<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 Commission File No. 1-2960
NEWPARK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1123385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3850 N. CAUSEWAY, SUITE 1770
METAIRIE, LOUISIANA 70002
(Address of principal executive offices) (Zip Code)
(504) 838-8222
(Registrant's telephone number)
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.
Common stock, $0.01 par value: 69,002,641 shares at August 12, 1999.
Page 1 of 29
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
June 30, 1999
<TABLE>
<CAPTION>
Item Page
Number Description Number
------ ----------- ------
<S> <C> <C>
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets
June 30, 1999 and December 31, 1998 .................... 3
Statements of Operations for the Three and Six Month
Periods Ended June 30, 1999 and 1998................... 4
Statements of Comprehensive Income for the
Six Month Periods Ended June 30, 1999 and 1998......... 5
Statements of Cash Flows for the Six Month
Periods Ended June 30, 1999 and 1998................... 6
Notes to Unaudited Consolidated Financial Statements ....... 7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 15
PART II
1 Legal Proceedings................................................ 27
4 Submission of Matters to a Vote of Security Holders.............. 27
6 Exhibits and Reports on Form 8-K................................. 28
</TABLE>
2
<PAGE> 3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) June 30, December 31,
- --------------------------------------------------------------------------------------------
(In thousands, except share data) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,243 $ 6,611
Accounts and notes receivable, less allowance
of $10,602 in 1999 and $11,008 in 1998 52,829 65,675
Inventories 19,198 19,381
Current taxes receivable 4,271 10,593
Deferred tax asset 13,565 13,776
Other current assets 4,579 3,292
--------- ---------
TOTAL CURRENT ASSETS 100,685 119,328
Property, plant and equipment, at cost, net of
accumulated depreciation 224,680 217,988
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 122,161 123,539
Deferred tax asset 888 1,735
Other assets 39,146 41,889
--------- ---------
$ 487,560 $ 504,479
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 72
Current maturities of long-term debt 918 1,195
Accounts payable 13,930 23,237
Accrued liabilities 9,312 11,711
Arbitration settlement payable 6,417 7,176
--------- ---------
TOTAL CURRENT LIABILITIES 30,577 43,391
Long-term debt 194,786 208,057
Arbitration settlement payable 4,816 8,080
Other non-current liabilities 2,205 2,454
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 150,000 shares outstanding in 1999, 12,597 --
$100 face value, and none in 1998
Common Stock, $.01 par value, 100,000,000 shares
authorized, 68,928,245 shares outstanding in 1999
and 68,839,672 in 1998 688 688
Paid-in capital 322,567 319,833
Accumulated other comprehensive income (loss) (222) (1,033)
Retained earnings (deficit) (80,454) (76,991)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 255,176 242,497
--------- ---------
$ 487,560 $ 504,479
========= =========
</TABLE>
See accompanying Notes to Unaudited
Consolidated Financial Statements
3
<PAGE> 4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three and Six Month Periods Ended June 30,
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
- ------------------------------------------------------------------------- ------------------------
(In thousands, except per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues $ 40,524 $ 67,019 $ 93,303 $ 139,423
Operating costs and expenses:
Cost of services provided 29,743 39,515 63,456 82,234
Operating costs 17,475 10,436 31,505 20,094
--------- --------- --------- ---------
47,218 49,951 94,961 102,328
General and administrative expenses 671 976 1,161 1,887
Equity in net earnings of
unconsolidated affiliates -- (715) -- (1,170)
--------- --------- --------- ---------
Operating income (loss) (7,365) 16,807 (2,819) 36,378
Interest income (232) (329) (530) (809)
Interest expense 4,042 2,624 8,019 5,262
--------- --------- --------- ---------
Income (loss) before income taxes (11,175) 14,512 (10,308) 31,925
Provision for income taxes (benefit) (5,933) 5,403 (5,624) 11,589
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change (5,242) 9,109 (4,684) 20,336
Cumulative effect of accounting
change (net of income tax effect) -- -- 1,471 --
--------- --------- --------- ---------
Net income (loss) (5,242) 9,109 (3,213) 20,336
Less:
Preferred stock dividends 156 -- 156 --
Accretion of discount on preferred stock 94 -- 94 --
--------- --------- --------- ---------
Net income (loss) applicable to common
and common equivalent shares $ (5,492) $ 9,109 $ (3,463) $ 20,336
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic 68,893 66,448 68,883 65,912
========= ========= ========= =========
Diluted 68,893 67,731 68,883 67,264
========= ========= ========= =========
Income (loss) per common and
common equivalent share:
BASIC:
Income (loss) before cumulative effect
of accounting change $ (0.08) $ 0.14 $ (0.07) $ 0.31
Cumulative effect of accounting
change (net of income tax effect) $ -- $ -- $ 0.02 $ --
Net income (loss) $ (0.08) $ 0.14 $ (0.05) $ 0.31
DILUTED:
Income (loss) before cumulative effect
of accounting change $ (0.08) $ 0.13 $ (0.07) $ 0.30
Cumulative effect of accounting
change (net of income tax effect) $ -- $ -- $ 0.02 $ --
Net income (loss) $ (0.08) $ 0.13 $ (0.05) $ 0.30
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 5
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Six Month Periods Ended June 30,
(Unaudited)
- ----------------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (3,213) $ 20,336
Other comprehensive income (loss):
Foreign currency translation adjustments 811 (85)
-------- --------
Comprehensive income (loss) $ (2,402) $ 20,251
======== ========
</TABLE>
See accompanying Notes to Unaudited
Consolidated Financial Statements
5
<PAGE> 6
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended June 30,
<TABLE>
<CAPTION>
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
(In thousands ) 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,213) $ 20,336
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 14,159 17,170
Cumulative effect of accounting change (net of taxes) (1,471) --
(Benefit) provision for income taxes (5,624) 670
Net earnings of unconsolidated affiliate -- (1,170)
Dividends and accretion on preferred stock (250) --
Other (185) 408
Change in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts and notes receivable 11,590 (7,260)
Decrease (increase) in inventories 183 (3,305)
Decrease (increase) in other assets 12,367 (3,988)
Increase in accounts payable (10,385) (6,498)
(Increase) decrease in accrued liabilities and other (6,671) 1,712
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,500 18,075
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,990) (51,700)
Proceeds from disposal of property, plant and equipment 103 137
Advances on notes receivable -- (2,200)
Payments received on notes receivable 1,203 2,232
Acquisitions, net of cash acquired -- (7,640)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (21,684) (59,171)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on lines of credit (12,650) 32,650
Principal payments on notes payable and long-term debt (970) (4,299)
Proceeds from equipment leasing 9,320 --
Proceeds from preferred stock issue 15,000 --
Proceeds from exercise of stock options 101 3,521
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,801 31,872
-------- --------
EFFECT OF EXCHANGE RATE CHANGES IN CASH 15 152
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (368) (9,072)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,611 21,699
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 6,243 $ 12,627
======== ========
</TABLE>
Included in accounts payable and accrued liabilities at June 30, 1999 and 1998
were equipment purchases of $1.1 million and $3.6 million, respectively. Also
included are notes payable for equipment purchases in the amount of $434,000 at
June 30, 1998.
Interest of $8.6 million and $5.6 million was paid during the six months ending
June 30, 1999 and 1998, respectively. Income tax refunds, net of payments,
totaled $12.2 million for the six months ended June 30, 1999. Income taxes of
$7.1 million were paid during the six months ending June 30, 1998.
During the six month period ended June 30, 1998, noncash transactions included
the transfer of $1.1 million from fixed assets to a note receivable,
representing the Company's investment in a manufacturing venture.
See accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE> 7
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of Newpark Resources, Inc.
("Newpark" or the "Company") as of June 30, 1999, and the results of
its operations and its cash flows for the three and six month periods
ended June 30, 1999 and 1998. All such adjustments are of a normal
recurring nature. These interim financial statements should be read in
conjunction with the December 31, 1998 audited financial statements
and related notes filed on Form 10-K. The results of operations for
the three and six month periods ended June 30, 1999 are not
necessarily indicative of the results to be expected for the entire
year. Certain reclassifications of prior period amounts have been made
to conform to the current period presentation.
NOTE 2 - CHANGE IN METHOD OF ACCOUNTING FOR DEPRECIATION
The Company computes the provision for depreciation on certain of
its E&P waste and NORM disposal assets ("the waste disposal assets")
and its barite grinding mills using the unit-of-production method. In
applying this method, the Company has considered certain factors which
affect the expected production units (lives) of these assets. These
factors include obsolescence, periods of nonuse for normal maintenance
and economic slowdowns and other events which are reasonably
predictable. The unit-of-production method of providing for
depreciation on these assets was adopted in the second quarter of
1999, effective January 1, 1999. Prior to 1999, the Company computed
the provision for depreciation of these assets on a straight-line
basis.
The original useful lives for the waste disposal assets were
developed assuming a relatively constant annual volume of the expected
waste streams. However, the actual volume of waste disposed by the
Company has been more volatile than expected in the markets which
Newpark serves, and the volatility in utilization rates is expected to
continue. Because the utility of disposal assets is diminished by
volume of waste disposed rather than time, the Company believes the
unit-of-production method provides a better measure of loss of utility
of the disposal assets. In addition, a review of major competitors in
the industrial waste business indicates that the unit-of-production
method is a commonly used method of depreciation for surface disposal
assets utilized in this industry.
7
<PAGE> 8
The original useful life for the barite mills was developed based
on maximum utilization rates which considered non-utilized time only
for scheduled repair periods. The Company's actual utilization rates
closely followed this pattern from inception of operations (1997)
through July 1998. The significant declines in drilling activity since
that time has resulted in a drastic reduction in utilization rates for
the barite mills. The life of a barite grinding mill is affected
primarily by the volume of barite material ground in the mill, not the
passage of time. As a result, consistent with the waste disposal
assets, the Company believes the unit-of-production method provides a
better measure of diminution of utility of these assets.
In applying the unit-of-production method of providing
depreciation, the Company makes estimates of certain factors which are
involved in determining the expected productive units for its waste
disposal assets and barite grinding mill assets. The capacity of the
waste disposal assets was determined based primarily on seismic and
geological studies, while the capacity for the barite grinding mill
assets was based primarily on manufacturer's certifications and the
capacity of similar assets. These factors also include consideration
of obsolescence and periods of non-use.
The reported loss from operations for the six months ended June
30, 1999 was reduced by $1,471,000 (related per share amounts of $.02
basic and diluted) reflecting the cumulative effect (net of income
taxes) on years prior to 1999 for the change in accounting for
depreciation. In addition, the effect of the change in 1999 is to
reduce the net loss from operations for the three and six months ended
June 30, 1999 by $242,000 (related per share amounts of $.00 basic and
diluted) and $453,000 (related per share amounts of $.01 basic and
diluted), respectively. The effect on the first quarter of 1999 for
this change in accounting is to increase the previously reported net
income by $212,000 (related per share amounts of $.00 basic and
diluted).
Consolidated net income that would have been reported for the
three months and six months ended June 30, 1998 had the change been
applied retroactively would be as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(In thousands except per share data)
---------------------------------------------------------------------
<S> <C>
Three months:
Net income $ 9,180
Income per common and common equivalent share:
Basic $ .14
Diluted $ .14
Six months:
Net income $ 20,483
Income per common and common equivalent share:
Basic $ .31
Diluted $ .30
</TABLE>
8
<PAGE> 9
NOTE 3 - PENDING MERGER WITH TUBOSCOPE, INC.
On June 24, 1999, the Company entered into a definitive agreement
to merge with Tuboscope Inc. (Tuboscope). Under the terms of the
agreement, which was approved by both boards of directors, Newpark
common stockholders will receive 0.65 common shares of Tuboscope for
each common share of Newpark, and the 150,000 outstanding shares of
Newpark's Series A Cumulative Perpetual Preferred Stock would be
converted into 965,347 shares of Tuboscope common stock. At that
ratio, each stockholder group will own approximately 50% of the
combined company following the proposed merger. The proposed merger is
subject to stockholder approval and, in addition, provides for certain
break-up fees, if the merger is terminated by either party. The
applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 expired on August 6, 1999. The merger is
expected to be accounted for as a purchase.
NOTE 4 - ACQUISITIONS
The accompanying unaudited consolidated financial statements
include the effects of several acquisitions completed during 1998 that
were accounted for as poolings of interests. These acquisitions
included the following companies:
<TABLE>
<CAPTION>
Company Name Acquisition Date Location Shares
- --------------------------- ---------------- --------- ------
<S> <C> <C> <C>
Southwestern Universal Corp March 19, 1998 West Texas 450,000
Optimum Fluids, Inc. May 28, 1999 Canada 281,000
Houston Prime Pipe & Supply May 29, 1999 Gulf Coast 420,000
---------
1,151,000
=========
</TABLE>
Information for the three and six month periods ended June 30,
1998 have been restated to reflect the effects of these transactions
and to reflect certain adjustments in the Fluids Sales & Engineering
segment for expensing certain previously capitalized costs. Operating
results prior to the combinations of the separate companies and the
combined amounts presented in the unaudited consolidated financial
statements for the six months ended June 30, 1998 are summarized below
(in thousands):
<TABLE>
<S> <C>
Revenues:
Newpark $135,099
Southwestern 1,031
Optimum 943
Houston Prime 2,350
--------
Combined $139,423
========
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
Net Income:
Newpark $ 19,786
Southwestern 192
Optimum 40
Houston Prime 318
--------
Combined $ 20,336
========
</TABLE>
The accompanying consolidated financial statements also include
the results of operations of ten acquisitions that were accounted for
by the purchase method. Names of the acquired companies and
consideration given for each are summarized below. Goodwill of $34.1
million was recorded with the acquisition of these entities and is
being amortized over 20 years on a straight line basis. The historical
results of the operations related to these acquisitions were not
considered significant in relation to the financial requirements of
Newpark.
<TABLE>
<CAPTION>
Date of Consideration
Acquisition Selling Entity Shares Cash
- ----------- -------------- ------- ----------
<S> <C> <C> <C>
March 1998 Protec Mud Service, Ltd. 385,418 $4,163,000
April 1998 Qualitex, Inc. 21,816 $ 12,000
May 1998 Chem-Drill, Inc. 48,800 $ --
June 1998 Mid-Continent Completion Fluids, Inc. 345,000 $3,700,000
June 1998 Red Hill Disposal, Inc. -- $ 600,000
June 1998 Cajun Oilfield Services, Inc. 85,600 $ 200,000
August 1998 Shamrock Drilling Fluids 673,773 $8,885,000
August 1998 ProActa Environmental, Services, Inc. 550,000 $1,278,000
October 1998 Sonnex, Inc. -- $2,650,000
October 1998 OGS Laboratories, Inc. 236,364 $1,165,000
</TABLE>
The following unaudited pro forma information presents a summary
of consolidated results of operations of the Company and these ten
acquired companies as if the acquisition had occurred January 1, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(In thousands except per share data)
---------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------- --------------
<S> <C> <C>
Revenues $ 75,081 $ 161,775
Net income 9,361 21,572
Net income per common
and common equivalent share
Basic $ .14 $ .32
Diluted $ .13 $ .31
</TABLE>
NOTE 5 - EARNINGS PER SHARE
Basic and diluted income (loss) per common and common equivalent
share for the three and six months ended June 30, 1999 and basic
income
10
<PAGE> 11
per common and common equivalent share for the three and six months
ended June 30, 1998, were calculated by dividing income or loss
available to common shareholders by the weighted average number of
common shares outstanding during the period. Diluted income per common
and common equivalent share for the three and six months ended June
30, 1998 was calculated by dividing income available to common
shareholders by the weighted average number of common shares
outstanding and the dilutive stock options granted to outside
directors and certain employees, which totaled approximately 1,283,000
shares and 1,352,000 shares for the respective periods.
NOTE 6 - ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at June 30,
1999 and December 31, 1998 are:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(In thousands) 1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Trade receivables $ 55,123 $ 68,960
Unbilled revenues 3,662 3,663
-------- --------
Gross trade receivables 58,785 72,623
Allowance for doubtful accounts (10,602) (11,008)
-------- --------
Net trade receivables 48,183 61,615
Notes and other receivables 4,646 4,060
-------- --------
Total $ 52,829 $ 65,675
======== ========
</TABLE>
NOTE 7 - INVENTORY
The Company's inventory consisted of the following items at June
30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(In thousands) 1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Drilling fluids raw materials
and components $14,476 $11,385
Logs 2,394 4,835
Board road lumber 732 1,276
Supplies 1,391 1,285
Other 205 600
------- -------
Total $19,198 $19,381
======= =======
</TABLE>
NOTE 8 - CAPITALIZED INTEREST
Interest of $308,000 and $534,000 was capitalized during the
three months ended June 30, 1999 and 1998, respectively. Interest of
$808,000 and $830,000 was capitalized during the six months ended June
30, 1999 and 1998, respectively.
11
<PAGE> 12
NOTE 9 - LONG-TERM DEBT
As of June 30, 1999, the Company had outstanding $125 million of
unsecured senior subordinated notes (the "Notes") and maintained a
$100.0 million bank credit facility (the "Credit Facility") in the
form of a revolving line of credit commitment. The Credit Facility is
unsecured, except for the pledge of certain capital stock of two
foreign subsidiaries. It bears interest at either a specified prime
rate (7.75% at June 30, 1999) or the LIBOR rate (5.37% at June 30,
1999) plus a spread which is determined quarterly based upon the ratio
of the Company's funded debt to cash flow. The line of credit requires
monthly interest payments and matures on June 30, 2001. At June 30,
1999, $17.6 million of letters of credit were issued and outstanding,
leaving a net of $82.4 million available for cash advances under the
line of credit, of which $68.3 million was borrowed.
The Credit Facility requires that the Company maintain certain
specified financial ratios and comply with other usual and customary
requirements. In 1999, the lenders amended the Credit Facility to
provide for covenants that are consistent with the Company's financial
condition and market outlook. At June 30, 1999, the Company was in
compliance with all requirements of the respective agreements, as
amended. In addition, the Notes and the Credit Facility contain
covenants that significantly limit the payment of dividends on the
common stock of the Company.
NOTE 10 - SEGMENT DATA
Summarized financial information concerning the Company's
reportable segments is shown in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------- ------------------
<S> <C> <C> <C> <C>
Three Months Ended June 30:
Revenues by segment:
E&P waste disposal $ 9,933 24.5% $15,467 23.1%
Fluids sales & engineering 18,795 46.4 24,929 37.2
Mat & integrated services 11,796 29.1 26,623 39.7
------- ----- ------- -----
Total $40,524 100.0% $67,019 100.0%
======= ===== ======= =====
Operating income (loss) by segment:
E&P waste disposal $ 2,507 $ 5,994
Fluids sales & engineering (7,610) 3,150
Mat & integrated services (1,591) 7,924
------- -------
Total $(6,694) $17,068
======= =======
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
<S> <C> <C> <C> <C>
Six Months Ended June 30:
Revenues by segment:
E&P waste disposal $ 20,768 22.3% $ 33,531 24.0%
Fluids sales & engineering 42,348 45.4 50,271 36.1
Mat & integrated services 30,187 32.3 55,621 39.9
--------- ----- --------- -----
Total $ 93,303 100.0% $ 139,423 100.0%
========= ===== ========= =====
Operating income (loss) by segment:
E&P waste disposal $ 5,992 $ 13,450
Fluids sales & engineering (8,798) 7,643
Mat & integrated services 1,148 16,002
--------- ---------
Total $ (1,658) $ 37,095
========= =========
</TABLE>
The figures above are shown net of intersegment transfers.
NOTE 11 - PREFERRED STOCK
On April 16, 1999, the Company, issued to SCF-IV, L.P., a
Delaware limited partnership managed by SCF Partners (the
"Purchaser"), 150,000 shares of Series A Cumulative Perpetual
Preferred Stock, $0.01 par value per share (the "Series A Preferred
Stock"), and a warrant (the "Warrant") to purchase up to 2,400,000
shares of the Common Stock of the Company at an exercise price of
$8.50 per share, subject to anti-dilution adjustments. The aggregate
purchase price for these instruments was $15.0 million, of which
approximately $12.8 million was allocated to the Series A Preferred
Stock and approximately $2.2 million to the Warrant. The difference
between the carrying value and the redemption value for the Series A
Preferred Stock is being amortized to retained earnings over a period
of five years and affects the earnings per share of common stock. The
net proceeds from the sale were used to repay indebtedness. No
underwriting discounts, commissions or similar fees were paid in
connection with the sale of the securities.
Cumulative dividends are payable on the Series A Preferred Stock
quarterly in arrears at the initial dividend rate of 5% per annum,
based on the stated value of $100 per share of Series A Preferred
Stock. Dividends for the first three years are payable in Newpark
Common Stock. The dividend rate is subject to adjustment three, five
and seven years after the date of issuance. The agreement does not
restrict common stock dividends or repurchases of common stock by the
Company as long as all accumulated dividends on the Series A Preferred
Stock have been paid in full.
NOTE 12 - LEGAL PROCEEDINGS
On August 3, 1999, a Newpark stockholder, Jason Golz, filed a
purported class action complaint in United States District Court,
Eastern
13
<PAGE> 14
District of Louisiana, for breaches of fiduciary duty against Newpark
and the Newpark Board of Directors. The complaint seeks an injunction
against the proposed merger of Newpark and Tuboscope and the
certification as a class of all public stockholders of Newpark other
than the Newpark Board. The complaint alleges that the consideration
to be received by Newpark stockholders in the merger is unfair and
inadequate and that Newpark and its directors breached their fiduciary
duties to Newpark's stockholders by, among other things, failing to
exercise independent judgment in approving the merger and recommending
the merger to the Newpark stockholders. The complaint also names
Tuboscope and SCF-IV, L.P., the holder of Newpark's outstanding
preferred stock, as defendants, alleging, among other things, that
they wrongfully exerted undue pressure on the Newpark Board of
Directors to enter into the merger.
Newpark believes that this complaint is without merit and will
aggressively defend against the suit and pursue the Merger.
NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the
income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is required to be adopted in fiscal
years beginning after June 15, 2000. Given the Company's historically
minimal use of these types of instruments, the Company does not expect
a material impact on its statements from adoption of SFAS No. 133.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results of
operations, liquidity and capital resources should be read in conjunction with
the accompanying "Unaudited Consolidated Financial Statements" and "Notes to
Unaudited Consolidated Financial Statements" as well as the Company's annual
report on form 10-K for the year ended December 31, 1998.
On June 24, 1999, the Company entered into a definitive agreement to merge
with Tuboscope Inc. (Tuboscope). Under the terms of the agreement, which was
approved by both boards of directors, Newpark common stockholders will receive
0.65 common shares of Tuboscope for each common share of Newpark, and the
150,000 outstanding shares of Newpark's Series A Cumulative Perpetual Preferred
Stock would be converted into 965,347 shares of Tuboscope common stock. At that
ratio, each stockholder group will own approximately 50% of the combined company
following the proposed merger. The proposed merger is subject to stockholder
approval and, in addition, provides for certain break-up fees, if the merger is
terminated by either party. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired on August 6, 1999.
The merger is expected to be accounted for as a purchase.
RESULTS OF OPERATIONS
Weakness in oil and gas commodity prices in 1998 and the early part of 1999
produced a significant decline in market activity as measured by the rig count
in the markets that Newpark serves. The recovery of drilling activity in the
U.S. Gulf Coast, Newpark's primary market, has been slower than for the entire
U.S. market. The operators responsible for most of the drilling activity in the
U.S. Gulf Coast tend to be independent oil companies who generally do not own
downstream refinery operations. The sustained weakness in commodity prices
during 1998 significantly affected the cash flows of these operators, most of
which tend to have less access to capital resources than the major
fully-integrated oil and gas companies. Accordingly, the recovery in the Gulf
Coast market to this point in the cycle has been slower than for other markets.
<TABLE>
<CAPTION>
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 968 864 796 690 551 521
</TABLE>
During April 1999, the U.S. rig count declined to 488 rigs, the lowest
count ever recorded in the history of the indicator. As of the week ended July
30, 1999, the U.S. rig count was 602.
- ------------
Source: Baker Hughes Incorporated
15
<PAGE> 16
Natural gas production accounts for the majority of activity in the Gulf
Coast region. Gas prices began to improve during March 1999 and have continued
to recover. High depletion rates for gas wells are expected to provide support
to commodity gas pricing. Beginning in 1998, lower oil prices slowed drilling in
markets more oriented toward oil, such as the Austin Chauk region, West Texas
and areas which produce primarily heavy oil, such as Canada and Venezuela. Oil
prices have recovered as a result of voluntary production curtailment by OPEC
member countries.
Operating results for the quarter and six months ended June 30, 1998 have
been restated to give effect to several pooling of interests transactions that
took place during 1998 and the reallocation of certain 1998 charges that
affected these results. Summarized financial information concerning the
Company's reportable segments for the three month and six month periods ended
June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
Three Months Ended June 30:
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 9,933 24.5% $ 15,467 23.1%
Fluids sales & engineering 18,795 46.4 24,929 37.2
Mat & integrated services 11,796 29.1 26,623 39.7
--------- ----- --------- -----
Total $ 40,524 100.0% $ 67,019 100.0%
========= ===== ========= =====
Operating income (loss) by segment:
E&P waste disposal $ 2,507 $ 5,994
Fluids sales & engineering (7,610) 3,150
Mat & integrated services (1,591) 7,924
--------- ---------
Total $ (6,694) $ 17,068
========= =========
Six Months Ended June 30:
Revenues by segment:
E&P waste disposal $ 20,768 22.3% $ 33,531 24.0%
Fluids sales & engineering 42,348 45.4 50,271 36.1
Mat & integrated services 30,187 32.3 55,621 39.9
--------- ----- --------- -----
Total $ 93,303 100.0% $ 139,423 100.0%
========= ===== ========= =====
Operating income (loss) by segment:
E&P waste disposal $ 5,992 $ 13,450
Fluids sales & engineering (8,798) 7,643
Mat & integrated services 1,148 16,002
--------- ---------
Total $ (1,658) $ 37,095
========= =========
</TABLE>
The figures above are shown net of intersegment transfers.
16
<PAGE> 17
THREE MONTH PERIOD ENDED JUNE 30, 1999 COMPARED TO THREE MONTH
PERIOD ENDED JUNE 30, 1998
Revenues
Total revenues for the three months ended June 30, 1999 declined to
$40.5 million, from $67.0 million in 1998, a decrease of $26.5 million, or 40%.
The components of the decrease in revenues were a $5.6 million decrease in waste
disposal revenues, a $6.1 million decrease in drilling fluids sales and
engineering revenues and a $14.8 million decrease in mat and integrated services
revenues.
The $5.6 million, or 36%, decrease in waste disposal revenue is
attributable to the decline in waste volumes received as a result of lower
drilling activity. During the second quarter of 1999, Newpark received
approximately 800,000 barrels of E&P waste compared to approximately 1.2 million
barrels in the comparable quarter of 1998, a 33% decline, while pricing remained
stable during the comparable periods.
The $6.1 million, or 24%, decline in drilling fluids revenue is
attributable to the decline in drilling activity noted above and commodity
pricing, particularly for barite. Drilling fluids revenues were benefited during
the quarter by several acquisitions in 1998 which, among other things, expanded
operations into the Oklahoma Anadarko Basin and Western Canada. In addition, the
drilling fluids segment continued to penetrate the markets that it serves and
gain market share. While the mix of rig activity and commodity pricing has put
downward pressure on both revenues and margins in this segment, the Company
continues to be pleased with its customers' reception to its DeepDrill(TM)
fluids system. As this system gains greater market acceptance, it is expected to
enhance both revenues and margins for this segment.
The decrease of $14.8 million in mat and integrated services revenue
reflects both low activity and competitive pressure. Record low rig activity
and, in particular, a shift by customers away from transition zone and major
wetlands projects, resulted in the lowest revenues in this segment in 10 years.
In addition, the Company, and many of its competitors had increased their
capacity during 1997 and the first half of 1998 in response to increasing
industry activity. The sharp decline in drilling activity created significant
overcapacity in this market. The resulting overcapacity contributed further to
the pricing decline.
Roll-out of the new composite mats is continuing and the anticipated
lower operating costs for the new mats is expected to help the Company to better
compete in the current competitive pricing environment. The Company also
continues to develop its mat service business in Canada and anticipates
expansion of this market as its mat systems become more widely accepted.
Operating Income
The Company reported an operating loss of $7.4 million for the three
months ended June 30, 1999, a decline of $24.2 million as compared to operating
income of
17
<PAGE> 18
$16.8 million in 1998. The majority of the decline in operating income is due to
the decline in revenues noted above and reflects the high incremental margins of
the operating segments of the Company. In addition, in the third quarter of
1998, the Company began to make significant changes in its infrastructure in
order to address market shifts and the expected continuance of lower drilling
activity. In the second quarter of 1999, $3.2 million of site closure,
relocation, disposal and other costs associated with these changes were
incurred. At the same time as the Company has been addressing these market
shifts, it has continued its efforts to introduce new products and services.
Introduction of these new products and services has required the Company to
incur additional costs which have not been fully offset by revenue increases
during the startup phase. In the second quarter of 1999 market entry costs of
$1.0 million were charged to operations in connection with introduction of these
products and services. The Company will continue to monitor its level of
operating costs in relation to revenues, while ensuring that customer service is
not impaired. While Newpark has recently made significant cost cuts, it has
attempted to maintain a level of operating capacity which will allow it to meet
demand as drilling activity increases.
The segment operating loss of $6.7 million for the second quarter of
1999 represents a decline of $23.8 from operating income of $17.1 million in
1998. The components of the decrease were a $3.5 million decrease in E&P waste
disposal operating income, a $10.8 million decrease in fluids sales and
engineering operating income and a $9.5 million decrease in mat and integrated
services operating income.
The $3.5 million decrease in waste disposal operating income resulted
from a 33% decline in volume, which reduced operating margins. When the sharp
decline in market activity began in the second quarter of 1998, the Company
began reducing the number of barges in its operations and the number of tugboats
under charter, closing facilities and reducing staffing levels. The Company
completed the cost reductions in this segment during the second quarter of 1999.
The $10.8 million decrease in fluids sales and engineering operating
income is due partly to the decline in revenue of $6.1 million that resulted
from the sharp rig count decline and commodity pricing. In addition, rapid
expansion in this business segment through acquisitions and new distribution
facilities during 1997 and 1998 significantly increased the Company's drilling
fluids infrastructure and therefore its operating costs. Compared to the second
quarter of 1998, the current quarter included additional infrastructure costs of
approximately $3.1 million related to expansion into the Canadian and Oklahoma
markets. The downturn in oil prices, and reduced drilling activity in the
regions that this segment serviced, resulted in lower revenue opportunities and
sharp declines in operating margins beginning in the latter half of 1998. In
response, the Company has closed several of its facilities, primarily in the
Austin Chauk of Louisiana and Texas, and downsized its operations. Included in
operating costs for this segment in the quarter ended June 30, 1999 are site
closure and related costs of approximately $2.6 million.
While the Company has made significant changes in the operations of its
drilling fluids segment in response to market shifts and declines in drilling
activity, it has continued to introduce its DeepDrill(TM) product and its
Minimization
18
<PAGE> 19
Management concept. During the quarter ended June 30, 1999 the Company has
incurred approximately $700,000 in market entry costs associated with the
introduction of these products and services during the startup phase.
The $9.5 million decrease in mat and integrated services operating
income is attributable to the $14.8 million decline in revenues for this
segment, declining margins related to lower average pricing and increased
operating costs associated with the continued disposal of wooden mats and
relocation of mats to other markets. Mat disposal costs of approximately
$600,000 were charged during the current quarter. In addition, market entry
costs of approximately $300,000 were incurred during the quarter ended June 30,
1999 in connection with the introduction of the new composite mat system and
introduction of wooden mats into the Canadian market. It is anticipated that
utilization of the composite mat will improve operating margins in this segment
as the market recovers. This business segment has significantly cut costs in
response to the decline in demand for its services by reducing staffing levels,
closing facilities and disposing of excess assets. These cost reduction measures
were completed in the second quarter of 1999.
Interest Income/Expense
Net interest expense was $3.8 million for the second quarter of 1999,
an increase of $1.5 million, or 65% as compared to $2.3 million for the second
quarter of 1998. The increase in net interest cost is due to an increase of
$51.7 million in average outstanding borrowings. The increase in average
outstanding borrowings under the Company's bank credit facility during 1998 was
used to fund acquisitions, capital expenditures and working capital for
operations growth experienced until the sharp decline in drilling activity in
the third quarter of 1998. During the second quarter of 1999, the Company
reduced total borrowings under its credit facility by $2.6 million.
Provision for Income Taxes
For the quarter ended June 30, 1999 the Company recorded an income tax
benefit of $5.9 million, reflecting an income tax benefit rate of 53.1%. This
effective rate results primarily from the effect of non-deductible goodwill and
the low projected income from operations for the year ended December 31, 1999.
For the quarter ended June 30, 1998, the Company recorded an income tax
provision of $5.4 million, reflecting an income tax rate of 37.2%.
Preferred Stock Dividends and Accretion of Discount
Dividends paid on preferred stock and accretion of the discount on the
preferred stock for the quarter ended June 30, 1999 were $156,000 and $94,000,
respectively. These amounts reflect dividends and accretion for the period of
April 16, 1999 (the issuance date of the preferred stock) through June 30, 1999.
19
<PAGE> 20
SIX MONTH PERIOD ENDED JUNE 30, 1999 COMPARED TO SIX MONTH PERIOD
ENDED JUNE 30, 1998
Revenues
Total revenues for the six months ended June 30, 1999 declined to $93.3
million, from $139.4 million in 1998, a decrease of $46.1 million, or 33%. The
components of the decrease in revenues were a $12.7 million decrease in waste
disposal revenues, an $8.0 million decrease in drilling fluids sales and
engineering revenues and a $25.4 million decrease in mat and integrated services
revenues.
The $12.7 million or 38% decrease in waste disposal revenue is
attributable to the decline in waste volumes received as a result of lower
drilling activity. During the first six months of 1999 Newpark received
approximately 1.6 million barrels of E&P waste compared to approximately 2.7
million barrels in the comparable period of 1998, a 43% decline, while pricing
remained stable during the comparable periods.
The $8.0 million, or 16%, decline in drilling fluids revenue is
attributable to the decline in drilling activity and commodity pricing as noted
above. Drilling fluids revenues were benefited during the first six months of
1999 by several acquisitions in 1998.
The decrease of $25.4 million in mat and integrated services revenue
reflects both low activity and competitive pressure that reduced average pricing
as noted above.
Operating Income
The Company reported an operating loss of $2.8 million for the six
months ended June 30, 1999, a decline of $39.2 million as compared to operating
income of $36.4 million in 1998. The majority of the decline in operating income
is due to the decline in revenues and reflects the high incremental margins of
the operating segments of the Company. As noted previously, in the third quarter
of 1998, the Company began to make significant changes in its infrastructure in
order to address market shifts and the expected continuance of lower drilling
activity. During the six months ended June 30, 1999, $3.4 million of site
closure, relocation, disposal and other costs associated with these changes were
incurred. At the same time as the Company has been addressing these market
shifts, it has continued its efforts to introduce new products and services to
the markets it serves. Introduction of these new products and services has
required the Company to incur additional costs which have not been fully offset
by revenue increases during the startup phase. For the first six months of 1999,
market entry costs of $1.6 million were charged to operations in connection with
the introduction of these products and services.
The segment operating loss of $1.7 million for the six months ended
June 30, 1999 represents a decline of $38.8 million from operating income of
$37.1 million in 1998. The components of the decrease were a $7.5 million
decrease in E&P waste disposal operating income, a $16.4 million decrease in
fluids sales and engineering
20
<PAGE> 21
operating income and a $14.9 million decrease in mat and integrated services
operating income.
The $7.5 million decrease in waste disposal operating income resulted
from a 43% decline in volume, which reduced operating margins. When the sharp
decline in market activity began in the second quarter of 1998, the Company
began reducing the number of barges in its operations and the number of tugboats
under charter, closing facilities and reducing staffing levels. The Company
completed these cost reductions in this segment during the second quarter of
1999.
The $16.4 million decrease in fluids sales and engineering operating
income is due partly to the decline in revenue of $8.0 million that resulted
from the rig count decline and commodity pricing. In addition, as noted
previously, rapid expansion in this business segment through acquisitions and
new distribution facilities during 1997 and 1998 significantly increased the
Company's drilling fluids infrastructure. Compared to the first six months of
1998, the current six month period included additional infrastructure costs of
approximately $6.5 million related to expansion into the Canadian and Oklahoma
markets. The downturn in oil prices, and reduced drilling activity in the
regions that this segment serviced, resulted in lower revenue opportunities and
sharp declines in operating margins beginning in the latter half of 1998. In
response, the Company has closed several of its facilities, primarily in the
Austin Chauk of Louisiana and Texas, and downsized its operations. Included in
operating costs for this segment in the six month period ended June 30, 1999 are
site closure and related costs of approximately $2.6 million. In addition, $1.2
million of market entry costs were incurred in 1999 associated with the
introduction of DeepDrill(TM) and Minimization Management.
The $14.9 million decrease in mat and integrated services operating
income is attributable to the $25.4 million decline in revenues for this
segment, declining margins from competitive pricing and increased operating
costs associated with the continued disposal of wooden mats. Mat disposal costs
of approximately $800,000 were charged during the six month period ended June
30, 1999. In addition, market entry costs of approximately $500,000 were
incurred during the six month period ended June 30, 1999 in connection with the
introduction of the new composite mat system and introduction of wooden mats
into the Canadian market. As noted above, this business segment has
significantly cut costs in response to the decline in demand for its services by
reducing staffing levels, closing facilities and disposing of excess assets.
Interest Income/Expense
Net interest expense was $7.5 million for the six months ended June 30,
1999, an increase of $3.0 million, or 67%, as compared to $4.5 million for the
second quarter of 1998. The increase in net interest cost is due to an increase
of $56.5 million in average outstanding borrowings. The increase in average
outstanding borrowings under the Company's bank credit facility during 1998 was
used to fund acquisitions, capital expenditures and working capital for
operations growth experienced until the sharp decline in drilling activity in
the third quarter of 1998.
21
<PAGE> 22
During the six months ended June 30, 1999, the Company reduced total borrowings
under its credit facility by $13.5 million.
Provision for Income Taxes
For the six months ended June 30, 1999 the Company recorded an income
tax benefit of $5.6 million, reflecting an income tax benefit rate of 54.6%.
This effective rate results primarily from the effects of non-deductible
goodwill and the low amount of projected income before operations for the year
ended December 31, 1999. For the six months ended June 30, 1998, the Company
recorded an income tax provision of $11.6 million, reflecting an income tax rate
of 36.3%.
Cumulative Effect of Accounting Change
The unit-of-production method of providing for depreciation on certain
assets used in the Company's barite grinding activity and in the E&P and NORM
disposal business segment was adopted in the second quarter of 1999, effective
January 1, 1999. Prior to this change, the Company had depreciated these assets
using the straight-line method. The reported loss from operations for the six
months ended June 30, 1999 was reduced by $1,471,000 (related per share amounts
of $.02 basic and diluted) reflecting the cumulative effect (net of income
taxes) on years prior to 1999 for the change in accounting for depreciation.
Preferred Stock Dividends and Accretion of Discount
Dividends paid on preferred stock and accretion of the discount on the
preferred stock for the six months ended June 30, 1999 were $156,000 and
$94,000, respectively. These amounts reflect dividends and accretion for the
period of April 16, 1999 (the issuance date of the preferred stock) through June
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $5.8 million during
the six months ended June 30, 1999. Key working capital data is provided below:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Working Capital (000's) $ 70,108 $ 75,937
Current Ratio 3.29 2.75
</TABLE>
22
<PAGE> 23
The Company's long term capitalization was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Long-term debt
(including current maturities):
Credit facility $ 68,250 $ 80,900
Subordinated debt 125,000 125,000
Other 2,454 3,352
-------- --------
Total long-term debt 195,704 209,252
Stockholders' equity 255,176 242,497
-------- --------
Total capitalization $450,880 $451,749
======== ========
</TABLE>
For the six months ended June 30, 1999, Newpark's working capital needs
were met primarily from operating cash flow. Total net cash generated from
operations and financing activities of $10.5 million and $10.8 million,
respectively, helped provide for $21.7 million used in investing activities.
During the first six months of 1999, the Company entered into an
operating lease transaction, under which it received $9.3 million in
reimbursement of expenditures previously incurred by the Company for the
purchase of a portion of the underlying equipment. Additionally the Company
received income tax refunds totaling $13.3 million, during this same period.
Newpark's current bank credit facility provides for a $100.0 million
revolving credit facility maturing on June 30, 2001, including up to $20.0
million in standby letters of credit. At June 30, 1999, $17.6 million in letters
of credit were issued and outstanding under the credit facility, and $68.3
million was outstanding under the revolving facility. Advances under the credit
facility bear interest at either (i) a specified prime rate or (ii) the LIBOR
rate plus a spread which is determined quarterly based on the credit facility.
The credit facility requires that Newpark maintain certain specified financial
ratios and comply with other usual and customary requirements. In 1999, the
Credit Facility was amended to provide for covenants which are consistent with
the Company's current financial condition and anticipated market outlook.
Newpark was in compliance with all other requirements of the credit facility, as
amended, at June 30, 1999. Several of the financial ratios under the credit
facility are at or near their respective limits. Any losses sustained by the
Company in future quarters may cause Newpark to not be in compliance with
certain financial covenants unless waivers can be obtained from the banks.
In April 1999 the Company sold to SCF-IV, L.P., a Delaware limited
partnership managed by SCF Partners, 150,000 shares of Series A Cumulative
Perpetual Preferred Stock, $0.01 par value per share (the "Series A Preferred
Stock"), and a warrant (the "Warrant") to purchase up to 2,400,000 shares of the
Common Stock of the Company at an exercise price of $8.50 per share, subject to
anti-dilution adjustments. The aggregate purchase price for the Series A
Preferred
23
<PAGE> 24
Stock and the Warrant was $15.0 million, and the net proceeds from the sale have
been used to repay indebtedness.
For 1999, Newpark anticipates capital expenditures of approximately $37
million, including: (i) $4 million to develop non-hazardous industrial waste
injection well sites, (ii) $6 million for expansion of drilling fluids
operations, including the purchase of equipment associated with fluids
processing and recycling and infrastructure expansions; (iii) $3 million to
complete an enlarged joint operational offshore facility; (iv) $18 million for
the purchase of synthetic mats and additional hardwood mats; and (v) $6 million
for maintenance capital. Of these projected amounts, $23 million was expended
during the six month period ended June 30, 1999.
Potential sources of additional funds, if required by the Company,
would include operating leases for equipment purchases and the sale of equity
securities. The Company presently has no commitments beyond its working capital
and bank lines of credit by which it could obtain additional funds for current
operations; however, it regularly evaluates potential borrowing arrangements
which may be utilized to fund future expansion. Newpark believes that its
current sources of capital, coupled with internally generated funds, will be
sufficient to support its working capital, capital expenditure and debt service
requirements for the foreseeable future provided that market conditions
stabilize or improve from current levels. Any further protracted downturn in
market conditions could have an adverse affect on the Company's future available
capital and would likely result in reductions in planned capital expenditures.
Except as described in the preceding paragraph, Newpark is not aware of any
material expenditures, significant balloon payments or other payments on long
term obligations or any other demands or commitments, including off-balance
sheet items to be incurred within the next 12 months. Inflation has not
materially impacted the Company's revenues or income.
YEAR 2000
The Company relies heavily on computers in its internal and external
financial reporting systems. In addition, computers are used extensively
throughout the Company to perform critical operating activities, including the
processing of payroll, accounts receivable and accounts payable and to perform
critical analyses such as well reports for drilling fluids customers and testing
of E&P waste streams received from customers. The Company also makes use of
computers for efficient communications with employees and customers, including
extensive use of e-mail systems and the Internet, and is expected to expand its
use of such technology in the future. Embedded technology such as
microcontrollers are commonly found in equipment used throughout the Company's
operations. The complete failure of these systems could have a material negative
impact on the operations of the Company. In addition, most of the Company's
major suppliers and customers rely heavily on similar computer systems and
failures in such systems could disrupt their operations.
The Company is substantially complete in assessing and addressing Year
2000 issues in its major computer systems. Most of the Company's major systems
24
<PAGE> 25
have been updated in the normal course of business or replaced with applications
that are Year 2000 compliant. No system replacements were made or accelerated to
comply with Year 2000 issues, but rather were made to address other operating
issues.
In addition to substantially addressing Year 2000 issues in its own
critical computer systems, the Company continues its process of contacting its
major customers and vendors to assess their progress in addressing their Year
2000 issues. Included with these contacts is a request to address embedded
technology as it relates to their own operations and to products supplied to the
Company. The Company expects to have responses from these customers and vendors
by the third quarter of 1999. The Company believes that in making these contacts
it can minimize the risks associated with Year 2000 failures of such vendors and
customers. The Company can give no assurance that the systems of other companies
on which its systems rely will be converted or otherwise addressed on time, or
that a failure to convert by another company would not have a material adverse
effect on Newpark.
While the Company has made and will continue to make efforts to address
Year 2000 issues, it could experience disruptions in its operations as a result
of failures in its own systems and those of its major vendors or customers.
Accordingly, the Company has developed contingency plans to help mitigate the
effects of failures, if any.
To date, the total amount spent on Year 2000 issues has been less than
$100,000 and has not been material to the Company's operations or financial
condition. Based on current assessments, the Company expects to incur less than
$100,000 in additional expenditures to address Year 2000 issues. However, these
estimates are subject to revisions based on future assessments and responses
from vendors and customers.
Estimates of the costs or consequences of incomplete or untimely
resolution of Year 2000 issues would be speculative. The Company will continue
to assess and address Year 2000 issues and expects to fund such efforts through
operating cash flows.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains `forward-looking statements' within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Words such as "believes",
"expects", "anticipates", "intends", "plans", "estimates", "should", "likely",
or similar expressions indicate that the statement is a forward-looking
statement. There are risks and uncertainties that could cause future events and
results to differ materially from those anticipated by management in the
forward-looking statements included in this report. Among these risks and
uncertainties are (a) the level of exploration for and production of oil and gas
and the industry's willingness to spend capital on environmental and oilfield
services; (b) oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering
25
<PAGE> 26
oil and gas, the discovery rate of new oil and gas reserves and the ability of
oil and gas companies to raise capital; (c) domestic and international
political, military, regulatory and economic conditions; (d) other risks and
uncertainties generally applicable to the oil and gas exploration and production
industry; (e) any rescission or relaxation of existing regulations affecting the
disposal of E&P waste and NORM, failure of governmental authorities to enforce
such regulations or the ability of industry participants to avoid or delay
compliance with such regulations; (f) future technological change and
innovation, which could result in a reduction in the amount of waste being
generated or alternative methods of disposal being developed; (g) increased
competition in the Company's product lines; (h) the Company's success in
introducing new products and integrating potential future acquisitions; and (i)
any disruptions in its operations as a result of failures in its own computer
systems and those of its major vendors or customers resulting from Year 2000
issues.
26
<PAGE> 27
PART II
ITEM 1. LEGAL PROCEEDINGS
On August 3, 1999, a Newpark stockholder, Jason Golz, filed a purported
class action complaint in United States District Court, Eastern District of
Louisiana, for breaches of fiduciary duty against Newpark and the Newpark Board
of Directors. The complaint seeks an injunction against the proposed merger of
Newpark and Tuboscope and the certification as a class of all public
stockholders of Newpark other than the Newpark Board. The complaint alleges that
the consideration to be received by Newpark stockholders in the merger is unfair
and inadequate and that Newpark and its directors breached their fiduciary
duties to Newpark's stockholders by, among other things, failing to exercise
independent judgment in approving the merger and recommending the merger to the
Newpark stockholders. The complaint also names Tuboscope and SCF-IV, L.P., the
holder of Newpark's outstanding preferred stock, as defendants, alleging, among
other things, that they wrongfully exerted undue pressure on the Newpark Board
of Directors to enter into the merger.
Newpark believes that this complaint is without merit and will
aggressively defend against the suit and pursue the Merger.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Newpark Resources, Inc. held an Annual Meeting of Stockholders on May
26, 1999.
(b) The following seven directors were elected at that meeting to serve
until the next Annual Stockholders' Meeting, with the following votes
cast:
<TABLE>
<CAPTION>
For
----------
<S> <C>
Dibo Attar 59,008,410
William Thomas Ballantine 59,991,291
James D. Cole 58,989,831
W. W. Goodson 59,990,723
David P. Hunt 59,009,410
Alan Kaufman 59,007,896
James H. Stone 59,007,826
</TABLE>
There were 311,487 votes withheld from voting on the directors.
(c) The stockholders approved the adoption of the 1999 Employee Stock
Purchase Plan. There were 57,427,028 votes cast in favor of the
adoption, and 1,767,810 votes cast against the adoption, with 106,480
votes abstaining from voting on the adoption.
27
<PAGE> 28
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
18 Preferability Letter from Company's certifying accountants
related to change in method of depreciation for certain
long-lived assets.
27 Financial Data Schedule
99 Complaint filed on August 3, 1999 in United States District
Court, Eastern District of Louisiana.
(b) Reports on Form 8-K
The registrant filed the following reports on Form 8-K during the
quarter ended June 30, 1999.
(i) Form 8-K dated April 22, 1999, relating to the issuance of
150,000 shares of Series A Cumulative Perpetual Preferred
Stock, $0.01 par value per share, and a warrant to purchase up
to 2,400,000 shares of Common Stock of the Company to SCF-IV,
L.P., a Delaware limited partnership for $15.0 million.
(ii) Form 8-K dated April 26, 1999, relating to the Company's
change in certifying accountants.
(iii) Form 8-KA dated April 26, 1999, relating to the Company's
change in certifying accountants.
(iv) Form 8-K dated May 10, 1999, relating to the Company's change
in certifying accountants.
(v) Form 8-K dated June 24, 1999, relating to the proposed merger
of the Company with and into Tuboscope.
28
<PAGE> 29
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 12, 1999
NEWPARK RESOURCES, INC.
By: /s/ Matthew W. Hardey
---------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
29
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
18 Preferability Letter from Company's certifying accountants
related to change in method of depreciation for certain
long-lived assets.
27 Financial Data Schedule
99 Complaint filed on August 3, 1999 in United States District
Court, Eastern District of Louisiana.
</TABLE>
<PAGE> 1
EXHIBIT 18
[ARTHUR ANDERSEN LETTERHEAD]
August 2, 1999
Newpark Resources, Inc.
3850 North Causeway Blvd., Suite 1770
Metairie, LA 70002-1752
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, effective as of January 1, 1999, the Company changed
from the straight-line method of providing depreciation for its waste disposal
assets and its barite grinding mill assets to the unit-of-production method. It
is the opinion of the Company's management that the unit-of-production method
for the waste disposal assets and barite grinding mill assets, based on the
factors described below, more accurately reflects results of operations.
In applying the straight-line method, the useful lives for the waste disposal
assets were developed assuming a relatively constant annual volume of the
expected waste streams. However, the actual volume of waste disposed by the
Company has been more volatile than expected given the cyclical nature of oil
and gas drilling in the markets which Newpark serves, and volatility in
utilization rates are expected to continue. Because the utility of disposal
assets is diminished by volume of waste disposed rather than time, the Company
believes the unit-of-production method provides a better measure of loss of
utility of the disposal assets. In addition, a review of major competitors in
the industrial waste business indicates that the unit-of-production method is a
common method of depreciation used for surface disposal assets utilized in this
industry.
The original useful life for the barite grinding mills was developed based on
maximum utilization rates which considered non-utilized time only for scheduled
repair periods. The Company's actual utilization rates closely followed this
pattern from inception of operations (1997) through July 1998. As with the
disposal assets, the utilization rates have become more volatile than expected.
The life of a barite grinding mill and equipment is affected primarily by the
volume of barite material ground in the mill, not passage of time. As a result,
consistent with the waste disposal assets, the Company believes the
unit-of-production method provides a better measure of diminution of utility of
these assets.
In applying the unit-of-production method of providing depreciation, the Company
makes estimates of certain factors which are involved in determining the
expected productive units for its waste disposal assets and barite grinding mill
assets. The capacity of the waste disposal assets was determined based primarily
on seismic and geological studies, and the barite grinding mill assets was based
primarily on
<PAGE> 2
Newpark Resources, Inc.
Page 2
August 2, 1999
manufacturer's certifications and the capacity of other similar assets. These
factors also include consideration of obsolescence and periods of non-use.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period. Further, we have not examined and do not express any opinion with
respect to your financial statements for any period including for the three
months and six months ended June 30, 1999.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<CASH> 4,899 6,243
<SECURITIES> 0 0
<RECEIVABLES> 71,438 63,431
<ALLOWANCES> 10,606 10,602
<INVENTORY> 18,3815 19,198
<CURRENT-ASSETS> 106,745 100,685
<PP&E> 272,632 288,494
<DEPRECIATION> 58,470 63,814
<TOTAL-ASSETS> 488,240 487,560
<CURRENT-LIABILITIES> 37,206 30,577
<BONDS> 0 0
0 0
0 12,597
<COMMON> 688 688
<OTHER-SE> 244,644 241,891
<TOTAL-LIABILITY-AND-EQUITY> 488,240 487,560
<SALES> 52,779 93,303
<TOTAL-REVENUES> 52,779 93,303
<CGS> 33,713 63,456
<TOTAL-COSTS> 47,743 94,961
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,977 8,019
<INCOME-PRETAX> 867 (10,308)
<INCOME-TAX> 309 (5,624)
<INCOME-CONTINUING> 558 (4,684)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 1,471 1,471
<NET-INCOME> 2,029 (3,213)
<EPS-BASIC> 0.03 (0.05)
<EPS-DILUTED> 0.03 (0.05)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
JASON GOLZ, on behalf of himself and * CIVIL ACTION
all others similarly situated, * NO. 99-2331
*
Plaintiff * SECTION
* SECT BMAG 5
*
VERSUS *
* MAG. DIV. ( )
JAMES D. COLE, WILLIAM THOMAS BALLANTINE, *
DIBO ATTAR, WILLIAM W. GOODSON, *
DAVID P. HUNT, DR. ALAN KAUFMAN, *
JAMES H. STONE, L.E. SIMMONS, *
NEWPARK RESOURCES, INC., TUBOSCOPE, INC. *
and SCF-IV, L.P., *
*
Defendants *
* * * * * * * * * * * * * * * * * * * * * * *
CLASS ACTION COMPLAINT
Plaintiff, by and through his attorneys, alleges the following upon
information and belief, except as to paragraph 8 which is alleged upon personal
knowledge:
Nature Of The Action
1. This is a stockholder's class action on behalf of the public
stockholders of Newpark Resources, Inc. ("Newpark" or the "Company"). The action
is brought against Newpark and its Board of Directors, Tuboscope, Inc.
("Tuboscope"), SCF-IV, L.P. ("SCF"), a Delaware partnership and a major
shareholder of Newpark controlled by defendant L.E. Simmons ("Simmons"), in
connection with the proposed merger and acquisition ("merger and acquisition")
<PAGE> 2
by Tuboscope of the publicly owned shares of Newpark common stock which SCF does
not already own, at a negative premium to the closing price of Newpark common
stock prior to the announcement of the merger and acquisition.
2. The action arises out of an announcement released by Tuboscope over the
Business Wire on June 24, 1999 which stated:
the companies have agreed to merge, creating a worldwide supplier of highly
engineered products and services to the oil and gas industry with over $800
million in combined sales in 1998. Under the terms of a definitive merger
agreement approved by both boards of directors and executed today, Newpark
common shareholders would receive 0.65 common shares of Tuboscope for each
common share of Newpark. At that ratio each shareholder group will own
approximately 50% of the combined company. Tuboscope will be the surviving
company with its name likely to be changed to reflect the integrated
services to be provided.
The June 24, 1999 press release further announced that defendant James D. Cole
("Cole"), President, CEO and Chairman of Newpark will become Chairman of the
combined company, thus giving Cole a motive to approve what is an inadequate and
unfair transaction to plaintiff and the Class, as set forth herein. In addition,
according to the Tuboscope Form 8-K filed with the Securities and Exchange
Commission on or about June 29, 1999, defendant William Thomas Ballantine
("Ballantine") will assume a senior management position with continued
responsibility for key Newpark operating companies, thus giving Ballantine, as
well, a motive to approve this inadequate and unfair merger and acquisition.
L.E. Simmons, current Chairman of Tuboscope, will chair an executive committee
of the new board of directors which will be composed of directors from both
companies.
-2-
<PAGE> 3
3. The June 24, 1999 press release did not disclose the fact that L. E.
Simmons & Associates, an entity controlled by defendant Simmons (who is
currently Chairman of the Board of Tuboscope) recently purchased 150,000 shares
of Newpark preferred stock at $10.00 per share and warrants to purchase an
additional 2,400,000 shares of Newpark common stock at an exercise price of
$8.50 per share, all in a private Purchase Agreement ("Private Purchase
Agreement") between Newpark and SCF dated April 18, 1999. Accordingly,
immediately prior to the June 24, 1999 press release, SCF owned 100% of the
outstanding preferred shares of Newpark. According to the Agreement and Plan of
Merger ("Merger Agreement") governing the merger and acquisition, SCF's
preferred shares shall be converted into the right to receive 965,347 shares of
Tuboscope common stock. This along with its ability to exercise the warrants to
purchase an additional 2,400,000 shares of Newpark common stock, make it and
Tuboscope and defendant Simmons even more influential in the affairs of Newpark
and enable Tuboscope to wrongfully exert undue pressure on the Newpark Board of
Directors to enter into the merger and acquisition. As set forth hereafter,
Tuboscope, by way of the merger and acquisition seeks to purchase all of the
public shareholders' outstanding shares of Newpark at an unfair and inadequate
price.
4. The Merger Agreement contains the following further terms, all of which
are designed to ensure that the merger and acquisition is consummated to the
unfair advantage of Tuboscope and to the detriment of the class as defined
below:
(a) Tuboscope and Newpark have agreed that neither will:
(i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or
-3-
<PAGE> 4
offer for an Alternative Transaction... involving such party or
any of its Subsidiaries...
(ii) engage in negotiations or discussions concerning, or
provide any non-public information to any person or entity
relating to any Acquisition Proposal, or
(iii) agree to or recommend any Acquisition Proposal.
Accordingly, the Newpark Board of Directors is in agreement to breach its
fiduciary duties to actively seek the best possible price for Newpark's common
shares, e.g. by a public action.
(b) In the event of a termination of the Merger Agreement, Newpark
shall pay Tuboscope up to $5,000,000 as reimbursement for Tuboscope's expenses
and $25,000,000 as a "Termination Fee." Accordingly, other bona fide bids have
been discouraged and avoided.
5. Tuboscope, by encouraging the Newpark Board of Directors to recommend
acceptance of the merger and acquisition agreement and by negotiating the unfair
and inadequate price, is in breach of its fiduciary duties as a major
shareholder to Newpark's public shareholders, in not taking all steps necessary
to offer and/or to ensure a fair and adequate price for Newpark's shares
(including an auction) and by improperly placing undue pressure on Newpark and
its public shareholders to accept the proposal. Given the SCF, controlled by
Simmons, the Tuboscope Chairman, already owns approximately 100% of Newpark's
outstanding preferred stock which will be converted into common shares of
Newpark and voted in favor of the merger and acquisition, and warrants to
purchase an additional approximately 3% of Newpark common shares at just $8.50
per share. Tuboscope and Simmons owed and owes a fiduciary duty to Newpark's
shareholders to deal
-4-
<PAGE> 5
fairly with the shareholders and to ensure that the price offered to Newpark
shareholders is fair and adequate.
6. The consideration that SCF has offered to members of the class (as
defined below) in the proposed transaction is unfair and inadequate because,
among other things, the intrinsic value of Newpark's common stock is materially
in excess of the amount offered, giving due consideration to, among other
things, the Company's growth and anticipated operating results, net asset value
and profitability, the negative premium to the Company's shares' market price
immediately prior to the announcement of the merger and acquisition and the
wrongful and undue pressure brought to bear on the Company's Board of Directors
by Tuboscope, Simmons and SCF.
7. As a result of the June 24, 1999 announcement of the proposed deal, the
market price of Newpark crashed, falling $2.1875 to close at $8.5625 or a
decline of approximately 20%. According to an article in The New Orleans Times
Picayune on June 26, 1999, investors had anticipated a merger price of $13 to
$14 per share. "People just sort of anticipated a 20 or 30 percent premium,"
said Peter Richiuti ("Richiuti"), director of research at Tulane's A.B. Freeman
School of Business. Richiuti also said he was somewhat puzzled by Newpark's
move, considering the Company was primed to benefit in the upcoming recovery.
"Our feeling was that they were in pretty good shape," Richiuti said. "It seems
like remaining independent would have been a fine place to be."
8. In addition, in light of the factors set forth herein, the Board of
Directors of Newpark is incapable of negotiating an offer fair and adequate to
the Newpark shareholders and/or
-5-
<PAGE> 6
arriving at a genuinely independent decision regarding acceptance and
recommendation of the proposal.
Jurisdiction and Venue
9. This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. (S)1332(a)(2). The plaintiff is a citizen of the State of
California. None of the Defendants are domiciled or reside in the state of
California. The amount in controversy between plaintiffs and the defendants
exceeds $75,000. This is not a collusive action brought to confer jurisdiction
on this Court which it would not otherwise have.
10. Venue is proper in this district pursuant to 28 U.S.C. (S)1391(a). Many
of the acts and transactions complained of herein, including meetings of
Newpark's Board of Directors, occurred in part in this district. The principal
executive offices of Newpark are located in this district. Many of the
individual defendants, who are the officers and/or directors of Newpark live in,
and/or conduct business in this district.
The Parties
11. Plaintiff is a citizen of the State of California and has been at all
relevant times the owner of shares of the common stock of Newpark.
12. (a) Defendant James D. Cole ("Cole") is, and at all relevant times has
been, Chairman of the Board, President and Chief Executive Officer of Newpark.
As of April 21, 1999, Cole owned 1,242,624 shares or 1.80% of the common stock
of Newpark. In addition, Cole will become Chairman of the Board of the surviving
corporation, giving him a motive to approve this inadequate and unfair merger
and acquisition.
-6-
<PAGE> 7
(b) Defendant William Thomas Ballantine ("Ballantine") is, and at all
relevant times has been, a member of the Board of Directors of Newpark and its
Executive Vice President. As of April 21, 1999, Ballantine owned 120,666 shares
of common stock of Newpark. In addition, Ballantine will take on a senior
management position, giving him a motive to approve this inadequate and unfair
merger and acquisition.
(c) Defendant Dibo Attar is, and at all relevant times has been, a
member of the Newpark Board of Directors. As of April 21, 1999, Attar owned
184,676 shares of the common stock of Newpark.
(d) Defendant William W. Goodson ("Goodson") is, and at all relevant
times has been, a member of the Board of Directors of Newpark.
(e) Defendant David P. Hunt ("Hunt") is, and at all relevant times has
been, a member of the Board of Directors of Newpark. As of April 21, 1999, Hunt
owned 59,468 shares of the common stock of Newpark.
(f) Defendant Dr. Alan Kaufman ("Kaufman") is and at all relevant
times has been a member of the Board of Directors of Newpark. As of April 21,
1999, Kaufman owned 774,060 shares, or 1.12% of the common stock of Newpark.
(g) Defendant James H. Stone ("Stone") is, and at all relevant times
has been, a member of the Board of Directors of Newpark. As of April 21, 1999,
Stone owned 824,168 shares or 1.20% of the common stock of Newpark.
13. The defendants identified in the above paragraph are referred to
collectively herein as the Newpark Director Defendants.
-7-
<PAGE> 8
14. (a) Newpark is a Delaware corporation with its principal executive
offices located at 3850 North Causeway, Suite 1700, Metairie, Louisiana 70002.
Newpark describes itself as a leading provider of proprietary environmental
services to the oil and gas exploration and production industry, primarily in
the U.S. Gulf Coast market. Services provided by the Company, either
individually or as part of a comprehensive package, include: (1) processing and
disposal of oilfield exploration and production ("E&P") waste; (ii) drilling
fluids and associated engineering and technical services; (iii) fluids
processing and recycling services at the rig site; (iv) installation, rental and
sale of temporary access roads and work sites ("mat rental") in oilfield and
other construction applications; and, (v) other related on-site environmental
and oilfield construction services. As of April 21, 1999, Newpark had over
68,000,000 shares of common stock issued and outstanding, trading on the New
York Stock Exchange. Approximately 3% of Newpark common stock may be purchased
by virtue of the warrants sold to SCF in the Private Purchase Agreement, making
Tuboscope, through its affiliation with SCF, potentially one of the largest, if
not the largest, common shareholder of Newpark.
(b) Tuboscope is a Delaware corporation with its principal executive
offices at 2835 Holmes Road, Houston, Texas 77051. Tuboscope describes itself as
the world's leading supplier of oilfield internal tubular coating and tubular
inspection services; oilfield solids control equipment and services; and coiled
tubing and pressure control equipment to the petroleum industry. Additionally,
it provides in-service inspection of pipelines, manufactures high pressure
fiberglass tubulars; sells and leases advanced in-line inspection equipment to
makers of oil country tubular goods; and provides quality assurance and
inspection services to a diverse range of industries.
-8-
<PAGE> 9
15. Defendant SCF is a Delaware limited partnership of which, upon
information and belief, the general partner is L.E. Simmons & Associates,
Incorporated, of which defendant Simmons is the president and sole stockholder.
Accordingly, Simmons controls the affairs of SCF.
16. Defendant Simmons, aside from his aforementioned position and role
with SCF, also is Chairman of the Board of Tuboscope and will become chairman of
an executive committee of the Board of Directors of the surviving company. As of
March 25, 1999, Simmons was the largest holder of shares of common stock of
Tuboscope, owning 11,621,516 or 32.1% of Tuboscope's outstanding common stock.
17. On or about April 8, 1999, Newpark and SCF entered into the Private
Purchase Agreement whereby, SCF purchased 150,000 shares of preferred stock at a
total price of $15,000,000 or $10 per preferred share. Pursuant to the terms of
the Private Purchase Agreement:
(a) SCF was granted access to and the opportunity to review the
Company's properties, assets, financial statements, contracts and other books
and records and has made such investigation with respect thereto as it deems
necessary to enter into the Private Purchase Agreement;
(b) has been afforded the opportunity to ask appropriate
representatives of the Company questions concerning the business, assets,
financial condition and prospects of the Company and has been furnished, to its
Knowledge, with all requested information;
(c) SCF obtained the right to seat its own nominee as a director on
the Newpark Board of Directors;
-9-
<PAGE> 10
(d) SCF will not, and will not permit any of its Affiliates to,
acquire or agree to acquire, directly or indirectly, by purchase or otherwise
(including by joining a "group" within the meaning of Section 13(d)(3) of the
Exchange Act), any of the Voting Stock of the Company, any securities directly
or indirectly convertible into or exchangeable for Voting Stock of the Company,
any direct or indirect rights, warrants or options to acquire any Voting Stock
of the Company or any right to vote Voting Stock of the Company if, after giving
effect to such purchase or other acquisition, Purchaser and its Affiliates
together would hold in the aggregate, or have the right to vote, more than 15%
of the Voting Stock of the Company determined on a fully diluted basis; and
(e) SCF Purchaser agrees that it will not form, or encourage the
formation of, a "group" within the meaning of Section 13(d)(3) of the Exchange
Act, to effect or acquire control of the Company. Accordingly, it is clear that
in order to effect the merger and acquisition, Tuboscope will cause, and Newpark
and the Newpark Director Defendants will permit Tuboscope to cause, SCF to
breach terms (d) and (e) above.
CLASS ACTION ALLEGATIONS
18. Plaintiff brings this action on behalf of himself and as a class action
on behalf of all stockholders of Newpark, and their successors in interest, who
are or will be threatened with injury arising from defendants' actions as more
fully described herein (the "Class"). Excluded from the Class are defendants
herein and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
-10-
<PAGE> 11
19. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. There are over 68 million shares of Newpark common stock
outstanding, held by hundreds, if not thousands, of record and beneficial
stockholders.
(b) There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class member. The
common questions include, inter alia, the following:
(i) Whether defendants have engaged in and are continuing to
engage in conduct which unfairly benefits any of the Newpark Director
Defendants, Tuboscope, Simmons and/or SCF at the expense of the members of the
Class;
(ii) Whether the Newpark Director Defendants, as officers and/or
directors of the Company, are violating their fiduciary duties to plaintiff and
the other members of the Class;
(iii) Whether plaintiff and the other members of the Class would
be irreparably damaged were defendants not enjoined from the conduct described
herein;
(iv) Whether Tuboscope has initiated and timed its buy-out of
Newpark shares at a point in time when Newpark was suffering from a temporary
cyclical downturn in the industry in order to unfairly benefit any of the
Newpark Director Defendants, Tuboscope, Simmons and/or SCF at the expense of
Newpark shareholders; and
(v) whether the Newpark Director Defendants are in breach of
their fiduciary duties of full faith and candor to Newpark's shareholders.
-11-
<PAGE> 12
(c) The claims of plaintiff are typical of the claims of the other
members of the Class in that all members of the Class will be damaged alike from
defendants' actions.
(d) Plaintiff is committed to the prosecution of this action and has
retained competent counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
SUBSTANTIVE ALLEGATIONS
20. Plaintiff repeats and realleges the allegations set forth above as
though fully set forth hereinafter.
21. Defendants are taking wrongful advantage of a general downturn in the
fortunes of oil and oil service companies and the world economy affecting
Newpark in order to freeze out the public shareholders of Newpark. Until very
recently, Newpark's outlook was strong. Indeed, as set forth below, its
fundamentals are still strong. Prior to the downturn in the fortunes of the oil
industry, the price of Newpark's common stock traded above $25 per share,
substantially higher than the inadequate price to be paid now by Tuboscope
pursuant to the merger and acquisition.
22. In addition, as a result of the interconnected nature of Newpark's and
Tuboscope's corporate and capital structure, including an SCF nominee sitting on
the Board of Directors of Newpark, the new positions offered to certain of the
Individual Defendants with the surviving company, and other factors set forth
below, any decision by the Board of Directors of Newpark to accept or recommend
the acceptance of the proposal, cannot be an independent one.
-12-
<PAGE> 13
23. Just three months ago on or about March 31, 1999, Newpark filed with
the Securities and Exchange Commission its Form 10-K for the fiscal year ended
December 31, 1998. Throughout this public filing, the defendants continuously
made glowing remarks regarding the Company and explained that the downturn in
its fortunes was merely temporary and cyclical in nature. The following is just
a small portion of that glowing description:
Demand for Newpark's services has historically been driven by several
factors:
(i) commodity pricing, (ii) oil and gas exploration and production
expenditures and activity; (iii) the desire to drill in more
environmentally difficult environments, such as the coastal marsh and
inland waters near the coastline ("transition zone") of the Gulf Coast,
(iv) use of more complex drilling techniques, which tend to generate more
waste; and (v) increasing environmental regulation of E&P waste and NORM.
The demand for most of Newpark's services is related to the level of oil
and gas drilling activity as measured by the Baker-Hughes Rotary Rig Count.
During the fourth quarter of 1997, the number of drilling rigs working in
the U.S. Gulf Coast region reached its highest level since 1990, then began
a decline that has continued into the first quarter of 1999. The rig count
in the Company's principal market peaked in the first quarter of 1998 and
had declined 36% by the end of the fourth quarter. That decline has
continued during the first quarter of 1999, recently reaching the lowest
level ever recorded in the history of the indicator, which began over 50
years ago.
Newpark believes that technological advances that have reduced the risk and
cost of finding oil and gas are an important factor in the economics faced
by the industry. These advances include the use of three-dimensional
seismic data and the computer-enhanced interpretation of that data, which
increases the likelihood of drilling a successful well, and improved
drilling tools and fluids, which facilitate faster drilling and reduce the
overall cost. These advances also have increased the willingness of
exploration companies to drill in coastal marshes and inland waters and to
drill deeper wells. Such
-13-
<PAGE> 14
projects rely heavily on services such as those provided by Newpark. Deeper
wells require the construction of larger locations to accommodate larger
drilling rigs and the equipment for handling drilling fluids and associated
wastes. Such locations are generally in service for significantly longer
periods, generating additional mat rental revenues. Deeper wells also
require more complex drilling fluid programs, which generate wastes that
are more difficult and costly to dispose of than those from simpler systems
used in shallower wells.
The oilfield market for environmental services has grown due to
increasingly stringent regulations restricting the discharge of exploration
and production wastes into the environment. Louisiana, Texas and other
states have enacted comprehensive laws and regulations governing the proper
handling of E&P waste and NORM, and regulations have been proposed in other
states. As a result, generators of waste and landowners have become
increasingly aware of the need for proper treatment and disposal of such
waste in both the drilling of new wells and the remediation of production
facilities.
For many years, prior to current regulation, industry practice was to allow
E&P waste to remain in the environment. Onshore, surface pits were used for
the disposal of E&P waste; offshore or in inland waters, E&P waste was
discharged directly into the water. Since 1990, E&P waste has become
subject to increased public scrutiny and increased federal and state
regulation. These regulations have imposed strict requirements for ongoing
drilling and production activities in certain geographic areas, as well as
for the remediation of sites contaminated by past disposal practices and,
in many respects, have prohibited the prior disposal practices. In
addition, operators have become increasingly concerned about long-term
liability for remediation, and landowners have become more aggressive in
requiring land restoration. For these reasons, operators are increasingly
retaining service companies such as Newpark to devise and implement
comprehensive waste management techniques to handle waste on an ongoing
basis and to remediate past contamination of oil and gas properties.
The Clean Water Act is the primary legislation resulting in these
regulations. Between 1990 and 1995, substantially all discharges of waste
from drilling and production operations on land (the "onshore subcategory")
and in the transition zone (the "coastal subcategory")
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were prohibited. This "zero discharge" standard has become the expected
pattern for the industry. Effective December 4, 1997, discharges of waste
from drilling operations in state territorial waters of the Gulf of Mexico
(the "territorial waters subcategory"), were prohibited. Newpark
immediately noticed an increase in waste volume received from this
subcategory in its daily operations. However, as drilling projects in
progress as of that date were completed, most of the rigs subsequently
moved outside of the area covered by those regulations. Since December 4,
1997, the offshore waters of the Gulf of Mexico have been the only surface
waters of the United States into which such waste discharges are allowed.
Recent EPA rulemaking efforts have been directed towards the further
restriction of discharges into those waters. Recent Federal Register
notices indicate that such restrictions are expected by January, 2000. More
strict enforcement of the requirements of the Clean Water Act is expected
to ultimately result in similar "zero discharge" regulations affecting the
offshore waters of the Gulf of Mexico. However, the timing of the
implementation of these regulations is uncertain.
NORM regulations require more stringent worker protection, handling and
storage procedures than those required of E&P waste under Louisiana
regulations. Equivalent rules governing the disposal of NORM have also been
adopted in Texas, and similar regulations have been adopted in Mississippi,
New Mexico, and Arkansas.
Proprietary Products and Services. Over the past 15 years, Newpark has
acquired, developed, and continues to improve its patented or proprietary
technology and know-how which has enabled the Company to provide innovative
and unique solutions to oilfield construction and waste disposal problems.
The Company has developed and expects to continue to introduce similarly
innovative products in its drilling fluids business. Newpark believes that
increased customer acceptance of its proprietary products and services will
enable it to take advantage of any upturn in drilling and production
activity.
Injection of Waste. Since 1993, Newpark has developed and used proprietary
technology to dispose of E&P waste by low-pressure injection into unique
geologic structures deep underground. In December 1996, Newpark was issued
patents covering its waste processing and injection operations. Newpark
believes that its
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injection technology is currently the most cost-effective method for the
offsite disposal of oilfield wastes and that this technology is suitable
for disposal of other types of waste, Newpark was recently granted a new
permit to construct and operate a non-hazardous industrial waste injection
disposal facility in Texas.
Patented Mats. Newpark owns or licenses several patents that cover its
wooden mats and subsequent improvements. To facilitate entry into new
markets and reduce the Company's dependence on the supply of hardwoods,
Newpark has obtained the exclusive license for a new patented composite mat
manufactured from recycled plastics and other materials. Through a 49%
owned joint venture that owns and operates the manufacturing facility,
Newpark began taking delivery of these mats in the fourth quarter of 1998.
The Company expects that over the next three years it will convert the
majority of its mat fleet to the new composite product. However, a portion
of the fleet will continue to be made up of the wooden mats.
Low Cost Infrastructure. Newpark has assembled an infrastructure in the
U.S. Gulf Coast region that includes injection disposal sites, transfer
stations, barges, mat inventories, mat service centers, a hardwood sawmill
to produce lumber for the construction of mats, drilling fluids
distribution centers, service facilities and barite mills to supply raw
materials for the make-up of drilling fluids.
Integration of Services. Newpark believes it is one of the few companies in
the U.S. Gulf Coast able to provide a package of integrated services and
offer a "one-stop shop" approach to solving customers' problems.
Beginning in mid-1998, Newpark has offered a unique integrated package of
services that include the provision of the fluids, the on-site processing
of the material returned from the well bore to better separate the cuttings
or tailings from the fluids, and the disposal of the tailings and
associated waste products. Newpark believes that its separation technology
is significantly more effective than conventional equipment, resulting in
more complete separation of fluids from waste, reducing both the quantity
of fluids needed to drill the well and the total volume of waste taken off
site for disposal, thereby reducing the customer's well cost.
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<PAGE> 17
Newpark's mats provide the access roads and work sites for a majority of
the land drilling in the Gulf Market. Its on-site and off-site waste
management services are frequently sold in combination with mat rental
services. Newpark's entry into the drilling fluids business has created the
opportunity for it to market drilling fluids with other related services,
including technical and engineering services, disposal of used fluids and
other waste material, construction services, site cleanup and site closure.
Consequently, Newpark believes that it is uniquely positioned to take
advantage of the industry trend towards outsourcing and vendor
consolidation.
Experience in the Regulatory Environment. Newpark believes that its
operating history provides it with a competitive advantage in the highly
regulated oilfield waste disposal business. As a result of working closely
with regulatory officials and citizens' groups, Newpark has gained
acceptance for its proprietary injection technology and has received a
series of permits for the Company's disposal facilities, including a permit
allowing the disposal of NORM at Newpark's Big Hill, Texas facility. These
permits enable Newpark to expand its business and operate cost-effectively.
Newpark believes that its proprietary injection method is superior to
alternative methods of disposal of oil field wastes, including landfarming,
because injection provides greater assurance that the waste is permanently
isolated from the environment and will not contaminate adjacent property or
groundwater. Newpark further believes that increasing environmental
regulation and activism will inhibit the widespread acceptance of other
disposal methods and the permitting of additional disposal facilities.
Experienced Management Team. Newpark's executive and operating management
team has built and augmented Newpark's capabilities over the past ten
years, allowing it to develop a base of knowledge and a unique
understanding of the oilfield construction and waste disposal markets.
Newpark's executive and operating management team has an average of 22
years of industry experience, and an average of 10 years with Newpark,
including several who have been with Newpark for 20 years or more. Newpark
has strengthened its management team by retaining key management personnel
of the companies it has acquired and by attracting additional experienced
personnel. (Emphasis added.)
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<PAGE> 18
24. It is clear that Newpark's business and prospects are favorable and
that the Company suffered from a general downturn in the oil and gas industry.
This cycle is now improving and Tuboscope seeks to take advantage of this upturn
in the oil and gas industry for a grossly inadequate, unfair, and negative
premium to the Company's current market price. It is this temporary, cyclical
downturn in the industry as a whole, which arose not out of any fundamental
deficiency in the operations of Newpark but out of circumstances beyond its
control, that Tuboscope now wrongfully seeks to exploit and take advantage of
Newpark and its shareholders by purchasing the outstanding shares held by
Newpark public shareholders at an unfair and bargain basement price. Indeed, on
May 12, 1999, in an article appearing in AP Online, it was reported:
Oil Industry Gets Good News
Oil prices will likely rise now that oil ministry representatives from
Saudi Arabia, Iran, Venezuela and Mexico have agreed to cut production. The
cut is meant to bolster prices. The agreement is effective April 1, Saudi
Oil Minister Ali Naimi said. The pact was reached after two days of
meetings ahead of a March 23 meeting of OPEC oil ministers in Vienna,
Austria.
25. This was the result of an announcement appearing that same day in BBC
Summary of World Broadcasts:
Within the framework of the continuous consultations between the Gulf
Cooperation Council [GCC] member states on various oil issues, the oil and
energy ministers of the Sultanate of Oman, Kuwait, Qatar and the Kingdom of
Saudi Arabia met in the region of Shaybah, in the Empty Quarter, on
Wednesday 22/11/1419 AH, corresponding to 10th March 1999, and after
consultations between the ministers, the latter issued the following Shibah
Declaration:
1. The current situation of the oil market, with falling prices and
increasing reserves, will not be in the interest of producing countries.
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<PAGE> 19
or the oil industry in the short and long terms. Furthermore, this
situation has negative repercussions on the world economy as oil
investments are decreasing. This will lead to a fall in oil supplies in the
future. This is unacceptable and should not be allowed to go on.
2. The countries present at the Shaybah meeting will endeavour, in close
consultation with OPEC and non-OPEC oil producing countries, to take every
measure, foremost cutting oil output by quantities which are deemed liable
to take out the surplus reserve from the market which would in turn lead to
a price rise.
3. As a result of the consultations which have been held so far, the
countries present at the Shaybah meeting express their optimism about the
possibility of reaching, in the next few weeks, an effective agreement
which would restore stability to the [oil] market and help achieve a
tangible improvement in prices.
26. In an analysis of the prospects for the oil industry, in general, in an
article appearing in The Washington Post on March 2, 1999, it was stated:
Likely OPEC Cutback Helps Push Oil Prices Up
Oil prices are beginning to recover from low levels that produced inflation
relief and record-low pump prices, and so are oil industry stock prices,
which contributed to the run-up in the Dow Jones industrial average
yesterday.
The rally, which has pushed crude oil prices up 33 percent from a 12-year
low of $10.72 in December, resulted from different developments, according
to oil industry experts. The prospect of further cuts in production when
the Organization of Petroleum Exporting Companies meets on March 23, a
reduction in inventories and heavy demand for heating oil in Germany in
advance of an increase in tariffs have all fed the trend.
Yesterday the rally stalled and prices fell slightly, with April crude oil
futures on the New York Mercantile Exchange dropping 38 cents to $14.31 a
barrel. But many analysts continue to believe that the signs point to a
production cutback by OPEC nations, which were meeting in preliminary
sessions yesterday and today in Amsterdam.
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<PAGE> 20
In the past, many oil-producing nations doubted Saudi Arabia's commitment
to reducing production, several analysts said. But meetings over the past
10 days between Saudi Arabia and Iran have begun to remove those doubts,
said Roger Diwan, director of global oil markets for the D.C.-based
Petroleum Finance Corp.
Diwan said OPEC might agree to cut about 2.3 million barrels a day from
production.
But industry analyst Constantine Fliakos of Merrill Lynch & Co. said that
Venezuela, which also is a member of OPEC, is under pressure from its
unions to maintain production at current levels, which might threaten an
agreement.
But he noted that the huge inventories that have kept prices low are
beginning to be reduced. Oil inventories were high because of warmer than
normal winters in the United States and Western Europe and because demand
declined as Asia's economic crisis spread .
"Ultimately, inventories correct," Fliakos said.
Philip K. Verleger Jr., who runs an oil industry research firm in Boston,
said that several anomalies also put upward pressure on prices. One is
heavy demand for the oil used by industry and for home heating in Germany.
Verleger
27. And in a similar review appearing in the Sun-Sentinel on that same day,
it was stated:
OIL PRICE REBOUND BOOSTS GAS PRICES
The cheap gas prices that drivers have been enjoying for months are heading
higher.
Crude oil prices have rallied in recent days on hopes that major producers
such as Saudi Arabia and Iran will agree to cut output and ease the world's
oil glut. The surge means a few more cents per gallon at the pump for
drivers, but relief to beleaguered U.S. oil companies.
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<PAGE> 21
Crude oil futures slipped Thursday after three days of gains, down 38 cents
to $14.31 per barrel. Despite that decline, crude is still at levels not
seen since November and is up 33 percent from a 12-year low of $10.72 in
December.
In addition to hopes for reduced output, oil prices have been aided by a
harsh winter in some parts of the United States and increased industrial
demand, said George Gaspar, an analyst with Robert W. Baird & Co.
The surge has carried over to Wall Street, where stocks in oil companies
such as Exxon, Mobil, Chevron and BP Amoco have been rising in hopes that
their slumping profits would be revived by a turnaround in oil prices.
And the results are already showing at the pump, where gasoline prices rose
last week for the first time since September. The average price of self-
serve regular gasoline was 94 cents per gallon, up a penny from two weeks
earlier, according to the Lundberg Survey, which polls 10,000 gas stations
nationwide.
"It seems the last couple of days all the major companies went up a penny
or two," said Demitri Karavokiris, owner of a Shell service station on
State Road 84 in Fort Lauderdale. Karavokiris said he raised prices 2 cents
a gallon to 99 cents for regular grade gas and $1.19 for premium grade.
In Boca Raton, Mobil station owner Ron Pearson raised prices 2 cents on
Wednesday to $1.08 for regular grade and $1.28 for premium.
Pearson said retailers usually don't share in the gain when prices rise or
lose money when prices decline. "Whether it goes up or whether it goes
down, we've got to make enough to pay the rent," Pearson said.
If oil production cuts are announced and sustained, analysts said, crude
oil could rise to $17 or $18 per barrel in the next several months--adding
another 10 to 20 cents per gallon to average gasoline prices.
Increased demand during the spring and summer travel season historically
adds a few cents per gallon to pump prices as well.
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<PAGE> 22
28. Indeed, on July 6, 1999 crude oil rose to a 19-month high, to $19.78
a barrel, the highest price since November 1997. Oil has gained 66% this year.
Accordingly, the oil industry already is in an upturn.
AS AND FOR A CAUSE OF ACTION
AGAINST ALL DEFENDANTS
29. As a result of the interconnected nature of Tuboscope's and
Newpark's corporate structure, including a shared member of the Newpark Board of
Directors, stock and warranty ownership between the two companies, the positions
to be accepted by Cole and Ballantine, the existence of the Termination Fee, the
agreement by SCF to vote its share in favor of the merger and acquisition, the
non-solicitation clause preventing an auction and the failure of the Board to
appoint an Independent Committee, any decision by the Board of Directors of
Newpark to accept or recommend the acceptance of the merger and acquisition,
cannot be an independent one.
30. Upon plaintiff's information and belief, no Independent Committee of
the Newpark Board of Directors was ever appointed to evaluate the adequacy and
fairness of the merger and acquisition.
31. Any transaction to acquire the Company at the price being considered
does not represent the true value of the Company and is unfair and inadequate.
Prior to the downturn in the fortunes of the oil industry, the Company's shares
traded at values far exceeding the price offered in the merger and acquisition.
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<PAGE> 23
32. The price that Tuboscope has offered has been dictated by Tuboscope to
serve its own interests, and is being forced upon Newpark and its public
shareholders by Tuboscope to force Newpark's public shareholders to relinquish
their Newpark shares at a grossly unfair price.
33. Tuboscope, for all the reasons set forth herein is in a position to
ensure effectuation of the transaction without regard to its fairness Newpark's
public shareholders.
34. Because Tuboscope is in possession of non-public corporate information
concerning Newpark's future financial prospects, the degree of knowledge and
economic power between Tuboscope and the class members is unequal, making it
grossly and inherently unfair for Tuboscope to obtain the remaining Newpark
shares at the unfair and inadequate price that it has proposed.
35. By offering a grossly inadequate price for Newpark's shares and by
using its control as a means to force the consummation of the transaction,
Tuboscope is violating its duties as a controlling shareholder.
36. Any purported review of the transaction by a special committee of
"independent directors" would be a sham, given the connections with, and/or
domination and control of, the Company in Tuboscope.
37. Any vote by Newpark's shareholders would be a sham, given Tuboscope's
connections and/or domination and control of the Company.
38. Any buy-out of Newpark's public shareholders by Tuboscope on the terms
offered, will deny class members their right to share proportionately and
equitably in the true value
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<PAGE> 24
of Newpark's valuable and profitable business, and further growth in profits and
earnings, at a time when the Company is fundamentally and financially strong and
poised for greater progress.
39. For the reasons set forth herein above, no auction or market check can
be effected to establish Newpark's worth through arm's-length bargaining. Thus,
Tuboscope has the power and is exercising its power to acquire Newpark's shares
and dictate terms which are in Tuboscope's best interest, without competing bids
and regardless of the wishes or best interests of the class members or the
intrinsic value of Newpark's stock.
40. By reason of the foregoing, defendants have breached and will continue
to breach their fiduciary duties to the shareholders of Newpark and are engaging
in improper, unfair dealing and wrongful and coercive conduct.
41. Plaintiff and the Class will suffer irreparable harm unless defendants
are enjoined from breaching their fiduciary duties and from carrying out the
aforesaid plan and scheme.
42. Plaintiff and the other class members are immediately threatened by the
acts and transactions complained of herein, and lack an adequate remedy at law.
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in their favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class action,
and certifying plaintiff as class representative;
B. Enjoining the merger acquisition and, if the merger and acquisition are
consummated, rescinding the transaction:
C. Awarding plaintiff and the Class compensatory damages and/or rescissory
damages;
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D. Awarding plaintiff the costs and disbursements of this action, including
a reasonable allowance for plaintiff attorneys' and experts' fees; and
E. Granting such other, and further relief as this Court may deem to be
just and proper.
Dated: July 30, 1999
Respectfully submitted,
/s/ Randall A. Smith
---------------------------
RANDALL A. SMITH, T.A. (#2117)
ANDREW L. KRAMER (#23817)
DAVID GARLAND (#25680)
Of
SMITH, JONES & FAWER, L.L.P.
201 St. Charles Avenue, Suite 3702
New Orleans, Louisiana 70170
Telephone: (504)525-2200
Counsel for Plaintiff
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