<PAGE>
Conformed copy
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-QSB
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 0-20843
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2908692
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5151 SAN FELIPE, SUITE 450
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, (713) 621-7911
INCLUDING AREA CODE:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
The number of shares of the Registrant's Common Stock, par value .00001 per
share, outstanding at May 12, 1998, was 30,728,298.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I. Financial Information........................................... 3
Consolidated Balance Sheets..................................... 3
Consolidated Statements of Operations........................... 4
Consolidated Statements of Cash Flows........................... 6
Notes to Consolidated Financial Statements...................... 7
Management's Discussion and Analysis or Plan of Operations...... 9
PART II. Other Information............................................... 10
</TABLE>
2
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1997 1998
------ ------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENTS ASSETS:
Cash............................................... $ 1,718,000 $ 466,000
Receivables........................................ 2,766,000 13,292,000
Inventories........................................ 1,131,000 5,389,000
Prepaid expenses and other current assets.......... 427,000 537,000
----------- -----------
Total current assets............................. 6,042,000 19,684,000
PROPERTY, PLANT AND EQUIPMENT, net................... 6,948,000 8,174,000
OTHER ASSETS:
Deferred financing costs and other assets--net..... 87,000 891,000
Goodwill--net...................................... 984,000 7,828,000
----------- -----------
Total assets................................... $14,061,000 $36,577,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................................... $ 1,679,000 $10,496,000
Accrued liabilities and customer advances.......... 486,000 3,356,000
Notes payable--current portion..................... 1,565,000 9,410,000
----------- -----------
Total current liabilities........................ 3,730,000 23,262,000
----------- -----------
NOTES PAYABLE--net of current portion................ 9,000 --
12% SENIOR SUBORDINATED NOTES........................ 90,000 90,000
COMMITMENTS AND CONTINGENCIES........................ -- --
SHAREHOLDERS' EQUITY:
Preferred stock ($.00001 par, 5,000,000 shares
authorized, no shares issued or outstanding)...... -- --
Common stock ($.00001 par, 50,000,000 shares
authorized, 29,998,662 and 30,578,798 shares
issued and outstanding at December 31, 1997 and
March 31, 1998, respectively)..................... -- --
Additional paid-in capital......................... 11,213,000 14,050,000
Accumulated deficit................................ (981,000) (825,000)
----------- -----------
Total shareholders' equity....................... 10,232,000 13,225,000
----------- -----------
Total liabilities and shareholders' equity....... $14,061,000 $36,577,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
REVENUES:........................................ $ 240,000 $ 11,959,000
COSTS AND EXPENSES:
Operating expenses............................. 214,000 8,095,000
General and administrative..................... 343,000 2,572,000
Depreciation and amortization.................. 33,000 311,000
------------- --------------
590,000 10,978,000
------------- --------------
Operating Income (Loss).......................... (350,000) 981,000
Other Expenses, primarily interest............... 9,000 567,000
------------- --------------
Income (Loss) Before Income Taxes................ (359,000) 414,000
Income Tax Expense............................... 1,000 258,000
------------- --------------
Net Income (Loss)................................ $ (360,000) $ 156,000
============= ==============
Basic Earnings (Loss) Per Common Share........... $ (.03) $ .01
============= ==============
Diluted Earnings (Loss) Per Common Share......... $ (.03) $ .01
============= ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING..................................... 12,136,000 30,228,000
============= ==============
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING..................................... 12,136,000 30,638,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31,
1997................... 29,998,662 $-- $11,213,000 $(981,000) $10,232,000
Common stock issued to
purchase Code 3,
Inc.................. 488,136 -- 2,282,000 2,282,000
Common stock issued
upon exercise of
options.............. 92,000 -- 39,000 39,000
Warrants issued with
bridge financing..... 516,000 516,000
Net Income............ 156,000 156,000
---------- --- ----------- --------- -----------
BALANCES, March 31,
1998................... 30,578,798 $-- $14,050,000 $(825,000) $13,225,000
========== === =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $(360,000) $ 156,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization....................... 33,000 311,000
Warrants issued with bridge financing............... -- 332,000
Allowance for doubtful accounts..................... -- 9,000
Changes in operating assets and liabilities, net of
assets acquired:
Receivables....................................... (234,000) (6,830,000)
Inventories....................................... (59,000) (2,486,000)
Prepaid expenses and other current assets......... 7,000 (77,000)
Deferred costs and other assets (not current)..... (6,000) (80,000)
Accounts payable.................................. (109,000) 5,419,000
Accrued liabilities and customer advances......... 219,000 2,330,000
--------- -----------
Net cash used in operating activities............. (509,000) (916,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ITS Supply Corporation............... -- (6,000,000)
Acquisition of Code 3, Inc.......................... -- (570,000)
Property and equipment additions.................... (4,000) (353,000)
--------- -----------
Net cash used in investing activities............. (4,000) (6,923,000)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised...................... -- 39,000
Proceeds from issuance of debt...................... 705,000 8,250,000
Debt repayments..................................... (49,000) (1,702,000)
--------- -----------
Net cash provided by financing activities......... 656,000 6,587,000
--------- -----------
NET INCREASE (DECREASE) IN CASH....................... 143,000 (1,252,000)
CASH, beginning of period............................. 0 1,718,000
--------- -----------
CASH, end of period................................... $ 143,000 $ 466,000
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.............................. $ 1,000 $ 220,000
Cash paid for income taxes.......................... $ -- $ --
========= ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisition of Code 3, Inc.. $ -- $ 2,282,000
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. They do not include all information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. The accompanying financial statements include all adjustments,
including normal recurring accruals, which in the opinion of management are
necessary in order to make the financial statements not be misleading.
The accompanying consolidated financial statements should be read in
conjunction with the Audited Financial Statements for the Six Months Ended
December 31, 1997 and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the transition period from July 1, 1997 to December
31, 1997.
The results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full
year.
NOTE B--BUSINESS ACQUISITIONS
On July 31, 1997, Boots & Coots International Well Control, Inc. (the
"Company") acquired all of the operating assets, including stock of the
foreign services subsidiaries, of Boots & Coots, L.P. ("Boots & Coots"), an
oil and gas well control firefighting, snubbing and industrial and marine
firefighting company. The consideration paid consisted of (i) $369,643 cash
payable to Boots & Coots, (ii) $680,568 placed in escrow to pay certain debts
of Boots & Coots, (iii) the issuance of secured promissory notes of the
Company in the aggregate principal amount of $4,760,977 and (iv) 259,901
shares of Common Stock of the Company. The promissory notes are secured by the
acquired assets of Boots & Coots, and have been paid, with the exception of
approximately $1,044,000 outstanding at March 31, 1998 pending final
determination of foreign tax obligations which is anticipated to be resolved
during the quarter ended June 30, 1998. This transaction was accounted for as
a purchase and the acquired assets of Boots & Coots were revalued at fair
market value as of July 31, 1997 resulting in goodwill of $50,000 which will
be amortized over 15 years.
On September 25, 1997, the Company formed a wholly-owned subsidiary company,
ABASCO, Inc. ("ABASCO") to purchase the assets of ITS Environmental, a
manufacturer and distributor since 1975 of rapid response oil and chemical
spill containment and reclamation equipment and products. The Company paid
$1,590,000 cash and issued 300,000 shares of common stock to acquire the
manufacturing equipment, inventory and customer lists. This transaction was
accounted for as a purchase and the acquired assets of ABASCO were revalued at
fair market value effective as of September 12, 1997 resulting in goodwill of
approximately $749,000 which will be amortized over 25 years.
On January 2, 1998, the Company completed the funding of the acquisition,
effective as of December 31, 1997, of all of the capital stock of ITS Supply
Corporation ("ITS") for aggregate consideration of $6,000,000. Financing for
the acquisition of ITS was provided from working capital ($500,000); proceeds
from the issuance of 10% Senior Secured Notes due May 2, 1998 ($4,500,000);
and short-term bridge financing from the seller ($1,000,000). In connection
with the sale through private placement of the 10% Senior Secured Notes on
January 2, 1998, the Company entered into a financial advisory arrangement
pursuant to which the note holders are to provide a certain level of
financial, merger and acquisition advisory services over a three-year period
in consideration of an advance cash consulting fee of $500,000, all of which
was added to the principal balance of the Senior Secured Notes. The commitment
for the Senior Secured Notes by the note holders also required the
7
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payment by the Company of a $50,000 commitment fee. The note holders of the
10% Senior Secured Notes were also issued warrants exercisable over a six year
term to purchase an aggregate of 2,000,000 shares of the Company's Common
Stock at a price of $2.62 per share. The ITS seller obligation of $1,000,000,
which bears interest at the rate of 10% per annum, was payable on March 31,
1998. This note has been extended on a month to month basis. This transaction
was accounted for as a purchase and the acquired net assets of ITS have been
revalued on a preliminary basis resulting in goodwill of $4,115,000 which will
be amortized over 25 years.
On February 20, 1998, the Company completed the acquisition of all of the
stock of Code 3, Inc. ("Code 3"). Consideration for the acquisition of Code 3,
with an effective date for audited purchase price adjustments as of December
31, 1997, was $570,568 cash; the repayment of Code 3 corporate secured debt
and interest thereon of approximately $1,250,000; and the issuance of 488,136
shares of the Company's Common Stock, of which 158,646 shares were delivered
into escrow to secure the indemnification obligations of the stockholders of
Code 3. On March 5, 1998, the Company sold through private placement to the
note holders providing financing for the ITS acquisition an additional
$2,250,000 of 10% Senior Secured Notes due June 15, 1998. In addition, these
note holders were issued warrants, exercisable over a six year term, to
purchase an additional 500,000 shares of the Company's common stock at a price
of $4.50 per share. This transaction was accounted for as a purchase and the
acquired underlying net assets of Code 3 have been revalued on a preliminary
basis resulting in goodwill of $2,806,000 which will be amortized over 25
years.
An estimated fair value of $516,000 has been attributed to the warrants
issued in connection with the 10% Senior Secured Notes. $332,000 has been
charged to operations as interest expense for the three months ended March 31,
1998, with $184,000 included in deferred financing costs to be expensed during
the quarter ended June 30, 1998.
The Company's Chairman and Chief Executive Officer, Larry H. Ramming, was
granted a waiver of the lock-up restrictions on his shares of Common Stock
with respect to a pledge of such shares to secure a loan, the proceeds of
which were used by Mr. Ramming on April 30, 1998 to purchase the 10% Senior
Secured Notes issued by the Company, in the aggregate principal amount of
$7,250,000, of which $5,000,000 was due May 2, 1998 and $2,250,000 was due
June 15, 1998. Mr. Ramming has agreed to extend the maturity dates of such
notes to October 1, 1998, in exchange for a fee of up to 1% of the principal
balances of such notes.
The operations of the four acquired businesses (Boots & Coots, ABASCO, ITS
and Code 3) are included in the Company's consolidated operations from the
respective acquisition dates. The Company's revenues, net income (loss)
applicable to common shareholders, and net income (loss) per share on an
unaudited pro forma basis, assuming that the Boots & Coots ABASCO, ITS Supply,
and Code 3 acquisitions occurred on January 1, 1997, would be as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1997
------------
(UNAUDITED)
<S> <C>
Revenues..................................................... $19,465,000
Net Income (Loss)............................................ $ 82,000
Net Earnings (Loss) per Share................................ $ --
</TABLE>
Through December 31, 1997 the Company's primary business unit was in the oil
and natural gas well control segment of the oil and gas services industry,
providing services on a global basis in oil and gas well blowout control
and/or firefighting, specialized industrial firefighting and well control
equipment rental and sales, consulting engineering services, drilling rig and
production facilities inspection, safety training courses and blowout
contingency planning.
8
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ITEM 2. Management's Discussion and Analysis or Plan of Operations
The following discussion is intended to assist in an understanding of the
unaudited consolidated financial position and results of operations of Boots &
Coots International Well Control, Inc. (the "Company") for the three months
ended March 31, 1997 and 1998. The following discussion should be read in
conjunction with the unaudited Consolidated Financial Statements and the notes
thereto included elsewhere herein. Certain forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve risks and uncertainties which may cause actual results to
differ from anticipated results, including risks associated with the timing
and development of, and market acceptance of, the Company's services and
products as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including its latest Form 10-KSB at December 31, 1997.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
As discussed in Note B--Business Acquisitions, between July 31, 1997 and
March 31, 1998 the Company has completed four business acquisitions and at the
same time substantially expanded its well control and firefighting business
unit. Thus, the results of operations for the three months ended March 31,
1997 and 1998 are not comparative in nature or scope and a traditional
numerical comparison would not be meaningful.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash expenditures in connection with the acquisitions of
ABASCO, ITS and Code 3 required a substantial portion of the Company's cash
reserves. Further, the terms upon which ABASCO, ITS and Code 3 were acquired
allowed the sellers to retain most or all of the working capital of such
companies. To date, the Company has funded its operations and acquisitions
from: equity capital contributed by its officers, directors and principal
stockholders; proceeds from completion in July 1997 of the sale of $3,000,000
of the Company's 12% Senior Subordinated Notes due December 31, 2000 (the
"Subordinated Notes") (of which $2,900,000 has been converted into 3,866,653
shares of Common Stock); $6,481,000 in net proceeds from the private
placement, in September 1997, of 7,475,000 shares of Common stock (the
"September Private Placement"); $4,500,000 in net proceeds from the private
placement, in January 1998, of the Company's 10% Senior Secured Notes due May
2, 1998 (the "Senior Notes"); $2,250,000 in net proceeds from the private
placement, in March 1998, of additional Senior Notes due June 15, 1998
("Additional Senior Notes"); and seller financing in the aggregate principal
amount of $5,760,977, of which approximately $1,500,000 remains outstanding as
of the date hereof.
Accordingly, the Company currently needs additional working capital to fund
its existing operations and to repay indebtedness in the aggregate principal
amount of $8,750,000 which comes due on or before October 1, 1998. The Company
is exploring various financing alternatives to enable it to retire all of this
outstanding debt and to finance future acquisitions by the Company. Such
financing alternatives include: (1) the sale, currently underway through
private placement on a best-effort basis, of up to $10,000,000 of 10% Junior
Redeemable Convertible Preferred Stock; (2) consideration for the offering
through private placement on a best-efforts basis of a Convertible Preferred
Stock Offering; (3) discussions with certain commercial banks for a secured
debt facility; and, (4) discussions regarding the possible private placement
of Subordinated Notes. Although these financing efforts are in process and not
yet completed, Management believes these actions, together with cash flows
from operations, will provide adequate funding to the Company. In the event
that one or more of these financing alternatives under consideration are not
accomplished, the Company could be required to restructure current
indebtedness, sell assets to repay indebtedness, curtail expansion plans and
fund business activities from only internally generated funds. There can be no
assurance, however, that the Company will be successful in obtaining financing
through alternative means on acceptable terms.
9
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
3.01 --Amended and Restated Certificate of Incorporation (1)
3.02 --Amendment to Certificate of Incorporation (1)
3.03 --Amended Bylaws (1)
4.01 --Specimen Certificate for the Registrant's Common Stock (1)
4.02 --Form of 12% Senior Subordinated Notes due December 31, 2000
(1)
4.03 --Form of Noteholders' Warrants to Purchase $3,000,000 of
Common Stock (1)
4.04 --Form of Employees Option to Purchase 690,000 Shares of
Common Stock (1)
4.05 --Form of Contractual Options to Purchase 1,265,000 Shares of
Common Stock (1)
4.06 --Note Purchase Agreement with Main Street/Geneva (2)
4.07 --First Amendment to Note Purchase Agreement with Main
Street/Geneva (2)
*4.08 --Certificate of Designation of 10% Junior Redeemable
Convertible Preferred Stock
9.01 --Voting Trust Agreement between Larry H. Ramming, Raymond
Henry, Richard Hatteberg, Danny Clayton and Brian Krause (as
amended) (2)
10.01 --Alliance Agreement between IWC Services, Inc. and
Halliburton Energy Services, a division of Halliburton
Company (1)
10.02 --Executive Employment Agreement of Larry H. Ramming (1)
10.03 --Executive Employment Agreement of Raymond Henry (1)
10.04 --Executive Employment Agreement of Brian Krause (1)
10.05 --Executive Employment Agreement of Richard Hatteberg (1)
10.06 --Executive Employment Agreement of Danny Clayton (1)
10.07 --Security Agreement and Financing Statement with Main
Street/Geneva (2)
10.08 --First Amendment to Security Agreement (2)
10.09 --Stock Pledge Agreement with Main Street/Geneva (2)
10.10 --First Amendment to Stock Pledge Agreement (2)
10.11 --Form of Warrant issued to Main Street/Geneva (2)
10.12 --Form of Registration Rights Agreement with Main
Street/Geneva (2)
10.13 --Form of First Amendment to Registration Rights Agreement (2)
10.14 --1997 Incentive Stock Plan (2)
10.15 --Outside Directors' Option Plan (2)
10.16 --Executive Compensation Plan (2)
10.17 --Halliburton Center Sublease (2)
10.18 --Camac Plaza Sublease (2)
11.01 --Computation of Per Share Earnings (2)
21.01 --List of subsidiaries (3)
*27.01 --Financial Data Schedule
</TABLE>
10
<PAGE>
- --------
* Filed herewith.
(1) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 13, 1997.
(2) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-KSB filed with the Commission on March 31,
1998.
(3) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-KSB/A filed with the Commission on December
5, 1997.
(b) Reports on Form 8-K.
On January 15, 1998, the Company reported the acquisition, under Item 2 of
Form 8-K, of ITS Supply Corporation, effective as of December 31, 1997. The
financial statements and pro forma financial statements relating to such
acquisition were filed by amendment on March 16, 1998.
On March 9, 1998, the Company reported the acquisition, under Item 2 of Form
8-K, of Code 3, Inc., on February 20, 1998. The financial statements and pro
forma financial statements relating to such acquisition were filed by
amendment on May 6, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Boots & Coots International Well
Control, Inc.
Date: May 18, 1998 By: /s/ Thomas L. Easley
----------------------------------
THOMAS L. EASLEY
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
12
<PAGE>
EXHIBIT 4.08
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
RELATING TO
10% JUNIOR REDEEMABLE CONVERTIBLE PREFERRED STOCK
Boots & Coots International Well Control, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation effective the 16th
day of March 1998, adopted the following resolution:
RESOLVED, that out of the Corporation's 5,000,000 authorized shares of
preferred stock, par value $0.00001 per share ("Preferred Stock"), there shall
be a series of Preferred Stock designated and known as "10% Junior Redeemable
Convertible Preferred Stock" consisting of 450,000 shares ("Redeemable
Preferred Stock") with an aggregate face value of $11,250,000 ($25.00 per
share); which shall have the following relative rights, preferences, voting
powers, qualifications and privileges:
1. Voting.
1A. General Voting Rights. Except as may be otherwise provided in
subparagraph 1B, the terms of the Redeemable Preferred Stock or by law, the
Redeemable Preferred Stock shall be entitled to notice of all stockholders'
meetings in accordance with the Corporation's Bylaws, and the holders of the
Redeemable Preferred Stock shall be entitled to vote on all matters submitted
to the stockholders for a vote together with the holders of the common stock,
$0.00001 par value per share, of the Company ("Common Stock"), voting together
as a single class with each share of Common Stock. Each share of Redeemable
Preferred Stock shall be entitled to one vote for each share of Common Stock
into which the Redeemable Preferred Stock is convertible as of the record date
for such vote or, if no record date is specified, as of the date of such vote.
The record date or, if no record date is specified, the date of such vote,
shall be the date used for the determination of the number of shares of Common
Stock into which the Redeemable Preferred Stock is convertible for the
purposes of such vote, such determination to be otherwise made in accordance
with subparagraph 4A hereof.
1B. Separate Voting Rights. In addition to the general voting rights set
forth in subparagraph 1A, but subject to the qualifications hereinafter set
forth, the holders of the Redeemable Preferred Stock shall have the right to
vote, separately as a single class, at a meeting of the holders of the
Redeemable Preferred Stock or by such holders' written consent or at any
annual or special meeting of the stockholders of the Corporation on any
resolution or proposal regarding any amendment, alteration, waiver of the
application of, or repeal (whether by merger, consolidation or otherwise) of
any provision of the Restated and Amended Certificate of Incorporation of the
Corporation or this Certificate of Designation of Rights and Preferences which
would adversely effect the powers, rights or preferences of the holders of
Redeemable Preferred Stock. Notwithstanding the foregoing, nothing herein
shall prohibit, and the Corporation shall be and is expressly permitted to
authorize, designate, issue and sell shares of Preferred Stock with powers,
rights and preferences prior or senior to any and all powers, rights and
preferences of the Redeemable Preferred Stock. A majority of the shares of
Redeemable Preferred Stock, represented in person or by proxy, shall
constitute a quorum at any meeting of the holders of the Redeemable Preferred
Stock. Action may be taken at any meeting of the Redeemable Preferred Stock
holders at which a quorum is present by the holders of a majority of the
shares of Redeemable Preferred Stock represented at such meeting in person or
by proxy. The holders of Redeemable Preferred Stock may take action, in lieu
of a meeting, by a written consent signed by the holders of such number of
shares of Redeemable Preferred Stock as is required to approve such action at
any meeting of the holders of Redeemable Preferred Stock.
2. Dividends.
2A. Cumulative Dividends. The holders of record of the Redeemable Preferred
Stock shall be entitled to receive cumulative cash or stock dividends, when
and as declared by the Board of Directors of the Corporation out of funds
legally available therefor, at a rate of ten percent (10%) per annum on the
face value denominated
<PAGE>
thereon. Dividends on the Redeemable Preferred Stock may be paid in cash or,
at the option of the Company, in shares of Redeemable Preferred Stock, each
share of Redeemable Preferred Stock being valued for such purposes at $25.00
per share.
2B. Payment. The initial payment of dividends on the Redeemable Preferred
Stock shall be made upon redemption or on the six month anniversary date after
issuance, whichever occurs first (the "Initial Dividend Payment Date"). After
such six month anniversary date, dividends on shares of Redeemable Preferred
Stock that have not been redeemed or converted on or before such date shall be
payable quarterly in arrears, when and as declared by the Board, on each
Dividend Payment Date (as defined below) to holders of record as they appear
on the records of the Corporation on any record date, not exceeding sixty (60)
days preceding such Dividend Payment Date, as may be determined by the Board
in advance of the payment of each particular dividend. Dividends in arrears
may be declared by the Board and paid at any time out of funds legally
available therefor, without reference to any regular Dividend Payment Date, to
holders of record on any record date, not exceeding sixty (60) days preceding
the payment date thereof, as may be fixed by the Board. Dividends payable on
the Redeemable Preferred Stock for each quarterly period shall be computed on
the basis of a 360-day year of twelve 30-day months.
2C. Default in Payment. Dividends on the Redeemable Preferred Stock shall
commence to accrue and shall be cumulative from and after the date of initial
issuance thereof, whether or not declared by the Board. To the extent that
dividends remain unpaid after the applicable Dividend Payment Date, they shall
accrue interest at a rate per annum equal to 10%, computed on the basis of a
360-day year of twelve 30-day months, until paid and shall be a continuing
obligation of the Corporation. Cash dividends paid on the shares of Redeemable
Preferred Stock in an amount less than the total amount of dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.
2D. Dividends on Parity Stock. No dividends or any other distributions shall
be declared, made or paid or set apart for payment on any Parity Stock (as
defined below) for any period unless full cumulative dividends (plus accrued
interest thereon, if any) on all outstanding shares of Redeemable Preferred
Stock shall have been or contemporaneously are declared and paid through and
including the most recent Dividend Payment Date. In the event that dividends
have not been or will not be paid in full as aforesaid on the shares of
Redeemable Preferred Stock and on any Parity Stock, all dividends declared on
shares of Redeemable Preferred Stock and such Parity Stock shall be declared
pro rata so that the amount of dividends per share declared on the shares of
Redeemable Preferred Stock and on such Parity Stock shall bear to each other
the same ratio that accrued dividends per share of Redeemable Preferred Stock
and of such Parity Stock bear to each other.
2E. Dividends on Common or Junior Stock. No dividend or distribution (other
than a dividend or distribution paid in Common Stock or in any other Junior
Stock (as defined below)) shall be declared or paid or set aside for payment
on the Common Stock or on any other Junior Stock, nor shall any Common Stock
or any other Junior Stock be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for shares of Common Stock or other Junior
Stock) unless, in each case, full cumulative dividends on all outstanding
shares of the Redeemable Preferred Stock shall have been declared and paid
through and including the most recent Dividend Payment Date.
2F. Dividends on Senior Stock. The Corporation shall be entitled to declare
and distribute, at any time, a dividend (including, but not limited to, a
dividend or distribution paid in Common Stock or in any other Junior Stock,
Parity Stock, or Senior Stock, as the terms are defined below) on any Senior
Stock of the Corporation, and the Corporation shall be entitled to redeem,
acquire, or purchase, at any time, the Corporation's Senior Stock.
"Dividend Payment Date" shall mean the last day of the months of March,
June, September and December of each year, commencing after the Initial
Dividend Payment Date, except that if any such date is not a Business Day,
then such dividend shall be payable on the next succeeding Business Day.
2
<PAGE>
"Junior Stock" shall mean the Common Stock and all other equity securities
of the Corporation over which the Redeemable Preferred Stock has preference or
priority in the payment of dividends, in the distribution of assets, upon
redemption and upon dissolution, liquidation or winding up, voluntary or
involuntary, of the Corporation.
"Parity Stock" shall mean any stock or class of stock, the holders of which
shall be entitled to the receipt of dividends or of amounts distributable upon
redemption or upon dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, in proportion to their respective dividend
rates or liquidation prices or values, without preference or priority, one
over the other, as between the holders of such stock or class of stock and the
holders of shares of the Redeemable Preferred Stock.
"Senior Stock" shall mean any stock or class of stock the holders of which
shall be entitled to the receipt of dividends or of amounts distributable upon
redemption or upon dissolution, liquidation or winding up of the Corporation,
voluntary or involuntary, as the case may be, in preference or priority to the
holders of shares of the Redeemable Preferred Stock.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment is made with respect to the Common Stock or any Junior Stock, holders
of each share of Redeemable Preferred Stock shall be entitled to be paid an
amount equal to the greater of (i) the face value denominated thereon (subject
to adjustment for stock splits, stock dividends, reorganizations,
reclassification or other similar events) plus, in the case of each share, an
amount equal to all dividends accrued or declared but unpaid thereon, computed
to the date payment thereof is made available, or (ii) such amount per share
as would have been payable had each such share been converted to Common Stock
pursuant to paragraph 4 hereof immediately prior to such liquidation,
dissolution or winding up, and the holders of Redeemable Preferred Stock shall
not be entitled to any further payment, such amounts payable with respect to
Redeemable Preferred Stock being sometimes referred to as the "Liquidation
Payments". With respect to each share of Redeemable Preferred Stock, the
amount in (i) above shall hereinafter be referred to as the "Liquidation
Preference." If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Redeemable Preferred Stock and any and all Parity Stock,
after distribution on any Senior Stock, shall be insufficient to permit
payment to the holders of Redeemable Preferred Stock and any and all Parity
Stock of the amount distributable to such parties, then the entire assets of
the Corporation available to be so distributed, if any, shall be distributed
among the holders of the Redeemable Preferred Stock and the holders of any and
all Parity Stock pro rata so that the amount of assets distributed with
respect to the Redeemable Preferred Stock and the Parity Stock shall bear to
each other the same ratio that liquidation payments due per share of
Redeemable Preferred Stock and Parity Stock bear to each other. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders
of Redeemable Preferred Stock and Parity Stock shall have been paid in full
the entire Liquidation Payments to which they shall be entitled, the remaining
net assets of the Corporation may be distributed to the holders of stock
ranking on liquidation junior to the Redeemable Preferred Stock and Parity
Stock. Written notice of such liquidation, dissolution or winding up, stating
a payment date, the amount of the Liquidation Payments and the place where
said Liquidation Payments shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
reputable overnight courier service, not less than 20 days prior to the
payment date stated therein, to the holders of record of Redeemable Preferred
Stock entitled to such Liquidation Payments, such notice to be addressed to
each such holder at its address as shown by the records of the Corporation.
The consolidation or merger of the Corporation into or with any other entity
or entities which results in the exchange of outstanding shares of the
Corporation for securities or other consideration issued or paid or caused to
be issued or paid by any such entity or affiliate thereof (other than a merger
to reincorporate the Corporation in a different jurisdiction), and the sale,
lease, abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding of the Corporation within the meaning of the provisions of this
paragraph 3.
4. Conversion.
4A. Optional Conversion. In the event that redemption of the Redeemable
Preferred Stock required pursuant to subparagraph 5A hereof shall not have
occurred on or before the six (6) month anniversary of the date of
3
<PAGE>
issuance thereof, the holders of the Redeemable Preferred Stock then
outstanding shall have the right, at their option at any time during the next
three (3) month period, to convert such shares into Common Stock of the
Corporation at a price per share of Common Stock equal to 85% of the average
of the last reported sales prices (or the average of the closing bid and asked
prices if no sales are reported), not to exceed $6.00 per share, for the ten
(10) trading days immediately preceding the date of receipt by the Corporation
of written notice of such holder electing to convert such shares of Redeemable
Preferred Stock. In the event that the Redeemable Preferred Stock shall not
have been redeemed by the Corporation on or before the nine (9) month
anniversary of the date of issuance, the holders of the Redeemable Preferred
Stock then outstanding shall have the right, at their option at any time
thereafter, to convert such shares into Common Stock of the Corporation at a
price per share as is obtained by dividing $25.00 by $2.75 (proportionately
adjusted for Common Stock splits, combinations of Common Stock, or dividends
paid in shares of Common Stock). The price per share of Common Stock,
determined as set forth above, as applicable, is hereinafter referred to as
the "Conversion Price." Upon any optional conversion pursuant hereto, the
holders of the Redeemable Preferred Stock shall send written notice to the
Corporation of their election to convert the Redeemable Preferred Stock by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed
to have been given when so mailed or sent to the Corporation at its principal
executive offices (the "Optional Conversion Date") together with the
certificates representing the Redeemable Preferred Stock being converted, duly
endorsed for transfer or accompanied by a stock power duly endorsed in blank.
4B. Number of Shares of Common Stock Issuable Upon the Conversion. The
number of shares of Common Stock to be issued upon the conversion of shares of
Redeemable Preferred Stock shall be equal to the product of (X) and (Y), where
(X) is a fraction, the numerator of which is the Liquidation Preference per
share of the Redeemable Preferred Stock and the denominator of which is the
Conversion Price, and (Y) is the number of shares of Redeemable Preferred
Stock to be converted.
4C. Issuance of Certificates; Time Conversion Effected; Partial Conversion.
Promptly after the receipt of the written notice referred to in subparagraph
4A and the surrender of the certificate or certificates for the share or
shares of Redeemable Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Redeemable Preferred Stock. To the
extent permitted by law, such conversion shall be deemed to have been effected
as of the close of business on the Optional Conversion Date and at such time
the rights of the holder of such share or shares of Redeemable Preferred Stock
shall cease, and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of
the shares represented thereby. Upon conversion, each surrendered certificate
shall be canceled and retired. In the event some but not all of the shares of
Redeemable Preferred Stock represented by a certificate(s) surrendered by a
holder are being converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Redeemable Preferred Stock which were not
converted.
4D. Fractional Shares; Dividends. No fractional shares shall be issued upon
conversion of Redeemable Preferred Stock into Common Stock. If any fractional
share of Common Stock would, except for the provisions of the first sentence
of this subparagraph 4D, be delivered upon such conversion, the Corporation,
in lieu of delivering such fractional share, shall pay to the holder
surrendering the Redeemable Preferred Stock for conversion an amount in cash
equal to the Conversion Price applicable to such fraction of a share. No
holder of Redeemable Preferred Stock, upon conversion, shall be entitled to
receive any payments or adjustments to the number of shares of Common Stock to
be received upon conversion for any dividends declared on the Common Stock
prior to the date of such conversion effected under this Section 4.
4E. Reorganization or Reclassification. If any capital reorganization or
reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share
4
<PAGE>
or shares of Redeemable Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Redeemable Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification
not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of such holder to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
4F. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock or
any Junior Stock or Parity Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock or any Junior Stock or
Parity Stock;
(2) the Corporation shall offer for subscription pro rata to the holders
of its Common Stock or any Junior Stock or Parity Stock any additional
shares of stock of any class or other rights;
(3) there shall be any capital reorganization or reclassification of the
capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
delivery in person, certified or registered mail, return receipt requested and
postage prepaid, or by reputable overnight courier service, charges prepaid,
addressed to each holder of shares of Redeemable Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, as
the case may be.
4G. Stock to be Reserved. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Redeemable Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Redeemable Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed.
4H. No Reissuance of Redeemable Preferred Stock. Shares of Redeemable
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
4I. Issue Tax. The issuance of certificates for shares of Common Stock upon
conversion of Redeemable Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof,
5
<PAGE>
provided that the Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the holder of the Redeemable
Preferred Stock which is being converted.
4J. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Redeemable Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Redeemable Preferred Stock in any manner which interferes with the timely
conversion of such Redeemable Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
4K. Termination of Conversion Period. Shares of Redeemable Preferred Stock
may be converted at any time up to the close of business on that date, if any,
fixed for the redemption of such shares following the election of the
Corporation to redeem such shares in accordance with the requirements and
pursuant to the terms hereof.
4L. Definition of Common Stock. As used herein, the term "Common Stock"
shall mean and include the Corporation's authorized Common Stock, par value
$0.00001 per share, as constituted on the date of filing of these terms of the
Redeemable Preferred Stock, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
provided that the shares of Common Stock receivable upon conversion of shares
of Redeemable Preferred Stock shall include only shares designated as Common
Stock of the Corporation on the date of filing of this instrument, or in case
of any reorganization or reclassification of the outstanding shares thereof,
the stock, securities or assets provided for in subparagraph 4D hereof.
5. Redemption.
5A. Optional Redemption. At any time during which shares of Redeemable
Preferred Stock are outstanding, the Corporation shall have the right, at its
sole option, to redeem all or part of such shares for an amount equal to the
face value thereof, $25.00 per share, plus all accrued but unpaid dividends
through the date of redemption.
5B. Redemption Price and Payment. The Redeemable Preferred Stock to be
redeemed on the Redemption Date shall be redeemed by paying for each share an
amount equal to the face amount thereof plus an amount equal to all dividends
accrued or declared but unpaid thereon, computed to the Redemption Date, such
amount being referred to as the "Redemption Price." Such payment shall be made
in full on the Redemption Date to the holders entitled thereto.
5C. Redemption Mechanics. If a redemption occurs within six (6) months of
the issuance of the Redeemable Preferred Stock, the Corporation may effect
such redemption without prior notice to the holder(s) of the Redeemable
Preferred Stock, and if such redemption occurs at any time thereafter, the
Corporation must give the holder(s) of the Redeemable Preferred Stock fifteen
(15) days prior written notice (the "Redemption Notice") of such redemption.
The Redemption Notice will be sent to the holder(s) of Redeemable Preferred
Stock at the address indicated of record on the Corporation's stockholders'
list and will indicate (a) the number of shares of Redeemable Preferred Stock
held by such holder or holders and (b) the date on which such redemption shall
take place (such date being referred to herein as the "Redemption Date"),
which date shall not be fewer than 45 days from the date the applicable
Redemption Notice is delivered from the Corporation by delivery in person,
certified or registered mail, return receipt requested, postage prepaid or by
reputable overnight courier service, charges prepaid to the holder. From and
after the close of business on the Redemption Date, unless there shall have
been a default in the payment of the Redemption Price all rights of holders of
shares of Redeemable Preferred Stock being redeemed (except the right to
receive the Redemption Price) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
5D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of
Redeemable Preferred Stock redeemed pursuant to this paragraph 5 or otherwise
acquired by the Corporation in any manner whatsoever shall
6
<PAGE>
be canceled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as
may be necessary to reduce accordingly the number of authorized shares of
Redeemable Preferred Stock.
5E. Priority of Redemption. The Redeemable Preferred Stock shall have
priority over shares of Junior Stock and Common Stock with respect to the
rights of redemption set forth in this paragraph 5 but shall be junior to
shares of Senior Stock. In the event the Corporation has insufficient funds to
redeem all of the Redeemable Preferred Stock at the then applicable Redemption
Price, the Corporation shall not be permitted to redeem shares of Junior Stock
or Common Stock until such time as the Corporation has redeemed all of the
issued and outstanding Redeemable Preferred Stock.
5F. Surrender of Certificates. Each holder of shares of Redeemable Preferred
Stock to be redeemed shall surrender the certificate(s) representing such
shares to the Corporation at the principal offices of the Corporation or such
other place as the Corporation may designate in writing on the Redemption Date
and upon the payment of the full Redemption Price for such shares as set forth
in this Section 5 to the order of the person whose name appears on such
certificate(s), each surrendered certificate shall be canceled and retired. In
the event some but not all of the shares of Redeemable Preferred Stock
represented by a certificate(s) surrendered by a holder are being redeemed,
the Corporation shall execute and deliver to or on the order of the holder, at
the expense of the Corporation, a new certificate representing the number of
shares of Redeemable Preferred Stock which were not redeemed.
6. Restrictions and Limitations. For so long as 25% of the face value of
shares of Redeemable Preferred Stock initially issued remain outstanding and
subject to the right of holders of Redeemable Preferred Stock to vote on
certain matters separately as a class pursuant to paragraph 1B hereof, the
Corporation shall not, without the approval of the holders of at least a
majority of the then outstanding face value of Redeemable Preferred Stock:
(i) redeem, purchase or otherwise acquire for value (or pay into or set
aside a sinking fund for such purpose) any shares of Common Stock or Junior
Stock;
(ii) amend, repeal or change any provision of, or add any provision to,
this Designation of Preferences;
(iii) amend, repeal or change any provision of the Corporation's Restated
and Amended Certificate of Incorporation or By-laws if such action would
adversely impact the Redeemable Preferred Stock or the designation, powers,
preferences and rights and the qualifications, limitations and/or
restrictions thereof provided for herein; or
(iv) permit any significant subsidiary to issue capital stock to any
person other than the Corporation or a wholly owned subsidiary;
Notwithstanding the foregoing, nothing herein shall prohibit, and the
Corporation shall be and is expressly permitted to authorize, designate, issue
and sell shares of Preferred Stock with powers, rights and preferences prior
or senior to any and all powers, rights and preferences of the Redeemable
Preferred Stock.
7. Purchase Rights. If at any time after the six month anniversary of the
date of the issuance of a share of Redeemable Preferred Stock, the Corporation
grants, issues or sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then each holder
of Redeemable Preferred Stock then outstanding shall be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the
number of shares of Common Stock acquirable upon conversion of such holder's
Redeemable Preferred Stock immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
7
<PAGE>
8. Additional Rights; Demand and Piggyback Registration Rights.
The Redeemable Preferred Stock is also entitled to the rights and benefits,
including without limitation certain demand and piggyback registration rights,
set forth in Unit Purchase Agreements to be entered into by and between the
Corporation and each holder of the Redeemable Preferred Stock.
SECOND: That the aforesaid resolution was duly adopted in accordance with
the applicable provisions of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Designation of
Preferences to be signed by Larry H. Ramming, its Chief Executive Officer, and
attested by Thomas L. Easley, its Secretary, this the 24th day of March 1998,
and by execution hereof does declare and certify that this is the act and deed
of the Corporation and the facts herein stated are true.
/s/ Larry H. Ramming
-------------------------------------
Larry H. Ramming, Chief Executive
Officer
/s/ Thomas L. Easley
-------------------------------------
Thomas L. Easley, Secretary
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 466
<SECURITIES> 0
<RECEIVABLES> 13,292
<ALLOWANCES> 0
<INVENTORY> 5,389
<CURRENT-ASSETS> 537
<PP&E> 8,976
<DEPRECIATION> (802)
<TOTAL-ASSETS> 36,393
<CURRENT-LIABILITIES> 23,262
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,041
<TOTAL-LIABILITY-AND-EQUITY> 36,393
<SALES> 11,959
<TOTAL-REVENUES> 11,959
<CGS> 10,978
<TOTAL-COSTS> 10,978
<OTHER-EXPENSES> 258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 567
<INCOME-PRETAX> 414
<INCOME-TAX> 258
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
