisitions of SBS Drilling and Production Systems on October 31,
1997; San Eloy on November 21, 1997; Houston Well Screen on January
12, 1998; and Taro Industries Limited on January 15, 1998.
3) Current Report on Form 8-K dated February 3, 1998, announcing the
Company's earnings for the quarterly period ended December 31, 1997.
4) Current Report on Form 8-K/A dated February 13, 1998, amending the
Current Report on Form 8-K dated December 2, 1997, containing (i) the
audited consolidated financial statements of Trico Industries, Inc.
and the combined financial statements of BMW Monarch (Lloydminster)
Ltd. and BMW Pump Inc. and (ii) certain pro forma financial
information of the Company.
5) Current Report on Form 8-K dated February 19, 1998, announcing the
completion of the Company's acquisition of Ampscot Equipment Ltd. on
February 19, 1998.
6) Current Report on Form 8-K dated March 5, 1998, as amended by Current
Report on Form 8-K/A dated March 9, 1998, announcing the Company's
proposed merger with Weatherford Enterra, Inc. and the signing by the
Company of an Agreement and Plan of Merger with Weatherford Enterra,
Inc. on March 4, 1998.
7) Current Report on Form 8-K/A dated March 26, 1998, amending Current
Report on Form 8-K dated November 5, 1997, relating to the terms of
the issuance of the Company's 5% Convertible Subordinated Preferred
Equivalent Debentures.
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVI, Inc.
By: /s/ James G. Kiley
----------------------------------------------
James G. Kiley
Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Frances R. Powell
----------------------------------------------
Frances R. Powell
Vice President, Accounting and Controller
(Principal Accounting Officer)
Date: May 14, 1998
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<PAGE> 18
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Amended and Restated Arrangement Agreement by and between Taro
Industries Limited, and EVI, Inc. and 756745 Alberta Ltd. and 759572
Alberta Ltd. dated as of December 5, 1997 (incorporated by reference
to Exhibit No. 2.4 to Form 8-K, File 1-13086, filed December 31,
1997).
2.2 Amendment No. 1 dated as of April 17, 1998, to the 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.
2.2 to Form 8-K, File 1-13086, filed April 21, 1998).
2.3 Amendment No. 2 dated as of April 22, 1998, to the Agreement and Plan
of Merger dated as of March 4, 1998, as amended, by and between EVI,
Inc. and Weatherford Enterra, Inc. (incorporated by reference to
Exhibit No. 2.3 to Form 8-K, File 1-13086, filed April 23, 1998).
10.1 Employment Agreement dated March 16, 1998, by and between the Company
and Curtis W. Huff.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between EVI, Inc., a
Delaware corporation (the "Company"), and Curtis W. Huff (the "Executive"),
dated 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 Effective Date (as defined below) 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. The Effective Date shall be June 15, 1998, or such other date as may
be agreed upon between the Company and the Executive.
<PAGE> 2
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, General Counsel and Corporate Secretary and (B) the
Executive's services shall be performed at the Company's principal
executive offices in Houston, Texas or other locations less than 35
miles from such location.
(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, (C) serve as "Of Counsel" to Fulbright & Jaworski L.L.P.
and (D) 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 of $350,000 ("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
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<PAGE> 3
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.
(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.
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<PAGE> 4
(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.
(viii) Restricted Stock and Options. Effective as
of the Effective Date, the Executive shall be granted 75,000 shares of
the Company's Common Stock, $1.00 par value ("Common Stock"). Such
shares shall be subject to four year vesting on the basis of 18,750
shares of Common Stock on each anniversary of the Effective Date;
provided, however, if the employment of the Executive under this
Agreement is terminated prior to the shares being fully vested for any
reason other than by the Company for Cause or Disability, the death of
the Executive or by the Executive for any reason other than for Good
Reason, such shares shall become vested on the termination date.
Until the shares of Common Stock so granted are vested, the Executive
may not transfer, pledge or dispose of the unvested shares. The
Executive, however, may vote any unvested shares and be entitled to
receive any dividends or distributions (other than non cash
distributions, which shall be subject to the same vesting restrictions
as the shares of Common Stock for which such distributions were
received). The Company may also hold the unvested shares until they
have vested. The Executive may elect to deliver shares of Common
Stock (valued at their then current market price) to the Company in
satisfaction of any withholding obligation the Company may have on the
vesting of such shares. Such shares shall be subject to accelerated
vesting as provided in Section 4(a). Such shares shall also be
subject to accelerated vesting on a change of control as defined in
the Company's form of stock option agreement, with the proposed merger
with Weatherford Enterra, Inc. not resulting in any acceleration of
such vesting. The Executive shall also receive options under the
Company's stock option plan to purchase an aggregate of 100,000 shares
of Common Stock at an exercise price per share equal to the closing
sale price of a share of Common Stock on the Effective Date, such
options to be subject to three year vesting on the basis of one-third
of the shares per year, with the proposed merger with Weatherford
Enterra, Inc. not resulting in any acceleration of such vesting.
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,
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"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 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
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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
(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:
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(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 recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the
"Highest Annual Bonus", it being agreed that for any
termination prior to the Executive receiving his first Annual
Bonus under this Agreement, the Annual Bonus shall be an
amount equal to the Annual Bonus the Executive would have
received for the year ended December 31, 1997, had the
Executive then been employed and received a bonus on the same
basis as the other executive officers of the Company for such
year) 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
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(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 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
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<PAGE> 9
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.
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<PAGE> 11
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 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
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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 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
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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:
(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
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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.
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
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<PAGE> 15
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:
If to the Executive: Curtis W. Huff
EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
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If to the Company: EVI, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027-3415
Attention: Bernard J. Duroc-Danner
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/ Curtis W. Huff
----------------------------------------
Curtis W. Huff
EVI, INC.
By /s/ Bernard J. Duroc-Danner
-------------------------------------
Name: Bernard J. Duroc-Danner
----------------------------------
Title: President
---------------------------------
-17-
<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>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-31-1998 JAN-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 25,182 103,994
<SECURITIES> 0 0
<RECEIVABLES> 271,369 151,048
<ALLOWANCES> 1,049 863
<INVENTORY> 316,202 175,321
<CURRENT-ASSETS> 675,157 490,020
<PP&E> 327,816 181,076
<DEPRECIATION> 0<F1> 0
<TOTAL-ASSETS> 1,550,458 810,984
<CURRENT-LIABILITIES> 421,259 176,790
<BONDS> 444,575 126,511
0 0
0 0
<COMMON> 52,674 45,930
<OTHER-SE> 536,326 421,872
<TOTAL-LIABILITY-AND-EQUITY> 1,550,458 810,984
<SALES> 316,840<F2> 164,640
<TOTAL-REVENUES> 316,840 164,640
<CGS> 214,581<F2> 122,271
<TOTAL-COSTS> 214,581 122,271
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,993 4,411
<INCOME-PRETAX> 48,118 22,240
<INCOME-TAX> 16,841 7,895
<INCOME-CONTINUING> 31,227 14,345
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 31,277 14,345
<EPS-PRIMARY> 0.66 0.31
<EPS-DILUTED> 0.65 0.31
<FN>
<F1>This amount is not disclosed in the financial statements and thus a value of
zero has been shown for purposes of this financial data schedule.
<F2>These line items include certain amounts related to non-tangible products
(i.e.,) services, however, since the amounts related to services are not
disclosed in the financial statements, the total revenues and CGS figures,
respectively, have been shown on these line items for purposes of this
financial data schedule.
</FN>
</TABLE>
