<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 11 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996
----------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-23718
NUMAR Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2750939
(State of Incorporation) (IRS Employer Identification No.)
508 Lapp Road
Malvern, Pennsylvania 19355
(Address and ZIP code of principal executive offices)
(610) 251-0116
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON SHARES, $.01
PAR VALUE
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this form 10-K. [X]
The aggregate market value of Common Shares held by non-affiliates (shareholders
as of February 28, 1997, excluding shares held by directors, officers, and their
respective affiliates) computed by reference to the average bid and asked prices
of such shares, as of March 21, 1997, was approximately $134,825,000.
As of March 21, 1997, there were 8,397,653 Common Shares of the registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the annual Shareholders'
Meeting to be filed prior to April 30, 1997 are incorporated by reference in
Part III, Items 10, 11, 12, and 13 of this Report. Such Proxy Statement except
for the parts therein which have been specifically incorporated by reference,
shall not be deemed "filed" for the purposes of this Report on Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
- ------ --------
General
NUMAR Corporation (together with its subsidiaries, the "Company") designs,
manufactures, and markets a patented, proprietary well logging device, the
Magnetic Resonance Imaging Logging ("MRIL(R)") tool, which utilizes magnetic
resonance imaging ("MRI") technology, widely used in medical diagnostic imaging
devices, to evaluate subsurface rock formations in newly-drilled oil and gas
wells. The MRIL tool is a commercially-available well logging tool able to
measure, in real time at the wellsite, the proportion of fluid that is free to
flow within a formation, effective formation porosity, fluid viscosity and rock
grain size, to perform direct hydrocarbon typing ("DHT(R)") and to derive
formation permeability. Further, a new application was introduced in 1996,
which allows the MRIL to identify clay bound water and thus determine total
porosity ("C/TP").
Industry Background
In mature oil- and gas-producing regions of the world, reservoirs that are
easy to locate and exploit are generally already under development or in
production. Accordingly, the search for new oil and gas reserves has required
increasingly sophisticated and expensive exploration and development programs,
often in smaller and more complex reservoirs and more remote locations. The
increasing difficulty and cost of finding and developing oil and gas reserves,
together with volatility in oil and gas prices, have led companies to seek more
efficient ways to discover and develop reserves.
Exploration and development activities typically begin with the selection
of a defined geographic target area and the collection and analysis of seismic
and other types of data. This data is the principal means by which oil and gas
companies map potential hydrocarbon-bearing structures and identify drilling
locations. The process of drilling a well is conducted in stages. At the end
of each stage, the drill string is removed from the hole to permit well logging
devices to be lowered into the wellbore on an armored electrical cable (a
wireline) to measure a variety of properties of the surrounding rock formations.
Well logs have become the principal source of data with which oil and gas
companies determine the presence of hydrocarbons, the characteristics of the
rock formations, and whether commercial quantities of oil and gas can be
recovered. Log data is generally available either during or soon after logging
is completed, which allows oil and gas companies to make rapid decisions
regarding the completion or abandonment of a well without excess costly rig
time.
Early well logging devices transmitted electric current into the formation
to indicate the presence of hydrocarbons. These tools, called resistivity
tools, use current and voltage measurements to distinguish water from
hydrocarbons. Other logging tools were later developed that use radioactive
sources to emit radiation into the formation. These include the neutron
porosity tool, which emits neutrons to determine formation porosity, and the
gamma density tool, which emits gamma rays to measure the density of the rock in
the formation. The conventional triple combination of resistivity, neutron
porosity and gamma density logs is used in the majority of the oil and gas wells
drilled in the world.
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A combined analysis of resistivity, neutron porosity, and gamma density
information allows oil and gas companies to determine whether a particular rock
formation is capable of containing oil or gas and the amount of pore space
within the rock that contains fluids, either hydrocarbons or water. However, the
neutron porosity and gamma density tools do not make direct measurements, but
rely upon certain inferences or assumptions made by well log analysts. As a
result, in many cases the information provided by conventional well logging
tools is inconclusive in enabling oil and gas companies to evaluate oil and gas
accumulations. Furthermore, conventional well logging tools provide limited
information about potential flowrates of the well and the relative mobility of
hydrocarbons and water within the rock formation. Measurement of these
formation properties has traditionally required laboratory analysis of core
samples taken from the well or pressure and flowrate tests on the well. Both of
these techniques are costly and time consuming and do not provide timely data
for well completion decisions.
Products and Services
The MRIL Tool
NUMAR has adapted MRI technology, which is widely used in medical
diagnostic imaging devices, to the well logging industry. While medical MRI
equipment uses large magnets that surround the subject of examination, NUMAR has
miniaturized and reconfigured these magnets to permit MRI measurements to be
made of material surrounding the MRIL tool, and to permit the tool to fit within
a small diameter borehole.
The MRIL tool addresses some of the limitations of conventional well
logging tools. While conventional logging tools can help locate hydrocarbon
accumulations, the MRIL tool provides information as to the potential flowrates
of each type of fluid that will be produced. The MRIL tool is a commercially-
available well logging tool able to measure directly the proportion of fluid
that is free to flow within a formation, total formation porosity, fluid
viscosity, and rock grain size and to derive formation permeability. In
addition, the MRIL tool directly separates the amounts of oil, gas, and water
present in the formation adjacent to the borehole. A portion of the fluid in a
formation, primarily water, is bound by electrostatic and capillary forces to
formation rock particles, and is therefore, not free to move within the
reservoir. Data on bound water saturation is important in differentiating those
zones where significant formation water could be produced. The amount of
formation water produced affects the economics of a well because the cost of
properly disposing of contaminated formation water is very high and because it
reduces the net flowrate of hydrocarbons. Porosity is the amount of space
within the rock formation that is occupied by fluids, either hydrocarbons or
water. The viscosity of the fluids within a rock formation is also important in
determining well flowrates. Small rock grain sizes typically result in larger
amounts of bound water and lower permeability. Permeability is a measure of the
rate at which formation fluids are able to flow through rocks and is important
in determining the potential flowrate and economics of a well. These
measurements are currently made by offsite laboratory analysis of core samples
taken from the well and pressure and flowrate tests on the well.
The downhole component of the MRIL tool consists of (i) a sensor package
that contains a proprietary magnet and a high frequency antenna that transmits
radio frequency signals and receives returning magnetic resonance signals, and
(ii) an electronics cartridge that powers and controls the sensor package,
acquires data and transmits it to the surface. The MRIL tool also requires
certain auxiliary downhole equipment when it is operated, including either a
centralizer or standoff to keep the tool away from the wall of the borehole.
The MRIL tool functions by creating a varying magnetic field in the
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formation surrounding the tool and measuring the response of the formation
fluids to the changing magnetic field.
Electrical power is transmitted from the surface support equipment to the
tool, and the data recorded downhole is transmitted to the surface through the
wireline. At the surface, the data is recorded and processed by a computer. On
land in the U.S., the Company usually operates its own truck-mounted logging
units, which include a wireline and a computer system. In other cases where
another wireline company's logging unit is already in place at a well location,
such as offshore, NUMAR may use its own skid-mounted computer unit and run the
MRIL tool on the existing wireline. Typically, a crew consisting of one field
engineer and one operator is required to perform the service.
The first commercially-available version of the MRIL tool was the "B"
Series tool, which was introduced in June 1991. After the launch of the "B"
Series tool, NUMAR started development of the improved "C" Series tool, which
records data at a higher speed and can operate in harsher borehole environments
than the "B" Series tool. The "C" Series tool typically runs at 16 feet per
minute, although in ideal wellbore conditions, it has operated successfully at a
logging speed of 30 feet per minute. This compares to a typical logging speed
of 3 feet per minute and a maximum logging speed of 8 feet per minute for the
"B" Series tool, which is no longer in service. The "C" Series tool can also
run in wells containing more saline borehole fluids and with higher downhole
temperatures than did the "B" Series tool.
During 1993, NUMAR developed a slimhole MRIL sensor package that is capable
of operating in six-inch diameter holes rather than the seven-and-one-half-inch
diameter holes of a standard MRIL sensor package. Commercial operations of the
slimhole MRIL began in November 1993 and have continued successfully since then.
During 1995, the Company introduced the "C*" Series tool, which is capable
of up to a 50% increase in logging speed as compared to the "C" Series tool, and
a new application, DHT, which directly separates the amount of oil, gas, and
water present in the formation adjacent to the borehole.
During 1996, the Company introduced a new application, Total Porosity
("C/TP"). This application allows for the quantification of clay bound water,
which when added to the porosity measured by earlier applications, allows the
MRIL tool to identify essentially all of the fluid in a formation, or total
porosity.
The Company believes that the increased logging speed of the "C" and "C*"
Series tools and the increase in useful information about the borehole due to
DHT and C/TP is significantly increasing customer acceptance of the MRIL
technology.
The MRIL tool is compatible with the standard seven conductor wireline
cable used on well logging units and can be lowered into the hole simultaneously
with other wireline logging companies' tools using NUMAR's switching sub. This
procedure, however, does not allow for automatic interpretation of the MRIL log
with other logs. Working with its industry partner, Western Atlas Logging
Services ("WALS"), NUMAR has fully integrated the MRIL tool with the WALS tool
string. In the second half of 1996, assisted by another industry partner,
Halliburton Energy Services ("HES"), NUMAR has worked to integrate the MRIL tool
with the HES tool string. Thus in the first half of 1997,
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customers of either WALS or HES will have the ability to utilize the MRIL tool
with other components of either the WALS or HES tool strings on a fully
integrated basis.
An MRIL wellsite logging unit typically consists of two electronic
cartridges and one or two sensor packages, together with NUMAR's or an industry
partner's surface support equipment. In addition, extra cartridges and sensor
packages are kept on standby at the Company's nearest district office. As of
December 31, 1996, NUMAR had 15 "C" Series logging units. The Company estimates
that WALS has 23 logging units; Computalog has 1 logging unit; and HES has 5
logging units, one of which is currently operational. The remaining four HES
units are expected to become operational in the first half of 1997.
Well Logging Contracts
The terms and conditions under which the Company provides well logging
services vary. The Company typically enters into master service agreements with
its customers that set forth certain operating terms and conditions under which
the Company will perform logging services, with individual jobs performed under
separate job orders. The Company's agreements generally provide that the
customer will hold the Company harmless for damage to the well or the formation
during its well logging operations.
Onshore in the U.S., the price of logging services is typically based on
total well depth and the number of feet logged. Offshore and in international
locations, prices also contain a day rate element. In addition to the typical
agreements discussed above, the Company occasionally enters into agreements
under which it offers logging services for a fixed monthly fee.
Data Interpretation and Processing
In addition to providing MRIL data recording services, NUMAR also provides
special processing and interpretation services of MRIL data. After logging,
MRIL data is presented to customers in both paper and electronic forms.
However, in most cases, customers request NUMAR's assistance in obtaining a
complete analysis of log results. NUMAR provides this service with a
computerized integrated analysis of MRIL and conventional log results using
proprietary interpretation software that generates a detailed description of the
reservoir and reservoir fluids. Customers currently request data processing and
interpretation services on over 90% of MRIL logs.
NUMAR continues to develop improved proprietary analytical software that
will enhance the Company's ability to interpret the data generated by the MRIL
tool.
Core Sample Spectrometer
NUMAR developed a laboratory MRI spectrometer known as the CoreSpec-
1000(R), which analyzes small samples of rock. The CoreSpec makes the same
measurements that the MRIL tool makes downhole and is primarily used to validate
MRIL well log results and to develop additional applications of MRIL data.
CoreSpec provides NUMAR with the opportunity, under laboratory conditions, to
establish the link between the MRIL response and specific rock properties by
testing real formation samples. The testing of such samples provides NUMAR with
an additional revenue source and a way to enhance their customers' appreciation
of how MRIL will help evaluate their formations.
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New Product Development
Measurement While Drilling. Measurement while drilling ("MWD") allows many
of the logging measurements that have traditionally been made with tools run on
wireline to be made with tools located in the drill string immediately above the
drill bit. The most advanced form of MWD involves running an MWD tool that is
able to provide the same measurements as wireline logs for resistivity, porosity
and density in real time, rather than having to wait until drilling is
interrupted to run wireline logs. NUMAR was granted a U.S. patent for the use
of MRI in MWD in January 1994. In 1995, a prototype magnet suitable for MWD was
successfully constructed and tested for signal-to-noise. Testing of the limits
of its ability to make measurements while experiencing high accelerations is
underway.
In October 1996, the Company entered into an agreement with Sperry-Sun
Drilling Services ("SSDS"), a division of Dresser, Inc., to jointly develop and
market a version of NUMAR's MRIL tool for use as a Formation Evaluation While
Drilling ("FEWD") tool. The agreement calls for SSDS to fund a development
project, which began in the fourth quarter of 1996, the objective of which is to
develop a version of NUMAR's MRIL tool used in open-hole logging for use
attached to the drill bit as an FEWD tool. This project is being managed by
NUMAR, with significant participation by SSDS. Further, the companies agreed to
a revenue-sharing agreement with respect to their joint marketing of the new
tool at the conclusion of the development project.
Sales, Distribution and Marketing
NUMAR markets its services through its own sales and service network and
through third party distribution agreements.
Company Sales and Service
The Company currently employs ten sales representatives. Eight
representatives are located in the U.S., one is located in London, England and
is responsible for the North Sea, Europe, Africa and the Middle East, and one is
located in Indonesia and is responsible for South East Asia. In addition, the
Executive Vice President is responsible for worldwide sales and is directly
responsible for sales in areas where the Company does not have regional sales
representatives.
NUMAR provides services directly to its customers through its own service
personnel located in six operating bases servicing the following areas:
Operating Base Region Served
-------------- -------------
Brenham, Texas U.S., Gulf Coast, and Gulf of Mexico
Tyler, Texas East Texas, North Louisiana
Aberdeen, Scotland North Sea
Jakarta, Indonesia Indonesia
Perth, Australia Australia
In addition, NUMAR plans to establish additional bases in locations where it is
warranted by demand for MRIL services.
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NUMAR also services customers in areas where service is required for
shorter periods of time by establishing temporary bases.
Third Party Distribution Agreements
Western Atlas Logging Services. In October 1993, the Company entered into
a non-exclusive, five-year distribution agreement with WALS under which WALS is
entitled to provide MRIL services through its worldwide network using MRIL tools
supplied by the Company. In December 1994, that agreement was extended through
December 31, 1999. At the end of 1996, WALS had 20 operating units.
Under the agreement, WALS advanced to the Company certain non-refundable
payments based on MRIL equipment WALS requires to allow WALS to provide the MRIL
service to WALS customers. The Company is entitled to 55% of the gross revenues
derived by WALS from providing MRIL services. Twenty percent of NUMAR's share of
MRIL revenue is credited against the advances made by WALS. As of December 31,
1996, the Company had received advances from WALS, which have not yet been
realized as income, of approximately $7.4 million. This deferred revenue will
be mostly realized through December 31, 1999. During the term of the
agreement, WALS is permitted to conduct its own research on MRI applications
provided it does not use NUMAR's confidential information or infringe on NUMAR's
patents. WALS is not permitted to market a MRI logging tool in competition with
the MRIL tool during the term of the agreement. Additionally, the agreement
provides that if NUMAR offers a distribution agreement to another party on more
favorable terms, it must offer comparable terms to WALS.
Computalog Ltd. Pursuant to an agreement with Computalog, Computalog had
an exclusive right to provide MRIL services in Canada through August 1996 in
return for payments to NUMAR of 55% of MRIL revenues. Computalog initially made
non-refundable advances to NUMAR of $400,000, which were credited against
NUMAR's share of logging revenues at the rate of 20% of the Company's revenue
share. NUMAR was not permitted to provide MRIL services directly in Canada
during the term of this agreement.
In 1995, in exchange for the Company providing Computalog with a "C" Series
tool to replace the "B" Series tools previously provided and extending the term
of the licensing agreement through December 31, 1999, Computalog agreed to
convert its license from exclusive to non-exclusive in Canada. As of December
31, 1996, the Company has advances from Computalog, which have not yet realized
as income, of approximately $472,000. This deferred revenue will be realized
through December 31, 1999.
Halliburton Energy Services. During the first quarter of 1996, the Company
entered into a five-year distribution agreement with HES under which HES is
entitled to provide MRIL services through its worldwide network using MRIL tools
supplied by the Company. Under the terms of the agreement, HES purchased five
NMR equipment packages (each NMR package consists of two electronic packages,
two sensors, and related equipment) in 1996. Further, HES has paid the Company
a one-time license fee and will pay on-going monthly royalty fees based on the
higher of a pre-determined fixed amount or a percentage of revenues per NMR
package.
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Customers
NUMAR's customers include both major oil companies, independent production
companies and NUMAR's industry partners--WALS, HES, and Computalog. NUMAR's
industry partners combined accounted for 52% of total revenues in 1996, with
WALS accounting for 31% and HES accounting for 19%. In 1995 WALS accounted for
12% of NUMAR's revenues. No revenue was generated from HES in 1995. Sales and
services outside the U.S. accounted for 26% and 48% of total revenues in 1996
and 1995, respectively. NUMAR receives almost all of its revenues and incurs
almost all of its expenses in U.S. dollars.
Manufacturing and Suppliers
The majority of the downhole and surface equipment for NUMAR's MRIL tool,
including the "C*" and "C" Series electronics cartridge, is designed and
manufactured at its Malvern, Pennsylvania headquarters facility. The sensor
packages and the entire CoreSpec spectrometer are manufactured at the Company's
research facility in Nes Ziona, Israel.
NUMAR's manufacturing process consists principally of design, assembly,
integration, and testing. The Company purchases the majority of its components
from a variety of manufacturers.
Patents and Technology
The Company has applied for and obtained both U.S. and foreign patents to
protect inventions and improvements that are important to the development of its
business. The Company has been issued ten U.S. patents, four Mexican patents,
three European patents, three Israeli patents, one Canadian patent, one
Argentine patent, one Japanese patent, and one Nigerian patent, together with an
exclusive U.S. license for an additional patent. All of these patents are
related to the use of magnetic resonance in oil well logging. In addition, the
Company has filed 7 U.S. patent applications, 61 corresponding foreign patent
applications, and 2 PCT applications.
A significant number of patents have been issued to potential competitors
that relate to MRI logging technologies. The Company is aware of and has
reviewed the subject matter claimed in certain U.S. patents, including those
granted to Amoco Corporation, Chevron Research Company, Marathon Oil Company,
Mobil Oil Corporation, Schlumberger Technology Corporation, and Shell Oil
Company. The Company believes that to the extent the claims in these patents are
properly interpreted and are valid, they are not infringed by the MRI logging
technology that the Company has commercialized.
In connection with development of certain aspects of the MRIL technology in
1985 through 1987, the Company received approximately $700,000 in research
grants from a U.S./Israeli bilateral research foundation. The grant agreement
provides that 150% of the grant must be repaid with certain royalty payments.
In addition, the U.S. and Israeli governments have certain license rights with
respect to a portion of the MRI technology developed under the grant. As of
December 1996, the Company has recorded royalty charges of $517,000 with respect
to the grant agreement.
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Research and Development
The Company considers research and development to be very important to its
success. The Company spent $2.1 million, $1.8 million, and $1.6 million in 1996,
1995, and 1994, respectively, on research and development. Expenditures in
future years are likely to be significant, although they are expected to decline
as a percentage of revenues.
Competition
The well logging industry is highly competitive. The Company believes that
the principal competitive factors in the well logging market are the first-to-
market advantage for new or improved technologies, product functionality, the
relationship of product price and performance, and quality of customer support.
NUMAR believes that at least two companies, Schlumberger and Oxford Instruments,
are currently investigating or developing well logging applications of MRI
technology. Schlumberger has introduced a competitive NMR tool.
The well logging industry, one of the largest sectors of the oilfield
service business, is dominated by Schlumberger. The only other major
competitors in the well logging industry are WALS and HES. In total, these three
companies have an estimated market share of over 90% of the worldwide wireline
logging market (excluding the former Soviet Union and China). A large number of
small companies with less technologically-advanced equipment account for the
remainder of the wireline logging market. The major well logging companies all
have on-going tool development programs to upgrade and improve their existing
logging tools and to develop new technologies. All of NUMAR's principal
competitors have been in business longer and have greater financial, technical,
marketing, and other resources than the Company.
Employees
As of December 31, 1996, the Company has a total of 136 full-time
employees. The Company considers its relationship with its employees to be
good. None of the Company's employees are represented by unions.
Executive Officers of the Company
The executive officers of the Company serve at the discretion of the Board
of Directors. There are no family relationships between any of the executive
officers of the Company. The following table indicates the position and age of
the executive officers.
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<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Melvin N. Miller, Ph.D..... 60 Chairman of the Board of Directors, Chief
Executive Officer, and President
Thomas Blades.............. 40 Executive Vice President and Chief
Operating Officer
Edward P. Delson........... 58 Senior Vice President - Finance and
Administration, Chief Financial Officer,
and Treasurer
Richard N. Chandler, Ph.D.. 53 Vice President - Engineering and
Manufacturing
George R. Coates........... 58 Vice President - Petrophysical
Applications
Manfred G. Prammer, Ph.D... 39 Vice President - Research
</TABLE>
ITEM 2. FACILITIES
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NUMAR's principal facilities are described in the table below. All of the
Company's facilities are leased.
<TABLE>
<CAPTION>
Location Sq. Footage Function
-------- ----------- --------
<S> <C> <C>
Malvern, Pennsylvania 50,000 Manufacturing, research and
development, and finance and
administration
Houston, Texas 8,800 Sales and data processing
Brenham, Texas 9,500 District operations office
Nes Ziona, Israel 5,740 Manufacturing and research and
development
</TABLE>
The Company also maintains a sales office in London, England and district
operations offices in Tyler, Texas; Aberdeen, Scotland; Jakarta, Indonesia; and
Perth, Australia. The Company believes that its existing facilities are
adequate to meet current requirements, and that suitable additional space will
be available, as needed, to accommodate further physical expansion of corporate
operations and for additional sales and service offices.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal matters involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
- ------ -----------------------------------------------------------------
MATTERS
-------
The Company's Common Shares are traded on the NASDAQ National Market, and
price quotations are reported under the NASDAQ symbol NUMR. The following
quotations represent prices between dealers and do not include retail markup,
markdown, or commissions. They do not necessarily represent actual
transactions. The high and low closing prices during the 1996 and 1995 fiscal
years are as follows:
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
First Quarter $14 3/8 $10 5/8
Second Quarter 18 12 3/4
Third Quarter 17 13 1/2
Fourth Quarter 16 7/8 13 1/8
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
First Quarter $12 3/8 $ 8
Second Quarter 13 9
Third Quarter 12 5/8 9 1/2
Fourth Quarter 12 1/2 10
</TABLE>
At February 28, 1997, there were 141 shareholders of record of the
Company's Common Shares.
The Company has never paid any cash dividends on its Common Shares and does
not anticipate paying cash dividends on its Common Shares in the foreseeable
future. The Company is a holding company, and the operations of the Company are
conducted through its subsidiaries. Accordingly, the ability of the Company to
pay dividends on its Common Shares is dependent on the earnings and cash flow of
its subsidiaries and the availability of such cash flow to the Company.
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ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
- ------
<TABLE>
<CAPTION>
year ended December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................. $ 1,445 $ 4,121 $ 6,610 $ 10,239 $ 18,795
Cost of sales and services............... 3,048 4,348 5,830 8,383 12,272
Depreciation of fixed assets............. 612 1,257 1,505 2,448 4,000
Write-down of "B" Series tools........... -- -- 878 -- --
-------- -------- ---------- ---------- ----------
Gross profit (loss)................. (2,215) (1,484) (1,603) (592) 2,523
General and administrative expense....... 856 1,024 1,125 1,444 1,570
Research and development expense......... 1,131 934 1,551 1,769 2,096
-------- -------- ---------- ---------- ----------
Loss from operations................ (4,202) (3,442) (4,279) (3,805) (1,143)
Interest income.......................... -- -- 389 417 294
Interest expense......................... (999) (1,572) (289) (35) (24)
Other income (expense)................... 44 17 4 (34) (14)
-------- -------- ---------- ---------- ----------
Loss before income taxes............ (5,157) (4,997) (4,175) (3,457) (887)
Income tax expense....................... -- 104 135 309 223
-------- -------- ---------- ---------- ----------
Net loss............................ $ (5,157) $ (5,101) $ (4,310) $ (3,766) $ (1,110)
======== ======== ========== ========== ==========
Net loss applicable to
common shares (1)................... $ (6,044) $ (5,985) $ (4,310) $ (3,766) $ (1,110)
======== ======== ========== ========== ==========
Net loss per common share (1)....... $ (18.72) $ (17.54) $ ( .63) $ ( .48) $ ( .13)
======== ======== ========== ========== ==========
Weighted average common shares
outstanding (2)..................... 322,911 341,176 6,812,052 7,787,874 8,334,378
======== ======== ========== ========== ==========
Supplementary pro forma net loss
per share (3)........................ $ (0.52)
========
Depreciation and amortization............ $ 1,038 $ 1,499 $ 1,814 $ 2,811 $ 4,350
Research and development expense......... 1,131 934 1,551 1,769 2,096
Capital expenditures..................... 2,055 2,244 7,508 12,165 5,778
Balance Sheet Data (at end of period):
Working capital (deficiency)............. $ (5,384) $ 392 $ 8,952 $ 5,151 $ 4,135
Total assets............................. 6,241 9,108 21,755 30,327 31,829
Total debt............................... 12,298 6,379 380 291 205
Redeemable preferred shares.............. 15,465 -- -- -- ---
Stockholders' equity (deficit)........... (22,229) (2,432) 15,033 19,674 19,130
- ---------------------------------
</TABLE>
(1) Net loss utilized in calculating net loss per share, on a historical basis,
has been increased by $887,400 and $883,416 for deemed dividends on
preferred shares for the years ended December 1992 and 1993, respectively.
(2) The weighted average number of shares is calculated based on common shares
issued and outstanding. The common share equivalents related to stock
options issued and all other common share equivalents are not included in
the per share calculations because they are anti-dilutive. The Company's
reorganization on December 31, 1993 increased the number of shares
outstanding to 5,423,353 on that date. The Company's initial public
offering on April 14, 1994 further increased the number of shares
outstanding by 1,950,000, and the Company's public offering on July 25,
1995 increased the number of shares outstanding by an additional 900,000.
(3) The Company significantly changed its capital structure on December 31,
1993. The supplementary pro forma net loss per common share has been
computed by adjusting the 1993 net loss and weighted average common shares
outstanding to show the effects of (i) the December 31, 1993 reorganization
and (ii) the repayment of the $5.4 million of subordinated debentures to be
repaid with a portion of the proceeds of the Company's initial public
offering as if these transactions had occurred on January 1, 1993. These
events, had they occurred on January 1, 1993, would have increased the
Company's weighted average shares outstanding by 6,920,855 shares and
decreased the net loss applicable to common shares for 1993 by $2,198,876
by eliminating certain interest costs and dividend and accretion charges
required during 1993.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Selected Historical Consolidated Financial Data and the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this Report.
Overview
The Company has historically devoted its resources to research,
development, and manufacturing of the original "B" Series MRIL tool, and
currently, the improved "C" Series MRIL tools, and surface delivery systems as
well as applications such as DHT and the recently-introduced C/TP. The Company
has also developed a sales and service infrastructure in order to allow oil
field operators throughout the world to evaluate the MRIL tool and understand
how it can improve well completion decisions.
In late 1993, the Company entered into distribution agreements with WALS
and Computalog. In 1996, the Company entered into a distributor-type agreement
with HES. Both the WALS and Computalog agreements require those companies to
provide NUMAR with non-refundable, up-front payments treated by the Company as
deferred revenue and taken into income over the life of the contract. They are
also required to pay to NUMAR a portion of the revenues they generate from the
use of the MRIL tool. In the case of HES, NUMAR sells the MRIL tool to HES,
recording a sale at that time, and then licenses the use of the tool over a
period of years.
The Company's approach to the marketplace is to market the MRIL service
through its own sales force and through the Company's industry partners.
At the end of 1996, the Company had 15 MRIL units in service and estimates
its industry partners combined had 25 MRIL units in service.
While the Company generates the majority of its revenue through the
services it and its industry partners provide to oilfield operators using the
MRIL tool, beginning in 1995 and continuing through 1996, the Company derived
revenues from the sale of MRIL units into the Chinese market and to HES.
Due to the need to build a worldwide sales and service infrastructure and
due to significant expenditures for research and development, the Company has
not been profitable since its inception and has accumulated a deficit of
approximately $37.4 million as of December 31, 1996. In the fourth quarter of
1996, the Company reported its first profitable quarter.
In October 1996, the Company entered into an agreement with Sperry-Sun
Drilling Services ("SSDS"), a division of Dresser, Inc., to jointly develop and
market a version of NUMAR's MRIL tool for use as a Formation Evaluation While
Drilling ("FEWD") tool. The agreement calls for SSDS to fund a development
project, which began in the fourth quarter of 1996, the objective of which is to
develop a version of NUMAR's MRIL tool used in open-hole logging for use
attached to the drill bit as an FEWD tool. This project is being managed by
NUMAR, with significant participation by SSDS. Further, the companies agreed to
a revenue-sharing agreement with respect to their joint marketing of the new
tool at the conclusion of the development project.
12
<PAGE>
1996 Compared to 1995
Revenues. Revenue increased from $10,239,000 in 1995 to $18,795,000 in
1996, an increase of $8,556,000 or 84%. Revenue from domestic wireline logging
operations increased from $3,638,000 in 1995 to $4,999,000 in 1996. The
domestic increase was caused by the increased recognition of the benefits the
MRIL tool provides by domestic customers and the increased use of the DHT
application introduced in the fourth quarter of 1995. International revenues
decreased from $3,443,000 in 1995 to $3,084,000 in 1996. International revenue
in 1995 benefitted heavily from short-term trial applications by a number of
customers. Because these jobs were short term, high in cost, and were, in part,
funded by the oil companies' research departments, they commanded large revenues
per job. The actual number of logs performed internationally in 1996 was 125,
up from 58 logs in 1995. Wireline revenue from industry partners increased from
$1,403,000 in 1995 to $4,586,000 in 1996. This was due to the expansion of the
number of units in service by WALS and the introduction of the MRIL service by
HES. Sales revenue, which began in 1995, increased from $1,489,000 in 1995 to
$4,854,000 in 1996. Most of the sales were to WALS for customers in the
People's Republic of China and to HES. Revenues derived from rock sampling
services increased from $216,000 in 1995 to $463,000 in 1996. Miscellaneous
revenue, primarily from engineering services, increased from $350,000 in 1995 to
approximately $808,000 in 1996.
Cost of Sales and Services. Cost of sales and services increased from
$8,382,000 in 1995 to $12,272,000 in 1996, an increase of 46% as compared to the
revenue increase of 84%. Cost of goods sold, as opposed to cost of services,
increased from $761,000 in 1995 to $2,968,000 in 1996, an increase of
approximately $2,207,000 compared to a sales revenue increase of $3,365,000.
Cost of services, excluding the cost of sales, was $7,621,000 in 1995 compared
to $9,304,000 in 1996, an increase of 22% compared to an increase in wireline
revenue of 55%. Because much of the cost of the field organization was fixed,
margins improved as volume increased.
Depreciation of Field Assets. Depreciation of field assets increased from
$2,448,000 in 1995 to $4,000,000 in 1996, an increase of 63%. This increase was
due to the increase in assets in the field utilized by the Company and its
industry partners to generate revenues.
Gross Profit (Loss). As a result of the revenue increases and the lower
percentage cost increases detailed above, the gross loss reported in 1995 of
$592,000 improved by $3.1 million to become a gross gain in 1996 of $2,523,000.
General and Administrative Expenses. General and administrative expenses
increased from $1,444,000 in 1995 to $1,570,000 in 1996, an increase of 9% as
compared to the revenue increase of 84%. General and administrative expenses
are expected to increase in 1997 due to expected growth but to become a lesser
percentage of revenue.
Research and Development Expenses. Research and development expenses
increased from $1,769,000 in 1995 to $2,096,000 in 1996, an increase of 18%.
Increases in 1996 were attributable to the development and introduction of the
total porosity application, C/TP, development of a switching sub to allow the
MRIL to be run on the tool string of other wireline companies together with
their tools, and continued work on the MWD project. Research and development
expenses are expected to continue to increase in 1997 but are expected to become
a lesser percentage of revenues.
13
<PAGE>
Interest Income. Interest income decreased in 1996 to $294,000 from
$418,000 in 1995 due to fewer funds available to invest.
Income Tax Expense. Income tax expense decreased in 1996 to $223,000 from
$309,000 in 1995. These taxes were based on foreign operations, and the
reduction was based on operating in jurisdictions with lower tax rates in 1996
than in 1995.
Net Loss. The net loss in 1996 was $1,110,000 as compared to a net loss of
$3,766,000 in 1995. The reduction in losses was due to the revenue increase,
which was only partially offset by increased costs.
1995 Compared to 1994
Revenues. Revenue increased from $6,610,000 in 1994 to $10,239,000 in
1995, an increase of $3,629,000 or 55%. Revenues from domestic wireline logging
operations increased from $2,888,000 in 1994 to $3,638,000 in 1995. The
domestic increase was mainly due to increased penetration of the offshore Gulf
Coast market where volume increased from $1,051,000 in 1994 to $1,601,000 in
1995. Revenues from international wireline logging operations increased from
$2,108,000 in 1994 to $3,443,000 in 1995. In addition, 1995 revenues included
sales of MRIL tools into China of $1,092,000. Revenues from industry partners
increased from $442,000 in 1994 to $1,403,000 in 1995. Revenues from
interpretation and rock sampling increased from $85,000 in 1994 to $266,000 in
1995. 1994 revenue included $874,000 of revenue for engineering and training
under a contract with WALS for which there was no comparable income in 1995.
Cost of Sales and Services. Cost of sales and services increased from
$5,830,000 in 1994 to $8,382,000 in 1995, an increase of $2,552,000 or 44%. Of
this increase, $608,000 was due to the cost of the Company selling MRIL tools
into China and selling parts to industry partners. No such sales were generated
in 1994. Cost of sales and services, not considering the cost of the above
sales, increased by $1,944,000 or 33%. This increase was directly attributable
to costs associated with logging revenues that increased 56% in 1995 over 1994.
Depreciation of Field Assets. Depreciation of field assets increased from
$1,505,000 in 1994 to $2,448,000 in 1995, an increase of 63%. This increase is
due to the increase in assets in the field utilized by the Company and its
industry partners to generate revenues.
Gross Loss. As a result of the revenue increases and the lower percentage
cost increases detailed above, gross loss decreased from $1,603,000 in 1994 to
$592,000 in 1995.
General and Administrative Expenses. General and administrative expenses
increased from $1,125,000 in 1994 to $1,444,000 in 1995, an increase of 28% as
compared to a revenue increase of 55%. Cost increases were due to increased
administrative activity associated with the large revenue increase, including an
increase in costs of $82,000 associated with the new facility the Company moved
into in March 1995.
Research and Development Expenses. Research and development expenses
increased from $1,552,000 in 1994 to $1,769,000 in 1995. Increases in 1995 were
attributable to research related to the
14
<PAGE>
introduction of the new "C*" Series tool and work associated with developing a
sonde for use in an MWD environment.
Interest Income. Interest income increased from $389,000 in 1994 to
$418,000 in 1995 due to higher interest rates.
Interest Expense. Interest expense decreased from $122,000 in 1994 to
$35,000 in 1995 essentially due to all but $6,000 of capitalized leases being
fully paid by the end of 1994.
Interest Expense on Subordinated Debentures. Interest expense on
subordinated debentures was $166,000 in 1994 and eliminated in 1995 as the
subordinated debentures were retired in April 1994.
Net Loss. The net loss in 1994 was $4,310,000 as compared to a net loss of
$3,766,000 in 1995, an improvement of $544,000.
Liquidity and Capital Resources
Since its inception, the Company has incurred operating losses in the
course of developing and marketing its MRIL products and services. The Company
has funded its development and marketing efforts through the public and private
placement of equity and debt securities, and through advances received on
revenue-sharing agreements from industry partners.
Cash flows provided by (used in) operating activities were $(894,274) in
1994, $686,572 in 1995, and $3,778,368 in 1996. Cash from operating activities
in 1996 was provided primarily from net income, exclusive of depreciation, and
advances on revenue-sharing activities less increases in accounts receivable.
Cash used in investing activities was $7.4 million in 1994, $11.9 million
in 1995, and $5.0 million in 1996. The great majority of cash used in investing
activities was to produce the MRIL tools used by the Company and its industry
partners to generate revenue.
Cash provided by financing activities in 1996 was generated primarily by
the exercise of stock options by employees generating $540,000.
As of December 31, 1996, the Company had on hand $5.6 million in cash and
cash equivalents. Further, the Company expects to receive cash from the sale of
MRIL tools to WALS and HES and from additional deposits from WALS for additional
MRIL tools. Capital expenditures during 1997 are currently expected to be
between $6.0 million and $8.0 million.
Subsequent to December 31, 1996, the Company negotiated a line of credit
with a bank in the amount of $3.0 million.
The Company believes that the cash on hand at December 31, 1996, its
anticipated cash flow from operations, the funds it expects to receive from
industry partners, and its ability to borrow, if needed, from financial
institutions is sufficient to fund its operations and anticipated growth
through, at least, 1997.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The Consolidated Financial Statements of NUMAR Corporation and its
subsidiaries, listed in the index appearing under Item 14, are filed as part of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
16
<PAGE>
PART III
INCORPORATION BY REFERENCE
- --------------------------
The information called for by Item 10 "Directors and Executive Officers of
the Registrant" (other than the information required by Item 401(b) of
Regulation S-K, which appears in Part I hereof under the heading "Executive
Officers of the Company"), Item 11 "Executive Compensation," Item 12 "Security
Ownership of Certain Beneficial Owners and Management," and Item 13 "Certain
Relationships and Related Transactions" is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held May 14, 1997, which definitive proxy statement is expected
to be filed with the commission no later than 120 days after the end of the
fiscal year to which this Report relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
(1) Financial Statements:
Report to Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1996 and December 31, 1995 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flow for the
Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for Years
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
(2) Financial Statement Schedules
</TABLE>
No other schedules have been included because they are not applicable or not
required or the required information is included in the consolidated financial
statements or notes thereto.
17
<PAGE>
(3) Exhibits:
--------
3.1 Amended and Restated Articles of Incorporation, filed as Exhibit 3.1
to the Company's Registration Statement on Form S-1 (File No. 33-
75182), is incorporated herein by reference.
3.2 By-laws, filed as Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (File No. 33-75182), is incorporated herein by reference.
10.1 1994 Stock Incentive Plan, filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File No. 33-75182), is
incorporated herein by reference.
10.2 Agreement dated October 11, 1993 between Atlas Wireline Services (now
known as Western Atlas Logging Services), a division of Western Atlas
International, Inc., and the Company with respect to the leasing of
equipment and the provision of technical services (the "Atlas Wireline
Agreement"), filed as Exhibit 10.2a to the Company's Registration
Statement on Form S-1 (File No. 33-75182), is incorporated herein by
reference.
10.3 Letter agreements, dated December 8, 1994 and December 27, 1994,
amending the Atlas Wireline Agreement filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, is incorporated herein by reference.
10.4 Agreement dated November 3, 1993 between Computalog Ltd. and the
Company with respect to the leasing of equipment and the provision of
technical services filed as (Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (File No. 33-75182), is
incorporated herein by reference.
10.5 Letter agreements, dated July 13, 1995, amending the Computalog
Agreement, filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
10.6 Key Person Stock Option Agreements between the Company and each of
Melvin N. Miller, Richard N. Chandler, and George R. Coates, filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File
No. 33-75182), is incorporated herein by reference.
10.7 Key Employee Stock Option Agreements, dated April 38, 1993 and
December 30, 1993, between the Company and Edward P. Delson, filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by reference.
10.8 Key Person Stock Option Agreement between the Company and Manfred G.
Prammer, filed as Exhibit 10.8 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
18
<PAGE>
10.9* Key Person Stock Option Agreement between the Company and Thomas
Blades.
10.10 Agreement of Lease dated January 20, 1995 between the Company and
Rouse & Associates - 508 Lapp Road Limited Partnership, filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, is incorporated herein by reference.
10.11 Agreement dated March 15, 1996 between Halliburton Energy Services, a
Division of Halliburton Company, filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10.12 NUMAR Corporation 1995 Employee Stock Purchase Plan, included as
Appendix A to the Company's definitive Proxy Statement for the Annual
Meeting held on May 15, 1995, filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10.13 Amendment No. 1 to 1994 Stock Incentive Plan, filed as Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (File No. 33-75182),
is incorporated herein by reference.
10.14* Employment agreement dated July 18, 1996 between the Company and
Melvin N. Miller.
10.15* Change of Control Agreement dated March 10, 1997 between the Company
and Edward P. Delson.
21. List of Subsidiaries, filed as Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (File No. 33-75182) is incorporated
herein by reference.
23.* Consent of Coopers & Lybrand L.L.P.
27.* Financial Data Schedule
- ---------------------
*Filed herewith.
(b) The Company did not file a report on Form 8-K during the quarter ended
December 31, 1996.
19
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NUMAR CORPORATION
<TABLE>
Page
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995..... F-3
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994.............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.............................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1996, 1995 and 1994............................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
NUMAR Corporation:
We have audited the accompanying consolidated balance sheets of NUMAR
Corporation and its wholly-owned subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NUMAR Corporation
and its wholly-owned subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1997
2
<PAGE>
NUMAR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 5,626,196 $ 6,322,345
Accounts receivable, less allowance for doubtful accounts of
$90,000 and $79,000, respectively........................................ 4,485,964 3,495,150
Inventory................................................................... 219,246 ---
Prepaid expenses and other current assets................................... 396,276 115,287
------------ -----------
Total current assets............................................... 10,727,682 9,932,782
Well logging devices under construction and supplies............................ 3,654,535 4,309,606
Property and equipment, net..................................................... 16,744,039 15,519,417
Other assets, net............................................................... 703,077 565,230
------------ -----------
Total assets....................................................... $ 31,829,333 $30,327,035
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of loans payable............................................ $ 75,694 $ 86,037
Accounts payable............................................................ 961,081 1,129,575
Accrued expenses............................................................ 1,998,051 1,501,304
Deferred revenue............................................................ 3,166,305 1,889,019
Foreign taxes payable....................................................... 391,272 175,618
----------- -----------
Total current liabilities.......................................... 6,592,403 4,781,553
Deferred revenue................................................................ 5,977,405 5,667,056
Loans payable................................................................... 129,104 204,798
Stockholders' equity:
Common stock; par value $.01 per share; authorized, 50,000,000 shares;
issued and outstanding 8,389,653 and 8,273,460, respectively.......... 83,900 82,738
Additional paid-in capital.................................................. 56,457,915 55,918,649
Accumulated deficit......................................................... (37,411,394) (36,301,459)
----------- -----------
19,130,421 19,699,928
Employee subscriptions receivable........................................... --- (26,300)
----------- -----------
Total stockholders' equity......................................... 19,130,421 19,673,628
----------- -----------
Total liabilities and stockholders' equity......................... $31,829,333 $30,327,035
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NUMAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
for the years ended December 31,
---------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................. $18,795,454 $10,238,701 $ 6,610,119
Costs of sales and services........................... 12,272,379 8,382,180 5,829,593
Depreciation of field assets.......................... 4,000,448 2,448,421 1,504,859
Write-down of "B" Series tools........................ --- --- 878,489
---------- ---------- ----------
Gross profit (loss)............................... 2,522,627 (591,900) (1,602,822)
---------- ---------- ----------
General and administrative expenses................... 1,569,657 1,444,196 1,124,948
Research and development expenses..................... 2,095,576 1,768,961 1,551,531
---------- ---------- ----------
Loss from operations.............................. (1,142,606) (3,805,057) (4,279,301)
---------- ---------- ----------
Other income (expense):
Interest income.................................... 294,145 417,742 389,340
Interest expense.................................... (24,156) (35,277) (122,091)
Interest expense on subordinated debentures
and senior convertible notes due to
stockholders...................................... --- --- (166,228)
Other income (expense).............................. (14,177) (34,192) 3,656
---------- ---------- ----------
Loss before income taxes.......................... (886,794) (3,456,784) (4,174,624)
Income tax expense.................................... 223,141 308,945 135,758
---------- ---------- ----------
Net loss.......................................... $(1,109,935) $(3,765,729) $(4,310,382)
========== ========== ==========
Net loss applicable to common stock............... $(1,109,935) $(3,765,729) $(4,310,382)
========== ========== ==========
Net loss per share................................ $ (.13) $ (.48) $ (.63)
========== ========== ==========
Weighted average common stock outstanding............. 8,339,706 7,787,874 6,812,052
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
NUMAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
for the years ended December 31,
--------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss................................................. (1,109,935) $(3,765,729) $(4,310,382)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization..................... 4,350,016 2,811,143 1,841,401
Write-down of obsolete "B" tools
and parts.................................... --- --- 878,489
Provision for doubtful accounts................... 11,000 (170,483) 228,000
Provision for obsolescence........................ --- --- 28,586
Changes in assets and liabilities which
provided (used) cash:
Accounts receivable............................... (1,001,814) (1,383,962) (932,541)
Inventory......................................... (219,246) --- ---
Prepaid expenses and other current
assets....................................... (280,989) (8,790) 103,189
Other assets...................................... (179,103) (166,176) 95,295
Accounts payable.................................. 197,223 (111,585) 143,842
Accrued expenses.................................. 207,927 709,822 205,864
Deferred revenue.................................. 1,587,635 2,729,714 741,060
Foreign taxes payable............................. 215,654 42,618 82,923
----------- ------------- ------------
Net cash provided by (used in)
operating activities....................... 3,778,368 686,572 (894,274)
----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures................................... (5,778,189) (12,165,278) (7,508,497)
Proceeds from disposition of property
and equipment.................................... 822,981 226,611 136,753
----------- ------------- -----------
Net cash used in investing
activities................................. (4,955,208) (11,938,667) (7,371,744)
----------- ------------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NUMAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
for the years ended December 31,
---------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock ..................... 540,428 8,385,594 21,759,883
Payment of subordinated debentures to
stockholders .......................................... -- -- (5,392,093)
Repayment of bank debt and term loans ..................... (86,037) (89,377) (84,851)
Principal payments on capital
lease obligations ..................................... -- (5,912) (515,678)
Payment of employee subscriptions
receivable ............................................ 26,300 20,639 16,009
----------- ----------- ------------
Net cash provided by financing
activities ..................................... 480,691 8,310,944 15,783,270
----------- ----------- ------------
Cash and cash equivalents:
Net increase (decrease) in cash ............................ (696,149) (2,941,151) 7,517,252
Balance, beginning of period ............................... 6,322,345 9,263,496 1,746,244
----------- ----------- ------------
Balance, end of period ..................................... $ 5,626,196 $ 6,322,345 $ 9,263,496
=========== =========== ============
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest .............................................. $ 22,029 $ 36,202 $ 253,868
=========== =========== ============
Income taxes .......................................... $ 47,962 $ 58,252 $ 45,573
=========== =========== ============
Elimination of subscribed stock for
terminated employees .................................. $ -- $ 19,939 $ 1,198
=========== =========== ============
Subscriptions receivable paid for stock
options exercised ..................................... $ -- $ -- $ 14,811
=========== =========== ============
Accounts payable on well logging devices
under construction and supplies ....................... $ 290,690 $ 656,407 $ --
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
NUMAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional Employee
Common Stock Paid-In Accumulated Subscriptions Treasury Stock
------------ --------------
Shares Amount Capital Deficit Receivable Shares Amount Total
------ ------ ------- ------- ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 ......... 5,423,353 $ 54,233 $ 25,821,616 $(28,225,348) $(82,887) -- -- $ (2,432,386)
Public offering ........... 1,950,000 19,500 21,728,983 -- -- -- -- 21,748,483
Exercise of stock options . 3,800 38 11,362 -- -- -- -- 11,400
Elimination of
subscriptions receivable
for terminated employees (400) -- -- -- 1,198 -- -- 1,198
Repayment of
subscriptions receivable -- -- -- -- 14,811 -- -- 14,811
Net loss .................. -- -- -- (4,310,382) -- -- -- (4,310,382)
--------- -------- ------------ ------------ -------- ------ ------ ------------
Balance at
December 31, 1994 ......... 7,376,753 73,771 47,561,961 (32,535,730) (66,878) -- -- 15,033,124
Public offering, net ...... 900,000 9,000 8,349,779 -- -- -- -- 8,358,779
Exercise of stock options . 3,352 33 26,782 -- -- -- -- 26,815
Receipt of subscriptions
receivable ............. -- -- -- -- 20,639 -- -- 20,639
Elimination of
subscriptions receivable
for terminated employees (6,645) (66) (19,873) -- 19,939 -- -- --
Net loss .................. -- -- -- (3,765,729) -- -- -- (3,765,729)
--------- -------- ------------ ------------ -------- ------ ------ ------------
Balance at
December 31, 1995 ......... 8,273,460 82,738 55,918,649 (36,301,459) (26,300) -- -- 19,673,628
Exercise of stock options . 116,193 1,162 539,266 -- -- -- -- 540,428
Receipt of subscriptions
receivable ............. -- -- -- -- 26,300 -- -- 26,300
Net loss .................. -- -- -- (1,109,935) -- -- -- (1,109,935)
--------- -------- ------------ ------------ -------- ------ ------ ------------
Balance at
December 31, 1996 ......... 8,389,653 $ 83,900 $ 56,457,915 $(37,411,394) $ 0 -- -- $ 19,130,421
========= ======== ============ ============ ======== ====== ====== ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1. Summary of Significant Accounting Policies
Business and Basis of Consolidation:
The Company is engaged in the research, development, equipment
manufacture and marketing of services utilizing Magnetic Resonance Imaging
("MRI") technology for oil and gas exploration and development.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, NUMAR Oilfield Services, Inc., Numalog Ltd.,
NUMAR UK Ltd., PT NUMAR Indonesia, NUMAR Australia Corporation, and NMR
Corporation. All significant intercompany transactions and balances have
been eliminated in consolidation.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments with an
original maturity of three months or less to be cash equivalents. At
December 31, 1996, and periodically throughout the year, the Company has
maintained balances in various operating and money market accounts in
excess of federally-insured limits. No individual investment is permitted
in excess of $2 million, and all securities invested are A1-P1 rated.
Fair Value of Financial Instruments:
The carrying amounts reported in the balance sheet for cash and
cash equivalents and accounts receivable approximate fair value due to the
short-term nature of these instruments. The carrying amount of loans
payable approximates fair value because the underlying instrument is a
variable rate note that reprices frequently.
Inventory:
Inventory is recorded at cost. Inventory consists of raw materials,
work in process, and finished goods that will be sold to customers and is
similar to inventory that is used for the production of property and
equipment and recorded as well logging devices under construction and
supplies.
Well Logging Devices Under Construction and Supplies:
Well logging devices under construction and supplies are recorded
at cost. Well logging devices under construction and supplies include the
costs incurred to construct and assemble the units used to provide the
Company's Magnetic Resonance Imaging Logging ("MRIL") services to
customers in the field. Upon the completion and transfer of each unit to
the field, these costs are transferred into property and equipment. The
Company purchases the majority of its components from a variety of
manufacturers.
8
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
Property and Equipment:
The cost of equipment is depreciated over its estimated useful life
using the straight-line method. Well logging devices are depreciated over
five years. The cost of leasehold improvements is amortized over the terms
of the appropriate leases. Repairs are expensed as incurred and
betterments and renewals which extend the life of existing assets are
capitalized.
At the time of retirement or disposal, the asset cost and related
accumulated depreciation or amortization are removed from the books and
any gain or loss is recognized in the consolidated statement of
operations.
The Company has adopted Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS No. 121) for fiscal year 1996.
This statement requires that long-lived assets and certain identifiable
intangibles that are held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of as asset may not be recoverable. The implementation of SFAS No.
121 did not have an impact on the consolidated financial statements.
Stock-Based Compensation :
The Company accounts for stock options under the provisions of APB
Opinion No. 25, and accordingly, compensation expense with regard to its
option program is not recorded for stock options granted at fair market
value.
Other Assets:
Patent costs are amortized ratably on the straight-line method over
the number of years of available patent protection. Costs of maintenance
and renewals are amortized ratably over the remaining period of patent
protection.
Revenue Recognition:
Revenues Generated by NUMAR -
Generally, revenues are recognized when services are rendered or
when goods are delivered, and the costs associated with delivering these
services are expensed as incurred or when goods are delivered.
Revenues Generated from Industry Partners -
Deferred revenues are recognized as revenue on a straight-line
basis over the term of the agreements. Additional revenues are recognized
based on equipment usage.
9
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
Income Taxes:
Income taxes are provided under the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109). Under this method, the
Company is required to recognize deferred tax liabilities and assets for
the expected future tax consequences of events that have been recognized
in a company's consolidated financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
Net Loss per Share:
Loss per common share is computed on the basis of the weighted
average number of common shares issued and outstanding. The common share
equivalents related to stock options are not included in the loss per
share calculations because they are anti-dilutive.
Foreign Currency Transactions:
Numalog Limited, which conducts operations in Israel, uses the U.S.
dollar as its functional currency. NUMAR UK Ltd., PT NUMAR Indonesia, and
NUMAR Australia Corporation contracts the majority of their revenues and
incurs the majority of their costs in U.S. dollars, therefore, NUMAR UK
Ltd., PT NUMAR Indonesia and NUMAR Australia Corporation use the U.S.
dollar as their functional currency. All translation adjustments on the
Company's wholly-owned subsidiaries are reflected in the consolidated
statement of operations.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Common Stock
On April 14, 1994, the Company completed an underwritten public
offering of 1,800,000 common shares at a price to the public of $12.50 per
share. On April 21, 1994, the Company received the net proceeds of the
offering amounting to $20,004,733. The underwriters had an option to
exercise an additional 270,000 shares for 30 days from the effective date
of the offering. On May 13, 1994, the underwriters exercised their option
and purchased an additional 150,000 shares. On May 25, 1994, the Company
received the net proceeds of the exercised option amounting to $1,743,750.
10
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
On July 25, 1995, the Company consummated the sale of 900,000
common shares at $10 per share in a public offering to a limited group of
investors. The Company's net proceeds from the offering, after expenses,
were $8,358,779.
3. Operating Losses and Liquidity:
Since its inception, the Company has incurred operating losses in
the course of developing and marketing its MRIL products and services. The
Company has funded its development and marketing efforts through the
public and private placement of equity and debt securities.
During the years ended December 31, 1996, 1995 and 1994, the
Company has incurred net losses of $1,109,935, $3,765,729, and $4,310,382,
respectively. The loss in 1994 included a one-time write down of the
undepreciated value of older "B" Series tools and related equipment
amounting to $878,489. As of December 31, 1996, the Company's
stockholders' equity was $19,130,421, and the Company had $5,626,196 of
cash and cash equivalents.
Management believes that the increasing volume of revenue from its
new "C*" and "C" Series tools generated by the Company's own sales force
and by its industry partners will be sufficient to fund its operations and
anticipated growth. Subsequent to the Company's initial public offering in
April 1994, the Company paid down all remaining subordinated debentures
and later in the year repaid all amounts due on capitalized leases. As of
December 31, 1996, remaining debt of the Company totaled $204,798 of which
$75,694 is due within one year. The Company believes it has the potential
to obtain external financing as may be required in 1997 (see Note 16).
4. Concentration of Credit Risk:
The Company's financial instruments that subject it to potential
credit risk consist primarily of accounts receivable. The Company does not
require collateral or other security for customer receivables. As of
December 31, 1996, two customers accounted for 36% and 15% of the
Company's accounts receivable, respectively.
5. Well Logging Devices Under Construction and Supplies:
Well logging devices under construction and supplies as of December
31, 1996 and 1995 are as follows:
1996 1995
---- ----
Supplies and components ............. $3,073,030 $3,595,536
Work-in-process ..................... 581,505 714,070
---------- ----------
$3,654,535 $4,309,606
========== ==========
11
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
6. Property and Equipment:
Property and equipment as of December 31, 1996 and 1995 are as
follows:
1996 1995
---- ----
MRIL tools and related equipment ... $ 24,676,525 $ 20,610,392
Research equipment ................. 705,048 574,089
Computer equipment ................. 1,364,291 1,144,364
Other equipment and fixtures ....... 2,401,971 2,035,568
------------ ------------
29,147,835 24,364,413
Less accumulated depreciation ...... (12,403,796) (8,844,996)
------------ ------------
$ 16,744,039 $ 15,519,417
============ ============
Depreciation expense for the years ended December 31, 1996, 1995,
and 1994 was $4,308,760, $2,755,688, and $1,831,022, respectively.
7. Write-Down of "B" Series Tools:
Due to the increased availability of the "C" Series tools in late
1994, customer demand for the "B" Series tool has decreased rapidly and is
at the point where future revenue from "B" Series tools is in significant
doubt. Therefore, the Company has written down the undepreciated value of
"B" Series cartridges and related equipment unique to the "B" tool. The
full amount of the write down was $878,489, of which $729,175 was to
adjust the accumulated depreciation and the balance, $149,315, resulted in
a reserve for obsolete parts.
8. Other Assets:
Other assets as of December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
Patent costs and trademarks ... $ 702,844 $ 568,039
Equipment deposits ............ 47,888 4,275
Other ......................... 75,721 75,036
--------- ---------
826,453 647,350
Less accumulated amortization . (123,376) (82,120)
--------- ---------
$ 703,077 $ 565,230
========= =========
12
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
9. Deferred Revenue:
NUMAR has entered into revenue-sharing agreements with two wireline
service companies, whereby NUMAR supplies these companies with certain
MRIL equipment. NUMAR retains ownership of all equipment provided under
these agreements. In consideration for entering into these contracts,
NUMAR receives non-refundable advances, based on equipment ordered by the
wireline companies and records these advances as deferred revenue.
Following is a summary of the deferred revenue account.
<TABLE>
<S> <C>
Balance of deferred revenue at December 31, 1995 .... $ 7,556,075
Less recognized revenue .............................. (4,268,148)
Plus funds received for additional equipment ......... 5,855,783
-----------
Total of deferred revenue at December 31, 1996 ....... $ 9,143,710
===========
Deferred revenue expected to be realized in 1997 .... $ 3,166,305
Deferred revenue expected to be realized after 1997 .. 5,977,405
-----------
$ 9,143,710
===========
</TABLE>
10. Loans Payable:
As of December 31, 1996 and 1995, loans payable are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Term loan payable in monthly installments
of $1,887, including interest
at 5%, collateralized by certain equipment,
due in April 1997 ................................................... $ 11,158 $ 32,659
Term loan, principal payable beginning
December 1994 through December 1999,
with interest payable monthly
at LIBOR plus 3.125% (LIBOR was 5.63% at
December 31, 1996), collateralized
by all of the assets of Numalog ..................................... 193,640 258,176
--------- ---------
204,798 290,835
Less current portions ..................................................... (75,694) (86,037)
--------- ---------
$ 129,104 $ 204,798
========= =========
</TABLE>
<TABLE>
The annual aggregate maturities of loans payable are as follows:
<S> <C>
1997 $ 75,694
1998 64,536
1999 64,568
--------
$204,798
========
</TABLE>
13
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
11. Income Taxes:
At December 31, 1996, the Company had net operating loss
carryforwards of approximately $19,000,610 for federal income tax purposes
and $2,500,000 for state income tax purposes available to offset future
taxable income, if any. Federal net operating loss carryforwards expire if
not used within 15 years of the taxable year in which the loss occurred.
Substantially all of the Company's net operating losses are attributable
to taxable years for 1988 through 1995, and accordingly, will expire from
2003 through 2010.
The Company believes that it experienced an "ownership change" for
purposes of Internal Revenue Code Section 382 on March 1, 1988, and that
no subsequent ownership change has occurred through December 31, 1993.
Approximately $300,000 of the Company's net operating loss carryovers
arose prior to March 1, 1988. However, an ownership change for Section 382
purposes could have occurred subsequent to that date if certain of the
existing stockholders of the Company increased or decreased their current
holdings within the next three years or if a person acquires sufficient
shares to become a new "5% stockholder" of the Company. In the event an
ownership change occurred , the Company's ability to use its net operating
loss carryforwards will be subject to an annual limitation, the size of
which will depend upon the aggregate fair market value of the Company's
outstanding shares at the time of the ownership change. Ownership shifts
have occurred among Company stockholders since December 31, 1993. The
Company has not performed a study to determine if an ownership change has
occurred. Accordingly, no assurance can be given as to whether an
ownership change, as defined under Section 382, has occurred since
December 31, 1993. There is no assurance that the Internal Revenue
Service, or a court, will agree with the Company's conclusions.
The provision for income taxes for the year ended December 31, 1996
includes a provision for alternative minimum tax of $66,414 and foreign
withholding taxes of $156,727. The provision for income taxes for the
years ended December 31, 1995 and 1994 consist of foreign withholding
taxes.
Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating losses ....................... $ 6,899,964 $ 7,738,287
Deferred revenue ........................... 3,657,117 3,097,991
Allowance for bad debts .................... 37,383 32,497
Valuation allowance ........................ (9,645,747) (10,492,839)
----------- ------------
Total deferred tax assets .................. $ 948,717 $ 375,936
=========== ============
Deferred tax liabilities:
Accelerated depreciation ................... $ 948,717 $ 375,936
----------- ------------
Total deferred tax liabilities ..... $ 948,717 $ 375,936
=========== ============
</TABLE>
14
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
12. Commitments and Contingencies:
The Company leases certain of its operating facilities and
corporate offices under leases with remaining terms ranging from 1 to 15
years with certain renewal options and cancellation clauses. In January
1995, the Company entered into a 15-year lease for 50,000 square feet of
space which houses corporate offices, manufacturing, and research
facilities.
Future minimum lease payments as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1997 $ 441,769
1998 436,094
1999 397,803
2000 383,712
2001 394,545
Thereafter 3,039,479
---------
$5,093,402
=========
</TABLE>
Rent expense under operating leases was $516,517, $458,746, and
$270,892 for the years ended December 31, 1996, 1995 and 1994,
respectively.
During the two-year period ended December 31, 1987, the Company
received a grant of $705,596 from a research and development foundation to
fund the development of a MRI-based well logging system. Upon
commercialization of the product, the Company is required to pay a royalty
of 1.49% of the annual gross reve nues attributable to the MRI open-hole
logging probe allocated portion of the commercial system. Additionally,
the Company and Numalog are required to pay 1-1/2% of any royalties
received on patents developed from the funded research and 30% of payments
received under licenses of the product. In no event shall the total
royalty charges exceed 150% of the grant or $1,058,394. Under the terms of
the grant the Company incurred royalty charges of $273,481, $112,554, and
$65,618 for the years ended December 31, 1996, 1995 and 1994,
respectively.
During the three-year period ended December 31, 1989 the Company
received a grant of $200,000 from a technology center to fund the cost of
certain new technology. The Company is required to pay a royalty of 2% of
the gross revenues derived by the Company from the sale, lease, license or
other transfer of the new technology. In no event shall the total royalty
charges exceed 300% of the grant or $600,000. Under the terms of the
grant, the Company incurred royalty charges of $61,810, $30,175, and
$20,394 for the years ended December 31, 1996, 1995 and 1994.
15
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
13. Stock Purchase Plan/Savings Plan:
The Company implemented a stock purchase plan on June 1, 1995 that
allows participating employees to purchase, through payroll deductions,
shares of the Company's common stock at 85 percent of the fair market
value at specified dates. At December 31, 1996, 95 employees were eligible
to participate in the plan, and 250,000 common shares remained available
for issuance under the plan. On May 31, 1996, the end of the first plan
year, 12,651 shares were issued under the plan.
The Company implemented a voluntary 401(k) savings plan on January
1, 1995. The Company matches 25% of each employee's contributions, up to a
maximum of 6% of base salary. Company contributions to the savings plan
were $52,597 in 1996 and $49,265 in 1995.
14. Stock Options and Warrants:
On February 8, 1994, the Board of Directors of the Company adopted
the NUMAR Corporation 1994 Stock Incentive Plan, which was subsequently
approved by the stockholders on April 8, 1994. Under the plan, the Company
reserved 350,000 common shares for the granting of stock options to key
employees. On May 15, 1996, the stockholders approved an amendment to the
plan increasing the number of common shares issuable under the plan from
350,000 to 650,000. The option exercise price may not be less than the
fair market value of the underlying shares on the date of the grant. The
plan is administered by a committee of the Board of Directors, which is
authorized, subject to the terms of the Plan, to select key employees to
be granted awards on behalf of the Company, and to set the date of grant
and the other terms of such awards.
Since the plan began, 680,000 options were granted, and 154,900
options were canceled which were granted under the plan. There are 124,900
common shares in reserve for issuance to key employees as of December 31,
1996.
The following is a summary of option transactions and exercise
prices.
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ----------------- -----------------
Average Number Average Number Average Number
Exercise of Exercise of Exercise of
Price Shares Price Shares Price Shares
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1 $ 6.93 647,155 $ 6.28 627,510 $ 4.51 440,660
Granted 14.50 345,500 10.76 142,000 12.90 192,500
Exercised 4.00 (103,542) 8.00 (3,352) 3.00 (3,800)
Canceled 10.27 (59,710) 11.47 (119,003) 8.00 (1,850)
------- ------- -------
Outstanding, December 31 10.28 829,403 6.93 647,155 6.28 627,510
======= ======= =======
Exercisable, December 31 335,633 348,377 276,606
======= ======= =======
Shares Reserved 124,900 118,000 167,500
======= ======= =======
</TABLE>
The vesting period of the stock options ranges from one year to five
years.
16
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
Stock options outstanding at December 31, 1996 are summared as
follows:
<TABLE>
<CAPTION>
Range of Weighted Weighted Average Weighted
Exercise Number Average Number Remaining Average
Prices Exercisable Exercise Price Outstanding Contractual Life Exercise Price
-------- ----------- -------------- ----------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 180,321 $ 3.00 206,421 2.8 years $ 3.00
$8.00 93,612 $ 8.00 103,182 2.6 years $ 8.00
$9.00-13.00 31,150 $10.86 128,300 8.5 years $11.14
$13.01-17.00 30,550 $14.73 391,500 8.9 years $14.54
------- ------ ------- --------- ------
335,633 $ 6.19 829,403 6.2 years $10.33
======= ======= ======= ========= ======
</TABLE>
The fair value of options granted under the stock option plan during
1996 was between $5.18 and $7.40 per share and of options granted during
1995 was between $4.15 and $5.57 per share. Fair value is estimated
based on the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1996 and 1995: dividend yield
of 0%; expected volatility of 40%; risk-free interest rates of 6.5% in
1996 and $6.3% in 1995; and expected lives of five years.
The fair market value of options expected to be granted under the stock
purchase plan during 1996 is $4.68 per share, while the fair market
value of similar options granted during 1995 was $3.54 per share. Fair
value is estimated based on the Black-Scholes option-pricing model with
the following weighted average assumptions for grants in 1996 and 1995:
dividend yield of 0%; expected volatility of 46% in 1996 and 42% in
1995; risk- free interest rates of 6.6% in 1996 and 6.4% in 1995; and an
expected life of one year (see Note 13).
The Company has not recognized compensation expense in connection with
stock options grants under the plans. However, had compensation expense
been determined based on the fair value of the options on the grant
dates, the Company's pro forma net loss per share for 1996 and 1995
would have been increased by $516,693 or $.07 per share and $147,543 and
$.02 per share, respectively.
15. Significant Customers and Revenues by Geographic Area:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $13,786,358 $ 4,933,661 $4,299,889
Asia/Pacific 1,836,089 2,156,358 1,341,470
Europe 1,610,541 2,365,675 766,489
Latin America 993,292 464,424 --
Canada 256,683 164,883 202,271
Africa/Middle East 312,491 153,700 --
----------- ----------- ----------
$18,795,454 $10,238,701 $6,610,119
=========== =========== ==========
</TABLE>
17
<PAGE>
NUMAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
The Company's revenues relate primarily to service activities
and sales to WALS and HES, NUMAR's industry partners. WALS accounted for
31% of revenues in 1996, 12.3% of revenues in 1995, and 16.9% in 1994.
HES accounted for 19.4% of revenues in 1996 and no revenue in 1995 or
1994.
16. Subsequent Events:
On February 28, 1997, the Company received a collateralized
discretionary demand line of credit from a bank in the amount of $3.0
million. The interest rate associated with the line is prime plus 1%.
17. Quarterly Operating and Per Share Data (Unaudited):
The following table summarizes (in thousands except per share
data) the Company's quarterly results of operations for the years ended
December 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
1996 Three Months Ended 1995 Three Months Ended
----------------------- -----------------------
March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------ -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,973 $ 4,106 $ 5,131 $6,585 $ 1,628 $ 1,825 $ 3,075 $ 3,711
Gross profit (loss) (80) 415 726 1,462 (468) (606) 292 190
Net gain (loss) (845) (508) (251) 494 (1,042) (1,407) (703) (614)
Net gain (loss) per common share (.10) (.06) (.03) .06 (0.14) (0.19) (0.08) (0.07)
</TABLE>
18
<PAGE>
Exhibit 10.9
April 12, 1996
Mr. Thomas Blades
c/o NUMAR Corporation
Houston, TX
Dear Tom:
I am pleased to inform you that effective April 11, 1996 you have been granted
the option to purchase 90,000 Common Shares of the Company under the Company's
Stock Incentive Plan at an exercise price of $13.5625, which was the market
value on the day you joined the Company.
Under the Plan, the Company may grant either incentive stock options or non-
qualified stock options. The options granted to you are considered to be
incentive stock options.
These options will become exercisable as follows:
<TABLE>
<CAPTION>
Date First Exercisable No. of Shares
---------------------- -------------
<S> <C>
April 11, 1998 36,000
April 11, 1999 18,000
April 11, 2000 18,000
April 11, 2001 18,000
</TABLE>
Once options become exercisable, they will remain so until they are exercised or
until they terminate. Unless earlier terminated pursuant to the terms of the
Plan, all options granted hereby shall terminate on April 11, 2006.
The exercise price for your options is payable in cash. Further terms governing
the options granted to you are set forth in the Stock Incentive Plan, a copy of
which is attached.
<PAGE>
April 12, 1996
Page 2
The shares subject to your options have not yet been registered under the
Securities Act of 1933. The Company intends to cause such shares to be so
registered by the time your options become exercisable, but unless they have
been so registered by the time of exercise, they must be acquired by you for
investment and not with a view to the public resale or distribution thereof.
If you wish to accept the grant of the options as provided above and in the
Plan, please so indicate by signing and returning the enclosed copy of this
letter, whereupon you and the Company shall be legally bound hereby under
Pennsylvania law.
Very truly yours,
Melvin N. Miller
President & CEO
Accepted and agreed:
- -----------------------------
Thomas Blades [date]
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of July 18, 1996, between NUMAR Corporation,
A Pennsylvania corporation (the "Company") and Dr. Melvin N. Miller (the
"Executive").
BACKGROUND
Executive is currently the Chairman and Chief Executive Officer of Company.
Company desires to continue to employ Executive, and Executive desires to remain
in the employ of Company, on the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. Company hereby employs
------------------------------------
Executive and Executive hereby agrees to continue employment by Company for a
period and upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
--------------------
(A) Executive shall initially serve as the Company's Chairman and
Chief Executive Officer. During the term of this Agreement, Company may hire or
appoint another person as its Chief Executive Officer and may vest in such other
person one or more responsibilities initially held by Executive pursuant to the
terms of this Agreement, provided that, at all times during the term of this
--------
Agreement, Executive shall, subject to the supervision of the Board of Directors
of Company (the "Board"), be responsible for and have authority over all of
Company's and its subsidiaries' research and development, including the
identification and development of all new products and new product applications.
Executive shall perform such other duties and shall have such authority
consistent with his position as may from time to time reasonably be specified by
the Board. Executive shall report directly to the Board and shall perform his
duties for Company principally at Company's office located in Malvern,
Pennsylvania, except for periodic travel that may be necessary or appropriate in
connection with the performance of Executive's duties hereunder.
(B) Executive shall devote his full working time, energy, skill and
best efforts to the performance of his duties hereunder, in a manner that will
faithfully and diligently further the business and interests of Company, and
shall not be employed by or participate or engage in or be a part of in any
manner the management or operation of any business enterprise other than Company
without
1
<PAGE>
the prior written consent of the Board, which consent may be granted or withheld
in its sole discretion.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The initial term of Executive's employment hereunder shall be
----
five years commencing on the date hereof, unless further extended or sooner
terminated in accordance with the other provisions hereof. Except as
hereinafter provided, on the fourth anniversary of the date hereof and on each
subsequent anniversary thereof (each such date an "Anniversary Date"), the term
shall be automatically extended for one year unless either party shall have
given to the other party written notice of termination of this Agreement prior
to such Anniversary Date. The last day of the term, as from time to time
extended, is hereinafter referred to as the "Expiration Date." In the event
written notice of termination is given as provided above, Executive's employment
under this Agreement shall terminate on the Expiration Date (as last extended).
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive's services during
------------------
the first year of his employment hereunder, Company shall pay to Executive a
salary of $210,000, payable in periodic installments in accordance with
Company's regular payroll practices in effect from time to time. Executive's
annual salary shall be increased to $225,000 as of January 1, 1997 and to
$240,000 as of January 1, 1998 provided that, in each case, Executive is then in
the employ of Company and provided that Company has attained in 1996 and 1997,
respectively, criteria of profitability to be established by Executive and
agreed to by Company's Compensation Committee. For years subsequent to 1998,
Executive's annual salary shall be in the amount of his salary for 1998 with
such increases, as determined in accordance with this Section 3.1, is
hereinafter referred to as his "Base Salary."
3.2 Performance Bonus. During the Term of this Agreement, in the sole
------------------
discretion of the Board, Executive shall be entitled to receive an annual
performance bonus in accordance with the policies and plans of Company in place
from time to time with respect to the payment of bonuses to executive officers;
provided that Executive's bonus for any year shall not exceed the higher of 70%
of his Base Salary or such percentage of Base Salary awarded as a bonus for such
year to any person other than Executive holding the position of Chief Executive
Officer of Company during such year.
3.3 Employee Benefits. In addition to the compensation provided for in
-----------------
Sections 3.1 and 3.2, Executive shall be entitled during the term of his
employment to participate in such of Company's employee benefit plans and
benefit programs, including medical benefit programs, as may from time to time
be provided for executive officers of Company.
3.4 Vacation. Executive shall be entitled to a paid vacation during the
--------
terms of his employment commensurate with vacations as may from time to time be
provided for executive officers of Company.
2
<PAGE>
3.5 Expense Reimbursement. During the term of his employment, Company
---------------------
shall reimburse Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in accordance with its
regular reimbursement policies as in effect from time to time and upon receipt
of itemized vouchers therefor and such other supporting information as Company
may reasonably require.
3.6 Stock Options. Promptly following execution of this Agreement,
-------------
Company shall grant Executive, pursuant to Company's 1994 Stock Incentive Plan,
as amended (the "Plan"), options to purchase 100,000 Common Shares of Company
(the "Common Shares") at a cash purchase price per share equal to the Fair
Market Value of a share on the date such grant is made, as that term is defined
in the Plan. The options shall not be immediately vested or exercisable. One
fifth of the options shall be vested and exercisable on the first anniversary of
the date of grant, and an additional one fifth shall become vested and
exercisable on each succeeding anniversary of the date of grant until all
options have become vested and exercisable, provided that options shall become
vested and exercisable on an anniversary of the date of grant only if Executive
is in the employ of Company on such date.
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. Executive's employment hereunder shall
------------------
immediately terminate upon his death, upon which Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued as of the date of
Executive's death in accordance with generally-accepted accounting principles.
4.2 Disability of Executive. If Executive, in the reasonable opinion of
-----------------------
the Board, is or has been materially unable for any reason to perform his duties
hereunder for a period of 180 consecutive days, then the Board shall have the
right to terminate Executive's employment upon 30 days' prior written notice to
Executive at any time during the continuation of such inability, in which event
Company shall not thereafter be obligated to make any further payments hereunder
other than amounts (including salary, bonuses, expense reimbursement, etc.)
Accrued under this Agreement as of the date of such termination in accordance
with generally-accepted accounting principles.
4.3 Termination for Cause. Executive's employment hereunder shall
---------------------
terminate immediately upon notice that the Board is terminating Executive for
"cause" (as defined herein), in which event Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursements, etc.) Accrued under this Agreement as
of the date of such termination in accordance with generally accepted accounting
principles. As used herein, "cause" shall included, without limitation, the
following, provided that, in each case of circumstances described in clauses
(iv) through (ix) below, Executive has failed to remedy the circumstances to
Company's satisfaction within 30 days following notice thereof to Executive:
3
<PAGE>
(i) fraud committed in connection with Executive's employment,
dishonesty, theft, misappropriation or embezzlement of Company's funds;
(ii) conviction of any felony, crime involving fraud or
misrepresentation, or of any other crime (whether or not connected with his
employment) the effect of which is likely to adversely affect the company or its
affiliates;
(iii) material breach of Executive's obligations under this
Agreement;
(iv) repeated and consistent failure of Executive to be present
at work during normal business hours unless the absence is because of a
disability as described in Section 4.2;
(v) insubordination, gross incompetence or misconduct in the
performance of, or gross neglect of, Executive's duties hereunder; or
(vi) use of alcohol or other drugs which interferes with the
performance by Executive of his duties.
4.4 Termination without Cause; Termination for Good Reason; Change in
-----------------------------------------------------------------
Control
- -------
(A) In the event:
(i) Executive's employment is terminated by Company for any
reason other than Cause or the death or disability of Executive; or
(ii) Executive's employment is terminated by Executive for
"Good Reason" (as defined herein); then (a) Company shall continue to pay
Executive all of the consideration provided for in Section 3.1 above (including
the increases provided therein) during the remainder of the then-current term of
Executive's employment (or in the case of a termination described in clause (i)
or (ii) above within three years following a Change in Control [as described
herein], until the third anniversary of the Change in Control, if later), and
(b) anything to the contrary contained in Section 3.6 above notwithstanding,
subject to the terms of the Plan, all options granted to Executive pursuant to
Section 3.6 shall become immediately vested and exercisable on the date of such
termination, as applicable, provided that such consideration shall be
proportionately reduced to the extent required so that each such payment or
other consideration shall not be a parachute payment within the meaning of
Section 280G(b) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, or successor provisions of similar import.
Such determinations shall be made by Company. Upon making the payments described
in this Section 4.4(A), Company shall have no further obligation to Executive
hereunder .
(B) As used in this section 4.4, a "Change of Control" of Company shall be
deemed to have occurred if:
4
<PAGE>
(i) at any time after the date hereof, directors of Company in office
on the date hereof plus any new director (excluding a director designated by a
person or group who has entered into an agreement with Company to effect a
transaction described in clause (ii) hereof) whose election by the board or
nomination for election by Company's shareholders was approved by a vote of at
least a majority of the directors then still in office who either were directors
on the date hereof or whose election or nomination for election was previously
so approved shall cease for any reason to constitute at least a majority of the
Board; or
(ii) at any time after the date hereof, there shall occur (a)
any consolidation or merger of the company in which Company is not the
continuing or surviving corporation or pursuant to which the Common Shares would
be converted into cash, securities or other property, other than a merger of
Company in which holders of Common Shares immediately prior to the merger have
the same proportionate ownership of Common Shares of the surviving corporation
immediately after the merger as their ownership of Common Shares immediately
before or (b) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of 50% or more of the assets of earning power
of Company, other than to a corporation, with respect to which immediately
following such sale or other disposition more than 60% of, respectively, the
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners of the common Shares immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Common Shares.
(c) As used herein, the term "Good Reason" shall mean the following:
(i) material breach of Company's material obligations under
this Agreement, provided that Company has not remedied such breach after notice
and a reasonable opportunity to cure;
(ii) any decrease in Executive's Base Salary as increased
during his term of employment pursuant to this Agreement (except for decreases
that are in conjunction with decreases in executive salaries generally), any
material reduction in Executive's duties or authority (except as described in
Section 1.2(A)), and any material reduction in Executive's employee benefits
below those required to be provided from time to time pursuant to Section 3.3;
or
(iii) Company requiring Executive to be based at a location
outside a 60-mile radius of Malvern, Pennsylvania, except for reasonably
required travel on Company's business.
4.5 Voluntary Termination. In the event Executive's employment is
---------------------
voluntarily terminated by Executive without Good Reason, Company shall not be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued as of the date of
Executive's termination in accordance with generally-accepted accounting
5
<PAGE>
principles. Upon making the payments described in this Section 4.5, Company
shall have not further obligation to Executive hereunder.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality. Executive acknowledges a duty of confidentiality
---------------
owed to Company and shall not, at any time during or after his employment by
Company, retain in writing, use, divulge, furnish, or make accessible to anyone,
without the express authorization of the Board, any trade secret, private or
confidential information or knowledge of company or any of its affiliates
obtained or acquired by him while so employed. All computer software, address
books, Rolodexes, business cards, telephone lists, customer lists, price lists,
contract forms, catalogs, books, records, files and know-how acquired while an
employee of Company, are acknowledged to be the property of Company and shall
not be duplicated, removed from Company's possession or made use of other than
in pursuit of Company's business, and upon termination of employment for any
reason, Executive shall deliver to Company, without further demand all copies
thereof which are then in his possession or under his control.
5.2 Inventions and Improvements. Executive shall promptly communicate to
---------------------------
Company all ideas, discoveries and inventions which are or may be useful to
Company or its business. Executive acknowledges that all ideas, discoveries,
inventions, and improvements which heretofore have been or are hereafter made,
conceived or reduced to practice by him at any time during this employment with
Company and every item of knowledge relating to Company's business interests
(including potential business interests) heretofore or hereafter gains by him at
any time during his employment with Company are the property of Company, and
Executive hereby irrevocably assigns all such ideas, discoveries, inventions,
improvements, and knowledge to Company for its sole use and benefit, without
additional compensation. The provisions of this Section 5.2 shall apply whether
such ideas, discoveries, inventions, improvements or knowledge were or are
conceived, made or gained by him alone or with others, whether during or after
usual working hours, whether on or off the job, whether applicable to matters
directly or indirectly related to Company's business interests (including
potential business interests), and whether or not within the specific realm of
his duties. Executive shall, upon request of Company, but at no expense to
Executive, at any time during or after his employment with Company, sign all
instruments and documents reasonably requested by Company and otherwise
cooperate with Company to protect its right to such ideas, discoveries,
inventions, improvements, and knowledge, including applying for, obtaining, and
enforcing patents and copyrights thereon in any and all countries.
5.3 Non-Competition. During the term of Executive's employment and for
---------------
two years after any termination of employment, or if longer, for so long as
Executive is entitled to the payment of amounts determined in accordance with
Section 3.1 hereof, Executive shall not directly or indirectly: (i) engage
anywhere in the world, in (a) the manufacture, assembly, design, development,
distribution or marketing of or research with respect to any product, equipment
or service substantially similar to or in competition with any product,
equipment or service which at any time during the term of such employment or the
immediately proceeding 12-month period has been
6
<PAGE>
manufactured, sold, distributed or provided by Company or any product, equipment
or service which Company was developing during such period for future
manufacture, sale or distribution or (b) the provision of any service
substantially similar to or in competition with any service offered by Company
at any time during such period; (ii) be or become a stockholder, partner, owner,
officer, director or employee or agent of, or a consultant to or give financial
or other assistance to, any person or entity considering engaging in any such
activities or so engaged; (iii) seek in competition with the business of
Company to procedure orders from or do business with any customer or Company;
(iv) solicit, or contact with a view to the engagement or employment by, any
person or entity of any person who is an employee of Company; (v) seek to
contract with or engage (in such a way as to adversely affect or interfere with
the business of Company) any person or entity who has been contracted with or
engaged to manufacture, assemble, supply or deliver products, goods, materials
or services to Company; or (vi) engage in or participate in any effort to act to
induce any of the customers, associates, consultants, and employees of Company
or any of its affiliates to take any action which might be disadvantageous to
Company or any of its affiliates; provided, however, that nothing herein shall
prohibit the Executive and his affiliates from owning, as passive investors, in
the aggregate not more than 5% of the outstanding publicly-traded stock of any
corporation so engaged. The duration of the Executive's covenants set forth in
this Section shall be extended by a period of time equal to the number of days,
if any, during which the Executive is in violation of the provisions hereof.
5.4 Injunction and Other Relief.
---------------------------
(A) Executive acknowledges and agrees that the covenants contained
herein are fair and reasonable in light of the consideration paid hereunder, and
that damages alone shall not be an adequate remedy for any breach by Executive
of his covenants contained herein and accordingly expressly agrees that: in
addition to any other remedies which Company may have, Company shall be entitled
to injunctive relief in any court of competent jurisdiction for any breach or
threatened breach of any such covenants by Executive. Nothing contained herein
shall prevent or delay Company from seeking, in any court of competent
jurisdiction, specific performance or other equitable remedies in the event of
any breach or intended breach by Executive of any of its obligations hereunder.
(B) Notwithstanding the equitable relief available to Company, the
Executive, in the event of a breach of his covenants contained in Section 5
hereof, understands and agrees that the uncertainties and delay inherent in the
legal process would result in the continuing breach for some period of time, and
therefore, continuing injury to Company until and unless Company can obtain such
equitable relief. Therefore, in addition to such equitable relief, Company
shall be entitled to monetary damages for any such period of breach until the
termination of such breach, in an amount deemed reasonable to cover all actual
and consequential losses, plus all monies received by Executive as a result of
said breach and all costs and attorneys' fees incurred by Company in enforcing
person or entity any confidential information, this will be considered a
continuing violation on a daily basis for so long a period of time as such
confidential information is made use of by Executive or any such other person or
entity.
7
<PAGE>
SECTION 6. MISCELLANEOUS
6.1 Invalidity. If any provision hereof is determined to be invalid or
----------
unenforceable by a court of competent jurisdiction, Executive shall negotiate in
good faith to provide Company with protection as nearly equivalent to that found
to be invalid or unenforceable and if any such provision shall be so determined
to be invalid or unenforceable by reason of the duration or geographical scope
of the covenants contained therein, such duration or geographical scope, or
both, shall be considered to be reduced to a duration or geographical scope to
the extent necessary to cure such invalidity.
6.2 Assignment; Benefit. This Agreement shall not be assignable by
-------------------
Executive, and shall be assignable to the Company only to any affiliate or to
any person or entity which may become a successor in interest (by purchase of
assets or stock. Or by merger or otherwise) to Company in the business or a
portion of the business presently operated by it. Subject to the foregoing,
this Agreement and the rights and obligations set forth herein shall insure to
the benefit of, and be binding upon, the parties hereto and each of their
respective permitted successors, assigns, heirs, executors and administrators.
6.3 Notices. All notices hereunder shall be in writing and shall be
-------
sufficiently given if hand-delivered, sent by documented overnight delivery
service or registered or certified mail, postage prepaid, return receipt
requested or be telegraph, fax or telecopy (confirmed by U.S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process
and any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right or any party to serve process in any
other manner permitted by law.
(A) If to Company:
NUMAR Corporation
508 Lapp Road
Malvern, PA 19355
Attn: Edward P. Delson, Senior Vice President & CFO
(B) If to Executive:
Dr. Melvin N. Miller
475 Warick Road
Wynnewood, PA 19096
8
<PAGE>
6.4 Entire Agreement and Modification. This Agreement constitutes the
---------------------------------
entire agreement between the parties hereto with respect to the matters
contemplated herein and supersedes all prior agreements and understandings with
respect thereto. Any amendment, modification, or waiver of this Agreement shall
not be effective unless in writing. Neither the failure nor any delay on the
part of any party to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power, or privilege with respect to any
occurrence be construed as a waiver of any right, remedy, power, or privilege
with respect to any other occurrence.
6.5 Governing Law. This Agreement is made pursuant to, and shall be
-------------
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania (and United States federal law, to the extent applicable), without
giving effect to otherwise applicable principles of conflicts of law.
6.6 Headings; Counterparts. The headings of paragraphs in this Agreement
----------------------
are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.7 Further Assurances. Each of the parties hereto shall execute such
------------------
further instruments and take such other actions as any other party shall
reasonably request in order to effectuate the purposes of the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
NUMAR Corporation
By: _____________________________
Edward P. Delson
Senior Vice President and
Chief Financial Officer
By:_____________________________
Melvin N. Miller
9
<PAGE>
Exhibit 10.15
March 10, 1997
Mr. Edward P. Delson
NUMAR Corporation
508 Lapp Road
Malvern, PA 19355
Dear Ed:
The purpose of this letter is to set forth the undertaking of NUMAR Corporation
("NUMAR") to provide you certain severance benefits in the event that, following
a change in control of the Company (as herein defined), your employment is
terminated by NUMAR or you. This undertaking implements the resolution approved
by the Compensation Committee of NUMAR with respect to such severance benefits
for you at a meeting held on January 16, 1997.
NUMAR undertakes as follows:
(A) In the event that within one year following a change in control your
employment is terminated by NUMAR or by you, NUMAR shall, as a severance benefit
(1) pay you within ten (10) days following your termination of employment a sum
equal to the greater of twice your annual base salary on the date on which the
change in control occurs or twice your annual base salary as in effect on the
date of termination, and (2) maintain on your behalf for a period of 24 months
following the change in control all benefits provided in your capacity as an
employee of the Company including, but not limited to, medical coverage, life
insurance, and disability insurance, with benefits being no less than what is in
effect as of the date on which the change in control occurs or on the date of
termination, whichever is greater. This undertaking supersedes, and the
consideration to be paid to you pursuant to this undertaking shall be in lieu
of, all other benefits to which you might otherwise be entitled in connection
with severance following a change in control of NUMAR (1) under any employment
agreement or other commitment of NUMAR, (2) pursuant to any resolution of the
Board of Directors of NUMAR or any committee thereof including the resolution of
the Board of October 28, 1993, or (3) otherwise. Upon making the payments
described in this paragraph (A), NUMAR shall have no further obligation to you
hereunder.
(B) As used herein, a "change in control" shall be deemed to have occurred
if:
(1) at any time after the date hereof, directors of NUMAR in office on
the date hereof plus any new director (excluding a director designated by a
person or group who has entered into an agreement with NUMAR to effect a
transaction described in clause (2) hereof) whose election by the Board or
<PAGE>
March 10, 1997
Page 2
nomination for election by NUMAR's shareholders was approved by a vote of at
least a majority of the directors then still in office who either were directors
on the date hereof or whose election or nomination for election was previously
so approved, shall cease for any reason to constitute at least a majority of the
Board; or
(2) at any time after the date hereof, there shall occur (a) any
consolidation or merger of NUMAR in which NUMAR is not the continuing or
surviving corporation or pursuant to which the common shares of NUMAR would be
converted into cash, securities or other property, other than a merger of NUMAR
in which holders of common shares of NUMAR immediately prior to the merger have
the same proportionate ownership of common shares of the surviving corporate
immediately after the merger as their ownership of common shares of NUMAR
immediately before or (b) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of 60% or more of the assets or
earning power of NUMAR, other than to a corporation, with respect to which
immediately following such sale or other disposition more than 60% of,
respectively, the outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the common shares of
NUMAR immediately prior to such sale or other disposition in substantially the
same proportion as their ownership, immediately prior to such sale or other
disposition, of the common shares of NUMAR.
As used herein, the terms "person" and "beneficial owner" have the same meanings
as such terms under Section 12(d) of the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
Please indicate your acknowledgment of and agreement with the foregoing by
signing the enclosed copy of this letter and returning same to me for NUMAR's
files.
Very truly yours,
Melvin N. Miller
President & CEO
Acknowledged and Agreed To:
- ---------------------------
Edward P. Delson
Date:
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
NUMAR Corporation on Form S-8 (File No. 333-4046) of our report dated March 4,
1997, on our audits of consolidated financial statements of NUMAR Corporation as
of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995,
and 1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Wayne, Pennsylvania
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,626,195
<SECURITIES> 0
<RECEIVABLES> 4,575,964
<ALLOWANCES> 90,000
<INVENTORY> 219,246
<CURRENT-ASSETS> 10,727,682
<PP&E> 29,147,835
<DEPRECIATION> 12,403,796
<TOTAL-ASSETS> 31,829,333
<CURRENT-LIABILITIES> 6,592,403
<BONDS> 0
0
0
<COMMON> 83,900
<OTHER-SE> 19,046,521
<TOTAL-LIABILITY-AND-EQUITY> 31,829,333
<SALES> 18,795,454
<TOTAL-REVENUES> 18,795,454
<CGS> 16,272,827
<TOTAL-COSTS> 16,272,827
<OTHER-EXPENSES> 3,665,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,156
<INCOME-PRETAX> (886,794)
<INCOME-TAX> 223,141
<INCOME-CONTINUING> (1,109,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,109,935)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
