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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13817
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BOOTS & COOTS
INTERNATIONAL WELL CONTROL, INC.
(Name of Registrant as specified in Its Charter)
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DELAWARE 11-2908692
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
777 POST OAK BOULEVARD, SUITE 800 77056
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
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713-621-7911
(Issuer's Telephone Number, Including Area Code)
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Securities registered under Section 12(b) of the Exchange Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.00001 par value American Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act: NONE
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in or any amendment to this
Form 10-K [X].
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
The aggregate market value of such stock on April 7, 1999, based on the
closing sales price on that date was $33,824,346.
The number of shares of the issuer's common stock outstanding on April 7,
1999 was 33,415,517.
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FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PAGE
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PART I......................................................
Item 1. Description of Business.......................
Item 2. Description of Property.......................
Item 3. Legal Proceedings.............................
PART II.....................................................
Item 4. Submission of Matters to a Vote of Security
Holders.......................................
Item 5. Market for Common Equity and Related
Stockholder Matters....................................
Item 6. Selected Financial Data.......................
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk......................................
Item 8. Financial Statements..........................
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........
PART III....................................................
Item 14. Exhibits List and Reports....................
SIGNATURES..................................................
FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-
Consolidated Balance Sheets............................... F-
Consolidated Statements of Operations..................... F-
Consolidated Statements of Shareholders' Equity........... F-
Consolidated Statements of Cash Flows..................... F-
Notes to Consolidated Financial Statements................ F-
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Boots & Coots International Well Control, Inc. (the "Company"), is a
global-response oil and gas service company that specializes in responding to
and controlling oil and gas well emergencies, including blowouts and well fires.
In connection with such services, the Company has the capacity to supply the
equipment, expertise and personnel necessary to contain the oil and hazardous
materials spills and discharges associated with such oil and gas emergencies, to
remediate affected sites and restore affected oil and gas wells to production.
In addition to providing emergency response services, the Company provides
snubbing and other non-critical well control services, including pre-event
planning, training and consulting services. The Company also manufactures and
markets oil and hazardous materials spill containment and recovery equipment and
a varied line of industrial products for the oil and gas industry, including
drilling rig brakes, controls, and monitors; industrial and marine electrical AC
generators; and marine thrusters and controls. In addition, the Company provides
environmental remediation services to the petrochemical, chemical manufacturing
and transportation industries, as well as to various state and federal agencies,
and provides materials and equipment procurement, transportation and logistics
services to the energy industry.
The Company acts as a holding company for its operating subsidiaries, IWC
Services, Inc., Boots & Coots Special Services, Inc. and Baylor Company. With
the exception of Boots & Coots Special Services, Inc., Baylor Company and
HAZ-TECH Environmental Services, Inc., the assets and businesses acquired as
discussed below have been acquired by the Company through IWC Services, Inc.
These acquisitions have been made with the objective of operating capabilities
in three primary business segments: (1) emergency response and restoration; (2)
programs and services; and (3) manufacturing and distribution.
HISTORY OF COMPANY
Boots & Coots International Well Control, Inc. (the "Company"), formerly
known as Havenwood Ventures, Inc. ("Havenwood"), was incorporated in Delaware in
April 1988. Havenwood was originally formed to serve as a blind pool investment
fund, and in July 1988 Havenwood raised $499,500 in an initial public offering
of its common stock. After completing its initial public offering, Havenwood
expended its available resources in the development of a business enterprise
which it ultimately divested, thereafter remaining inactive, with no material
assets or liabilities, until it entered into a business combination with IWC
Services, Inc. a Texas corporation ("IWC Services") on July 29, 1997.
Acquisition of IWC Services, Inc. The Company acquired IWC Services on July
29, 1997, pursuant to a merger of a wholly owned subsidiary of the Company with
IWC Services whereby the Company issued shares of common stock to the
stockholders of IWC Services in exchange for all of the issued and outstanding
common stock of IWC Services and issued options and warrants to purchase common
stock of the Company in exchange for all of the options and warrants to purchase
common stock of IWC Services then outstanding. As a result of the merger, IWC
Services became a wholly-owned subsidiary of the Company, the stockholders of
IWC Services became the beneficial holders of approximately 93% of the
post-merger issued and outstanding shares of common stock of the Company and the
board of directors and management of IWC Services took over the management of
the Company.
IWC Services is a global-response oil and gas well control service company
that specializes in responding to and controlling oil and gas well emergencies,
including blowouts and well fires. In addition, IWC Services provides snubbing
and other non-critical well control services. IWC Services was organized in June
1995 by six former key employees of the Red Adair Company who resigned their
positions after Mr. Adair retired and sold his business.
Acquisition of the Assets of Boots & Coots, L.P. On July 31, 1997, the
Company completed the acquisition of substantially all of the operating assets
of Boots & Coots, L.P., a Colorado limited partnership ("Boots & Coots") an oil
well firefighting, snubbing and blowout control services company. In connection
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with the acquisition of Boots & Coots, the Company acquired all interests of
Boots & Coots in its subsidiary corporations, Boots & Coots Overseas, Ltd., and
Boots & Coots de Venezuela, S.A. (collectively referred to herein as "Boots &
Coots"). The consideration paid consisted of (i) $369,432 cash, (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 Company
also granted registration rights for the shares of common stock issued to Boots
& Coots in the transaction.
Boots & Coots was organized by Boots Hansen and Coots Mathews, two former
employees of the Red Adair Company who, like the founders of IWC Services, left
that firm to form an independent company, which was a primary competitor of IWC
Services. As a consequence of the acquisition of Boots & Coots, the Company
became a leader in the worldwide oil well firefighting and blowout control
industry, reuniting many of the former employees of the Red Adair Company.
Acquisition of ABASCO, Inc. On September 25, 1997, the Company completed
the acquisition of ABASCO, Inc. ("ABASCO") which had acquired the operating
assets of ITS Environmental, a division of International Tool & Supply Company,
a recognized leader in the design and manufacture of a comprehensive line of
rapid-response oil and chemical spill containment and reclamation equipment and
products since 1975. The Company acquired ABASCO for aggregate consideration
consisting of approximately $1,590,000 cash and 300,000 shares of common stock.
ABASCO's products and services include mechanical skimmers, containment
booms and boom reels, dispersant sprayers, agent absorbents, response vessels,
oil and chemical spill industrial products, spill response packages, oil and
chemical spill ancillary products and waste oil recovery and remediation
services.
Acquisition of ITS Supply Corporation. On January 2, 1998, the Company
completed the acquisition of all of the capital stock of ITS Supply Corporation
("ITS") for aggregate consideration of $6,000,000 cash. Financing for the
acquisition of ITS was provided from working capital ($500,000); and proceeds
from the issuance of 10% Senior Secured Promissory Notes ($4,500,000) and
short-term bridge financing from the seller ($1,000,000).
ITS is an ISO 9002 certified materials and equipment procurement,
transportation and logistics company that serves the energy industry worldwide,
with offices in Houston, Venezuela, Peru, Dubai (UAE) and the United Kingdom.
Acquisition of Boots & Coots Special Services, Inc. On February 20, 1998,
the Company completed the acquisition of all of the capital stock of Boots &
Coots Special Services, Inc. f/k/a Code 3, Inc. ("B & C Special Services").
Consideration for the acquisition of B & C Special Services was (i) $570,568
cash, (ii) the repayment of corporate secured debt and interest thereon of
approximately $1,210,000 through closing, and (iii) 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 former stockholders
of B & C Special Services for claims that may arise as a consequence of a breach
by former stockholders of B & C Special Services of the representations,
warranties and covenants contained in the definitive agreements.
B & C Special Services, originally headquartered in Harlingen, Texas,
provides containment and remediation of hazardous material and oil spills for
the railroad, transportation and shipping industries, as well as various state
and federal governmental agencies. B & C Special Services also specializes in
the transfer of hazardous materials and high and low pressure liquids and
industrial fire fighting and provides in-plant remedial plan implementation,
hazardous waste management, petroleum tank management, industrial hygiene,
environmental and occupational, health and safety services. Through December 31,
1997, B & C Special Services operated out of facilities in Harlingen, El Paso,
Laredo, San Antonio and Houston, Texas. In 1998, additional emergency response
facilities and equipment were added in Ft. Worth, Texas, and Denver, Colorado.
Acquisition of Baylor Company. On July 23, 1998, the Company completed the
acquisition of all of the capital stock of Baylor Company ("Baylor").
Consideration for the acquisition of Baylor was approximately
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$25,000,000 cash, a dividend payment of $2,000,000, and the issuance of 540,443
shares of the Company's common stock, which shares were delivered into escrow to
provide recourse to the Company for claims that may arise as a consequence of a
breach by such stockholder or Baylor of certain of the representations,
warranties and covenants contained in the definitive agreements.
Baylor, headquartered in Houston, Texas, manufactures and markets a varied
line of industrial products, many of them proprietary, for the drilling, marine
and power generation industries. The Company's base line of products include
Elmagco(R) Brakes, brake controls, brake monitors, closed loop cooling systems,
Thyrig(TM) Drive Systems, deepwater thrusters and mooring systems as well as AC
generators sold under the trade names EMD, Delco and Baylor, worldwide.
Acquisition of HAZ-TECH Environmental Services, Inc. Effective as of
November 4, 1998, the Company completed the acquisition, through a merger with B
& C Special Services, of all of the capital stock of HAZ-TECH Environmental
Services, Inc. ("HAZ-TECH"). Consideration for the acquisition of HAZ-TECH was
$315,671 cash, assumption of liabilities and the issuance of 269,150 shares of
the Company's common stock, of which one-half were delivered into escrow to
provide recourse to the Company for claims that may arise as a consequence of a
breach by the sellers of certain representations, warranties and covenants
contained in the definitive agreements.
HAZ-TECH provides a complete range of emergency prevention and response
services, including hazardous materials and waste management, OSHA personnel
training and environmental site audits, surface and groundwater hydrology,
bioremediation and pond dewatering, and water treatment to chemical
manufacturing, railroad and truck transportation companies in Texas, Louisiana,
Oklahoma and Arkansas.
The Company has ongoing discussions with a number of potential acquisition
prospects, none of which are in a binding agreement stage. Completion of future
business acquisitions are subject to many uncertainties, including the
availability of financing under acceptable terms and conditions.
Halliburton Alliance. The Company also conducts business in a global
strategic alliance with the Halliburton Energy Services division of Halliburton
Company. The alliance operates under the name "WELLCALL(SM)" and draws on the
expertise and abilities of both companies to offer a total well control solution
for oil and gas producers worldwide. The Halliburton Alliance provides a
complete range of well control services including pre-event troubleshooting and
contingency planning, snubbing, pumping, blowout control, debris removal,
firefighting, relief and directional well planning, and other specialized
services.
Business Strategy. Over the next few years, the Company intends to continue
to expand its operations and to build upon its demonstrated strengths while
increasing revenues from its consulting, equipment sales, environmental
containment and remediation services and Non-critical Events discussed on page 6
herein. Recognizing that the well control services business is a finite market
whose upside potential is dependent upon the occurrence of blowouts which cannot
be reasonably predicted, the Company's business strategy is to market its
pre-event services on a global basis and expand its range of services to
establish a diversified and expanded revenue base. The Company intends to
accomplish its objectives by promoting the Halliburton Alliance and the
WELLSURE(SM) program, continuing to integrate the businesses of Boots & Coots,
ABASCO, ITS, Boots & Coots Special Services, Baylor and HAZ-TECH, increasing the
geographical scope of its training and consulting programs, and establishing
additional Company-owned Fire Stations discussed on page 5 herein at locations
outside the United States. Like the Company owned Fire Stations in Houston,
Texas, and Duncan, Oklahoma, the industry supported Fire Station on the North
Slope of Alaska and the Fire Station in Anaco, Venezuela, the proposed
Company-owned Fire Stations would include the equipment required to respond to a
well blowout or fire. In general, the Company plans to offer a broader range of
services to oil and gas producers worldwide, increasing both the scope of its
target and its market share.
The Company hopes to expand its service capabilities through a combination
of internal growth, additional acquisitions, joint ventures and strategic
alliances. Because of the fragmented nature of the oil and gas services
industry, the Company believes a number of attractive acquisition opportunities
exist in the pressure control, emergency response and environmental services
segments of the business. The oil and gas services business in general, and the
emergency response and environmental remediation segments in
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particular, are characterized by a small number of dominant global competitors
and a significant number of locally oriented businesses, many of which tend to
be viable acquisition targets. The Company believes that the owners of locally
oriented companies may be willing to consider becoming part of a larger
organization.
Management has recently commenced preliminary discussions with a number of
companies engaged in complementary businesses to explore the potential for
mutually beneficial business arrangements. While none of these discussions has
progressed to the point where the Company believes a particular transaction is
probable, management believes that additional acquisitions, joint ventures and
strategic alliances are likely.
Executive Offices. The Company's principal executive office is located at
777 Post Oak Boulevard, Suite 800, Houston, Texas, 77056, telephone (713)
621-7911.
THE EMERGENCY RESPONSE SEGMENT OF THE OIL AND GAS SERVICE INDUSTRY
History. The emergency response segment of the oil and gas services
industry traces its roots to the late 1930's when Myron Kinley organized the
Kinley Company, the first oil and gas well firefighting specialty company.
Shortly after organizing the Kinley Company, Mr. Kinley took on an assistant
named Red Adair who learned the firefighting business under Mr. Kinley's
supervision and remained with the Kinley Company until Mr. Kinley's retirement.
When Mr. Kinley retired in the late 1950's, Mr. Adair organized the Red Adair
Company and subsequently hired Boots Hansen, Coots Mathews and Raymond Henry as
members of his professional firefighting staff. Mr. Adair added Richard
Hatteberg, Danny Clayton, Brian Krause, Mike Foreman and Juan Moran to his
professional firefighting staff and the international reputation of the Red
Adair Company grew to the point where it was a subject of popular films and the
dominant competitor in the industry. Boots Hansen and Coots Mathews remained
with the Red Adair Company until 1978 when they split off to organize Boots &
Coots, an independent firefighting, snubbing and blowout control company.
Historically, the well control emergency response segment of the oil and
gas services industry has been reactive, rather than proactive, and a small
number of Houston-based companies have dominated the market. As a result, if an
operator in Indonesia, for example, experienced a well blowout and fire, he
would likely call a well control emergency response company in Houston that
would take the following steps:
- Immediately dispatch a control team to the well location to supervise
debris removal, local equipment mobilization and site preparation;
- Gather and analyze the available data, including drilling history,
geology, availability of support equipment, personnel, water supplies and
ancillary firefighting resources;
- Develop or implement a detailed fire suppression and well-control plan;
- Mobilize additional well-control and firefighting equipment in Houston;
- Transport equipment by air freight from Houston to the blowout location;
- Extinguish the fire and bring the well under control; and
- Transport the control team and equipment back to Houston.
On a typical blowout, debris removal, fire suppression and well control can
require several weeks of intense effort and consume millions of dollars,
including several hundred thousand dollars in air freight costs alone.
The 1990's have been a period of rapid change in the oil and gas well
control and firefighting business. The hundreds of oil well fires that were
started by Iraqi troops during their retreat from Kuwait spurred the development
of new firefighting techniques and tools that have become industry standards.
Moreover, after extinguishing the Kuwait fires, the entrepreneurs who created
the oil and gas well firefighting industry, including Red Adair, Boots Hansen
and Coots Mathews retired, leaving the Company's senior staff as the most
experienced active oil and gas well firefighters in the world. At present, the
principal competitors in the oil and gas well firefighting business are the
Company, Wild Well Control, Inc., and Cudd Pressure Control, Inc.
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Emerging Trends. Corporate downsizing and outsourcing of services, when
coupled with increased recognition of the importance of training, environmental
protection and emergency preparedness, are having a profound impact on the
emergency response segment of the oil and gas services industry. Instead of
waiting for a blowout, fire or other disaster to occur, major oil producers are
coming to the Company for proactive preparedness and incident prevention
programs, together with pre-event consultation on matters relating to well
control training, blowout contingency planning, on-site safety inspections and
formal fire drills.
In addition to seeking pre-event consulting services, a number of major oil
and gas producers have come to the realization that servicing the worldwide
firefighting and well control market from Houston is inefficient: the response
time is too long and the cost of transporting equipment by air freight is
prohibitive. As a result, the Company has established and maintains an industry
supported "Fire Station" on the North Slope of Alaska. Under the terms of the
agreement, the Company has sold to a consortium of producers the equipment
required to respond to a blowout or oil or gas well fire, and has agreed to
maintain the equipment and conduct on-site safety inspections and emergency
response drills. Over the next five years, the Company plans to establish a
worldwide network of Company owned Fire Stations and to use this global presence
as the foundation to seek to establish a preeminent position in the oil and gas
well firefighting business.
Volatility of Firefighting Revenues. The market for oil and gas well
firefighting and blowout control services is highly volatile due to factors
beyond the control of the Company. While the demand for firefighting and blowout
control services ordinarily follows predictable trends in the oil and gas
industry, extraordinary events such as the Bay Marchand and Piper Alpha
disasters have historically occurred only every four to six years. Wars, acts of
terrorism and other unpredictable factors may increase the need for oil and gas
well firefighting and blowout control services from time to time. As a result,
the Company can expect to experience large fluctuations in its revenues from oil
and gas well firefighting and blowout control services. While the Company
believes that its acquisitions of ABASCO, ITS and Code 3 and anticipated
revenues from the WELLSURE(SM) program and from the Company's consulting,
snubbing, training and industrial and marine firefighting services will help to
provide an expanded and predictable revenue and earnings base in the future,
there can be no assurance that the Company will be successful in further
developing these acquired businesses and added services. Accordingly, the
Company expects that its revenues and operating performance may vary
considerably from year to year for the foreseeable future.
PRODUCTS AND SERVICES PROVIDED BY THE COMPANY
The Company is a global-response oil and gas service company that
specializes in responding to and controlling oil and gas well emergencies,
including blowouts and well fires. In connection with such services, the Company
has the capacity to supply the equipment, expertise and personnel necessary to
contain the oil and hazardous materials spills and discharges associated with
such oil and gas well emergencies, to remediate affected sites and to restore
affected oil and gas wells to production. In addition to providing emergency
response services, the Company provides snubbing and other non-critical well
control services, including pre-event planning, training and consulting
services. The Company also manufactures and markets oil and hazardous materials
spill containment and recovery equipment and a varied line of industrial
products for the oil and gas industry, including drilling rig brakes, controls
and monitors; industrial and marine electrical generators; and marine thrusters
and controls. The Company provides environmental remediation services to the
petrochemical, chemical manufacturing and transportation industries, as well as
to various state and federal agencies, and also provides materials and equipment
procurement, transportation and logistics services to the energy industry. The
Company's principal products and services for its three principal business
segments include:
Emergency Response and Restoration
The Emergency Response and Restoration business segment includes the
following operating subsidiaries of the Company: IWC Services less its risk
management business unit, Boots & Coots and B & C Special Services.
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Well Control. This service segment is divided into two distinct levels: (1)
"Critical Event" response is ordinarily reserved for well control projects where
hydrocarbons are escaping from a well bore, regardless of whether a fire has
occurred. (2) "Non-critical Event" response, on the other hand, is intended for
the more common operating problems that do not involve escaping hydrocarbons.
Critical Events. Critical Events frequently result in explosive fires,
the loss of life, the destruction of drilling and production facilities,
substantial environmental damage and the loss of hundreds of thousands of
dollars per day in production revenue. Since Critical Events ordinarily
arise from equipment failures or human error, it is impossible to
accurately predict the timing or scope of the Company's Critical Event
work. Notwithstanding the foregoing, a Critical Event of catastrophic
proportions could result in significant revenues to the Company in the year
of the incident. The Company's professional firefighting staff has more
than 220 years of aggregate industry experience in responding to Critical
Events, oil well fires and blowouts.
Non-critical Events. Non-critical Events frequently occur in
connection with the drilling of new wells into high pressure reservoirs. In
most Non-critical Events, the blowout preventers and other safety systems
on the drilling rig function according to design and the Company is then
called upon to supervise and assist in the well control effort so that
drilling operations can resume as promptly as safety permits. While
Non-critical Events do not ordinarily have the revenue impact of a Critical
Event, they are much more common and predictable.
Fire Fighting Equipment Rentals. This service includes the rental of
specialty well control and firefighting equipment by the Company primarily for
use in conjunction with Critical Events. Such equipment includes, but is not
limited to, firefighting pumps, pipe-racks, Athey wagons, pipe cutters, crimping
tools and deluge safety systems. The Company charges this equipment out on a per
diem basis. Past experience indicates that rentals can be expected to average
approximately 40% of the revenues associated with a Critical Event.
Fire Fighting Equipment Sales and Service. This service line involves the
sale of complete firefighting equipment packages, together with maintenance,
monitoring, updating of equipment and ongoing consulting services. A typical
example of this service line is the industry supported Emergency Response Center
that the Company has established on the North Slope of Alaska. The establishment
of this Emergency Response Center, completed during the six month period ended
December 31, 1997, included the sale of approximately $485,000 in equipment. The
Company has also entered into a ten year agreement with renewal clauses to
provide ongoing consulting services relating to the Emergency Response Center,
including training, contingency planning, safety inspections and emergency
response drills.
Snubbing Operations. A snubbing unit is a high pressure workover rig that
permits an operator to repair or change-out damaged casing, production tubing
and down-hole production equipment in a high pressure environment. Using a
series of highly sophisticated blowout prevention devices, a snubbing unit makes
it possible to remove and replace down-hole equipment in a pressurized well.
Since snubbing is a very hazardous process that entails a high risk of flash
fire or explosion, the snubbing segment of the oil and gas services industry is
concentrated in a few operators, such as Halliburton, who have the experience
and knowledge required to safely and efficiently perform such services.
Industrial and Marine Firefighting. This service is divided into two
distinct elements: pre-event consulting and Critical Event management. The
pre-event services offered in the industrial and marine firefighting business
include complete on-site inspection services, safety audits and pre-event
planning. Based on these pre-event services, the Company can recommend the
equipment, facilities and manpower resources that a client should have available
in order to effectively respond to a fire. The Company can also consult with the
client to ensure that the equipment and services required by the client will be
available when needed. If a Critical Event subsequently occurs, the Company is
ready to respond at a client's facility with experienced firefighters and
auxiliary equipment.
Oil and Chemical Spill Containment and Reclamation Equipment. The Company
is a leader in the design and manufacture of a comprehensive line of rapid
response oil and chemical spill containment and
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reclamation equipment and products, including mechanical skimmers, containment
booms and boom reels, dispersant sprayers, dispersal agents, absorbents,
response vessels, oil and chemical spill industrial products, spill response
packages, oil and chemical spill ancillary products and waste oil recovery and
reclamation products.
Consulting; Drilling Engineering. The Company provides through its highly
specialized in-house engineering staff, supplemented if necessary by outside
engineering consultants and the Halliburton Energy Services division,
engineering services for such areas as: (1) planning and design of relief well
drilling (trajectory planning, directional control and equipment specifications,
and on-site supervision of the drilling operations), (2) planning and design of
production facilities which are susceptible to well capping or other control
procedures, and (3) mechanical and computer aided designs for well control
equipment.
Consulting; Inspections. A cornerstone of the Company's strategy of
providing preventive well control services involves on-site inspection services
for drilling and workover rigs, drilling and production platforms, and field
production facilities. These inspection services, performed by the Company, are
offered as a standard option in Halliburton's field service programs.
Consulting; Training. The Company provides specialized training in well
control procedures for drilling, exploration and production personnel. To date
such training programs have been provided for both U.S. and international
operators. The Company's training services are offered in conjunction with
ongoing educational programs sponsored by Halliburton. The Company believes the
training segment of its business offers considerable potential for growth.
Strategic Event Planning (S.T.E.P.). A key element of the services offered
by the Halliburton Alliance is a strategic and tactical planning process
addressing action steps, resources and equipment necessary for an operator to
control a blowout. This planning process incorporates organizational structures,
action plans, specifications, people and equipment mobilization plans with
engineering details for well firefighting, capping, relief well and kill
operations. It also addresses optimal recovery of well production status,
insurance recovery, public information and relations and safety/environmental
issues. While the S.T.E.P. program includes a standardized package of services,
it is easily modified to suit the particular needs of a specific client.
Regional Emergency Response Centers. The Company currently has Emergency
Response Centers in Houston, Texas, Duncan, Oklahoma, and Anaco, Venezuela, and
maintains an industry supported Emergency Response Center on the North Slope of
Alaska. The Company plans to deploy at least one Emergency Response Center per
year over the next five years. The equipment for these proposed Emergency
Response Centers will either be purchased by the Company for its own account or
purchased by a consortium of local producers who will then contract with the
Company for maintenance and consulting services. It is believed these Emergency
Response Centers, once established, will place the Halliburton Alliance in an
unique competitive position within the industry and allow the Alliance to gain
market share by reducing the mobilization time and costs traditionally involved
in controlling major blowout events.
Programs and Services
The Programs and Services business segment includes the following operating
subsidiaries and business units of the Company: the risk management business
unit of IWC Services, which encompasses the WELLSURE(SM) Program, and ITS.
Supply, Transportation and Logistics. ITS is ISO 9002 certified and
provides material and equipment procurement, transportation and logistics
services to the energy industry worldwide. ITS also serves as a distributor in
Venezuela and Peru of artificial lift oil recovery systems.
WELLSURE(SM) Program. On February 6, 1998, the Company announced the
formation of an alliance with Global Special Risks, Inc., a managing general
insurance agent located in Houston, Texas, and New Orleans, Louisiana. The
alliance offers oil and gas exploration production companies, through retail
insurance brokers, a new program known as "WELLSURE(SM)," which combines
traditional well control and blowout insurance with the Company's post-event
response services and well control preventative services including company-wide
and/or well specific contingency planning, personnel training, safety
inspections and engineer-
7
<PAGE> 10
ing consultation. Insurance provided under WELLSURE(SM) has been arranged with
leading London insurance underwriters. WELLSURE(SM) program participants will be
provided with the full benefit of having the Company as a safety and prevention
partner. In the event of well blowouts, the Company will serve as the integrated
emergency response service provider, as well as function as lead contractor and
project manager for control and restoration of wells covered under the program.
Manufacturing and Distribution
The Manufacturing and Distribution business segment includes the following
operating subsidiaries or business units of the Company: Baylor and ABASCO.
Drilling, Marine and Power Generation Equipment. The Company manufactures
and markets a varied line of industrial products, many of them proprietary for
the drilling, marine and power generation industries. The Company's base line of
products include Elmagco(R) Brakes, brake controls, brake monitors, closed loop
cooling systems, Thyrig(TM) Drive Systems, deepwater thrusters and mooring
systems as well as AC generators sold under the trade names EMD, Delco and
Baylor, worldwide.
Oil and Chemical Spill Containment and Remediation Services. The Company
provides containment and remediation of oil and chemical spills for the oil and
gas, petrochemical, railroad, transportation and shipping industries, as well as
various state and federal governmental agencies. The Company specializes in the
transfer of high and low pressure liquids and hazardous materials and industrial
fire fighting. The Company also provides in-plant remedial plan implementation,
hazardous waste management, petroleum tank management, industrial hygiene,
environmental and occupational, health and safety services.
DEPENDENCE UPON CUSTOMERS
The Company is not materially dependent upon a single or a few customers,
although one or a few customers may represent a material amount of business for
a limited period. The emergency response business is by nature episodic and
unpredictable. A customer that accounted for a material amount of business as a
result of an oil well blow-out or similar emergency may not account for a
material amount of business after the emergency is over.
HALLIBURTON ALLIANCE
In response to ongoing changes in the emergency response segment of the oil
and gas service industry, the Company entered into a global strategic alliance
with Halliburton Energy Services. Halliburton is widely recognized as an
industry leader in the pumping, cementing, snubbing, production enhancement,
coiled tubing and related services segment of the oil field services industry.
This alliance, "WELLCALL(SM)", draws on the expertise and abilities of both
companies to offer a total well control solution for oil and gas producers
worldwide. The Halliburton Alliance provides a complete range of well control
services including pre-event troubleshooting and contingency planning, snubbing,
pumping, blowout control, debris removal, firefighting, relief and directional
well planning and other specialized services. The specific benefits that
WELLCALL(SM) provides to an operator include:
- Quick response with a global logistics system supported by an
international communications network that operates around the clock,
seven days a week;
- A full-time team of experienced well control specialists that are
dedicated to safety;
- Specialized equipment design, rental, and sales;
- Contingency planning consultation where WELLCALL(SM) specialists meet
with customers, identify potential problems, and help develop a
comprehensive contingency plan; and
- A single-point contact to activate a coordinated total response to well
control needs.
Operators contracting with WELLCALL(SM) receive a Strategic Event Plan, or
S.T.E.P., a comprehensive contingency plan for well control that is
region-specific, reservoir-specific, site-specific and well-specific. The
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<PAGE> 11
S.T.E.P. plan provides the operator with a written, comprehensive and
coordinated action plan that incorporates historical data, pre-planned call outs
of Company and Halliburton personnel, pre-planned call outs of necessary
equipment and logistical support to minimize response time and coordinate the
entire well control effort. Thereafter, in the event of a blowout, WELLCALL(SM)
provides the worldwide engineering and well control equipment capabilities of
Halliburton and the firefighting expertise of the Company through an integrated
contract with the operator.
As a result of the Halliburton Alliance, the Company is directly involved
in Halliburton's well control projects that require firefighting expertise,
Halliburton is a primary service vendor to the Company and the Company has
exclusive rights to use certain firefighting technologies developed by
Halliburton. It is anticipated that most of the Company's Fire Stations will be
established at existing Halliburton facilities and that maintenance of the Fire
Station equipment will be performed by Halliburton employees. The Halliburton
Alliance also gives the Company access to Halliburton's global communications
and currency management systems, capabilities that could prove invaluable in
connection with the Company's international operations.
Consistent with the Halliburton Alliance, the Company's focus has evolved
to meet its clients' needs in a global theater of operations. With the increased
emphasis by operators on operating efficiencies and outsourcing many engineering
services, the Company has developed a proactive menu of services to meet their
needs. These services emphasize pre-event planning and training to minimize the
likelihood of a blowout and minimize damages in the event of an actual blowout.
The Company provides comprehensive advance training, readiness, preparation,
inspections and mobilization drills which allow client companies to pursue every
possible preventive measure and to react in the most cohesive manner possible
when an event occurs. The Halliburton Alliance stresses the importance of
safety, environmental protection and cost control, along with asset protection
and liability minimization.
The agreement documenting the alliance between the Company and Halliburton
(the "Alliance Agreement") provides that it will remain in effect for an
indefinite period of time and may be terminated prior to September 15, 2000,
only for cause, or by mutual agreement between the parties. Under the Alliance
Agreement, cause for termination is limited to (i) a fundamental breach of the
Alliance Agreement, (ii) a change in the business circumstances of either party,
(iii) the failure of the Alliance to generate economically viable business, or
(iv) the failure of either party to engage in good faith dealing. While the
Company considers its relationship with Halliburton to be good, there can be no
assurance that the Alliance Agreement will not be terminated by Halliburton. The
termination of the Alliance Agreement could have a material adverse effect on
the Company's future operating performance.
REGULATION
The operations of the Company are affected by numerous federal, state, and
local laws and regulations relating, among other things, to workplace health and
safety and the protection of the environment. The technical requirements of
these laws and regulations are becoming increasingly complex and stringent, and
compliance is becoming increasingly difficult and expensive. However, the
Company does not believe that compliance with current laws and regulations is
likely to have a material adverse effect on the Company's business or financial
statements. Nevertheless, the Company is obligated to exercise prudent judgment
and reasonable care at all times and the failure to do so could result in
liability under any number of laws and regulations.
Certain environmental laws provide for "strict liability" for remediation
of spills and releases of hazardous substances and some provide liability for
damages to natural resources or threats to public health and safety. Sanctions
for noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties, and criminal prosecution. It is possible that
changes in the environmental laws and enforcement policies thereunder, or claims
for damages to persons, property, natural resources, or the environment could
result in substantial costs and liabilities to the Company. The Company's
insurance policies provide liability coverage for sudden and accidental
occurrences of pollution and/or clean-up and containment of the foregoing in
amounts which the Company believes are comparable to companies in the industry.
To the date hereof, the
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<PAGE> 12
Company has not been subject to any fines or penalties for violations of
governmental or environmental regulations.
RESEARCH AND DEVELOPMENT
The Company is not directly involved in activities that will require the
expenditure of substantial sums on research and development. The Company does,
however, as a result of the Halliburton Alliance, benefit from the ongoing
research and development activities of Halliburton to the extent that new
Halliburton technologies are or may be useful in connection with the Company's
business.
COMPETITION
The emergency response segment of the oil and gas services business is a
rapidly evolving field in which developments are expected to continue at a rapid
pace. The Company believes that the Halliburton Alliance, the WELLSURE(SM)
program, and its recent acquisitions of Boots & Coots, ABASCO, ITS, B & C
Special Services, Baylor and HAZ-TECH will strengthen its competitive position
in the industry by expanding the scope of services that the Company offers to
its customers. However, the Company's ability to compete depends upon, among
other factors, increasing industry awareness of the variety of services the
Company offers, expanding the Company's network of Fire Stations and further
expanding the breadth of its available services. Competition from other
emergency response companies, some of which may have greater financial resources
than the Company, is intense and is expected to increase as the industry
undergoes additional anticipated change. The Company's competitors may also
succeed in developing new techniques, products and services that are more
effective than any that have been or are being developed by the Company or that
render the Company's techniques, products and services obsolete or
noncompetitive. The Company's competitors may also succeed in obtaining patent
protection or other intellectual property rights that might hinder the Company's
ability to develop, produce or sell competitive products or the specialized
equipment used in its business.
EMPLOYEES
As of March 31, 1999, the Company and its operating subsidiaries
collectively had 447 full-time employees and 155 part-time personnel available
as needed for emergency response projects. In addition, the Company has several
part-time consultants and also employs part-time contract personnel who remain
on-call for certain emergency response projects. The Company is not subject to
any collective bargaining agreements and it considers its relations with its
employees to be good.
OPERATING HAZARDS; LIABILITY INSURANCE COVERAGE
The Company's operations involve ultra-hazardous activities that involve an
extraordinarily high degree of risk. Such operations are subject to accidents
resulting in personal injury and the loss of life or property, environmental
mishaps and mechanical failures, and litigation arising from such events may
result in the Company being named a defendant in lawsuits asserting large
claims. The Company may be held liable in certain circumstances, including if it
fails to exercise reasonable care in connection with its activities, and it may
also be liable for injuries to its agents, employees and contractors who are
acting within the course and scope of their duties. The Company and its
subsidiaries presently maintain liability insurance coverage with aggregate
policy limits which are believed to be adequate for their respective operations.
However, it is generally considered economically unfeasible in the oil and gas
service industry to maintain insurance sufficient to cover large claims.
Accordingly, there can be no assurance that the Company's insurance will be
sufficient or effective under all circumstances or against all hazards to which
the Company may be subject. A successful claim for which the Company is not
fully insured could have a material adverse effect on the Company. No assurance
can be given that the Company will not be subject to future claims in excess of
the amount of insurance coverage which the Company deems appropriate and
feasible to maintain.
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<PAGE> 13
RELIANCE UPON OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's emergency response services require highly specialized
skills. Because of the unique nature of the industry and the small number of
persons who possess the requisite skills and experience, the Company is highly
dependent upon the personal efforts and abilities of its officers, directors and
key employees. In seeking qualified personnel, the Company will be required to
compete with companies having greater financial and other resources than the
Company. Since the future success of the Company will be dependent upon its
ability to attract and retain qualified personnel, the inability to do so, or
the loss of personnel, could have a material adverse impact on the Company's
business. The Company is considering obtaining key man insurance on a selected
basis to partially offset the risk of loss of personnel, but it does not
currently maintain any such insurance and there can be no assurance that it will
be obtained or will be available at a reasonable cost or at all.
CONTROL OF THE COMPANY BY SIGNIFICANT STOCKHOLDERS
The Company's current officers and directors own beneficially, on a
combined basis, 9,361,477 shares of common stock, including currently
exercisable options to purchase common stock. The shares of common stock owned
by the Company's current officers and directors represent, in the aggregate,
approximately 28% of the issued and outstanding common stock (without taking
into account the potential conversion of the Redeemable Stock into shares of
common stock or the potential issuance of additional shares of common stock upon
the exercise of options or warrants). As a result, the current officers and
directors of the Company collectively have significant and perhaps controlling
influence in the election of the Company's Board of Directors and with respect
to the determination and authorization of corporate actions for an indefinite
period of time. Further, in May 1995, Brian Krause, the President of IWC
Services (Well Control), Raymond Henry, the Company's Director of Well Control
Operations, Richard Hatteberg, the Company's Senior Vice President, Well
Control, and Danny Clayton, the President of IWC de Venezuela, entered into a
Voting Trust Agreement that gives Larry H. Ramming, the Company's Chairman and
Chief Executive Officer, and Mr. Henry, as co-trustees, the absolute right to
vote all shares of common stock now owned or hereafter acquired by Messrs.
Krause, Henry, Hatteberg and Clayton during the five-year period ending December
31, 2000 (the "Voting Trust Agreement"). In the event that Messrs. Ramming and
Henry are unable to reach an agreement respecting the voting of such shares, the
Voting Trust Agreement designates Charles T. Phillips, attorney at law, as the
tiebreaker. The Voting Agreement provides that twenty percent of the shares
subject to such agreement are eligible for release therefrom on each one year
anniversary date of the Voting Trust Agreement upon the written request of the
party owning such shares. Currently, 1,380,000 shares (representing 4.2% of the
Company's outstanding common stock) are subject to the Voting Trust Agreement.
CONTRACTUAL OBLIGATIONS TO CUSTOMERS; INDEMNIFICATION
The Company customarily enters into service contracts with its customers
which frequently contain provisions that hold the Company liable for various
losses or liabilities incurred by the customer in connection with the activities
of the Company, including, without limitation, losses and liabilities relating
to claims by third parties, damage to property, violation of governmental laws,
regulations or orders, injury or death to persons, and pollution or
contamination caused by substances in the Company's possession or control. The
Company may be responsible for any such losses or liabilities caused by
contractors retained by the Company in connection with the provision of its
services. In addition, such contracts generally require the Company, its
employees, agents and contractors to comply with all applicable laws, rules and
regulations (which may include the laws, rules and regulations of various
foreign jurisdictions) and to provide sufficient training and educational
programs to such persons in order to enable them to comply with applicable laws,
rules and regulations. Consequently, the Company may be exposed to substantial
liabilities in connection with its services. In the case of emergency response
services, the Company frequently enters into agreements with customers which
limit the Company's exposure to liability and/or require the customer to
indemnify the Company for losses or liabilities incurred by the Company in
connection with such services, except in the case of gross negligence or willful
misconduct by the Company. There can be no assurance, however, that such
11
<PAGE> 14
contractual provisions limiting the liability of the Company will be enforceable
in whole or in part under applicable law.
ITEM 2. DESCRIPTION OF PROPERTY.
REAL PROPERTY
The Company leases a 39,000 square foot office at 777 Post Oak Blvd.,
Houston, Texas, from an unaffiliated landlord through August 2005 at a monthly
rental of $64,000. The Company leases an 11,000 square foot Emergency Response
Center facility in Anaco, Venezuela, which space is rented through January 2000
for a monthly rental of $4,000. The Company owns a facility in northwest
Houston, Texas, that includes approximately 2 acres of land, a 4,000 square foot
office building and a 12,000 square foot manufacturing and warehouse building.
The Company also owns manufacturing facilities in Sugar Land, Texas, including
190,000 square feet of shop buildings, 22,000 square feet of office space and 24
acres of land. The Company leases a 7,000 square foot office in the Halliburton
Center, Houston, Texas. This space is rented from an unaffiliated landlord
through May 2002 for an average monthly rental of $7,000, and is subleased on
substantially the same terms. The Company leases approximately 10,000 square
feet of office space in the Camac Plaza, Houston, Texas, through June 30, 1999,
for an average monthly rental of $9,000, which space is subleased on
substantially the same terms. Additionally, the Company has leased office and
equipment storage facilities in various other cities within the United States,
Venezuela, the United Kingdom and Peru. The future commitments on these
additional leases are immaterial. The Company believes that these facilities
will be adequate for its anticipated needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from any such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1998.
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<PAGE> 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the AMEX under the symbol "WEL."
Prior to January 30, 1998, the Company's common stock was traded on the NASD's
OTC Electronic Bulletin Board under the symbol "BCWC." Significant trading in
the Company's common stock has occurred only since August 1997. The following
tables set forth the high and low bid and asked prices per share of the common
stock as reported for the quarterly periods ended September 30, 1997 and
December 31, 1997, and the high and low sales prices for each quarterly period
within the year ended December 31, 1998. Bid information has been provided by
National Quotation Bureau, Inc., and reflects inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
HIGH AND LOW BID AND ASKED QUOTATION
<TABLE>
<CAPTION>
HIGH LOW
--------------- ---------------
BID ASKED BID ASKED
------ ------ ------ ------
<S> <C> <C> <C> <C>
Quarter ended September 30, 1997:.................. $5.500 $8.000 $1.500 $1.625
Quarter ended December 31, 1997:................... $5.625 $5.875 $3.625 $3.875
</TABLE>
HIGH AND LOW SALES PRICES
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
March 31, 1998.............................................. $5.750 $4.750
June 30, 1998............................................... 7.937 4.750
September 30, 1998.......................................... 6.125 1.375
December 31, 1998........................................... 3.023 2.125
</TABLE>
On April 7, 1999, the last reported sale price of the common stock as
reported on AMEX was $1.50 per share.
As of April 7, 1999 the Company's common stock was held by approximately
300 holders of record. The Company estimates that it has a significantly larger
number of shareholders because a substantial number of the Company's shares are
held of record by broker-dealers for their customers in street name.
The Company has not paid any cash dividends on its common stock to date.
The Company's current policy is to retain earnings to provide funds for the
operation and expansion of its business. The Company's credit facilities
currently prohibit paying cash dividends.
SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS
In January 1998, the Company issued 10% Senior secured promissory notes due
October 1, 1998 ("Senior Notes") in the aggregate principal amount of
$5,000,000, and in March 1998 the Company issued additional 10% Senior secured
promissory notes due October 1, 1998 ("Additional Senior Notes") in the
aggregate principal amount of $2,250,000. In April 1998, the Senior Notes and
Additional Senior Notes were purchased from the original holders thereof by
Larry H. Ramming, the Chief Executive Officer of the Company. The Company issued
warrants to the original holders of the Senior Notes and Additional Senior Notes
representing the right to purchase 2,500,000 shares, in the aggregate, of common
stock, 2,000,000 of which are exercisable at $2.62 per share and 500,000 of
which are exercisable at $4.50 per share. Such warrants are exercisable for a
period of six years and include demand and piggyback registration rights. The
Company used the proceeds from the issuance of the Senior Notes to fund the
purchase of ITS, and the proceeds from the issuance of the Additional Senior
Notes to fund the acquisition of B & C Special Services.
The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), for the issuance of the Senior Notes and Additional Senior
Notes. The Company used no general advertising or
13
<PAGE> 16
solicitation in connection with such issuance, there were a limited number of
purchasers, all of whom were "accredited investors" within the meaning
Regulation D promulgated under the Act, and the Company had reason to believe
that such purchasers did not intend to engage in a distribution of such
securities.
From April 1998 through June 1998, the Company issued 196,000 Units of 10%
Junior Redeemable Convertible Preferred Stock ("Redeemable Preferred"), each
Unit consisting of one share of the Preferred Stock and one Unit Warrant
representing the right to purchase five shares of common stock of the Company at
a price of $5.00 per share. The Redeemable Preferred Stock could be redeemed by
the Company at any time on or before the six month anniversary of the date of
issuance (from October 17, 1998 through December 8, 1998) without prior written
notice in an amount per share equal to $25.00, plus any accrued and unpaid
dividends thereon. After the six month anniversary of the date of issuance of
the Redeemable Preferred Stock and for so long as such shares are outstanding,
the Company could redeem such shares upon fifteen days prior written notice.
In the event shares of Redeemable Preferred Stock were not redeemed by the
Company on or before the six month anniversary of the date of issuance, each
unredeemed share shall thereafter, until the nine month anniversary of the date
of issuance be convertible, at the election of the holder thereof, into such
number of shares of common stock at 85% of the average of the last reported
sales prices of shares of the common stock (or the average of the closing bid
and asked prices if no transactions have been reported), not to exceed $6.00 per
share, for the 10 trading days immediately preceding the receipt by the Company
of written notice from the holder thereof of an election to so convert such
share of Redeemable Preferred Stock. In the event the Company has not redeemed
shares of Redeemable Stock on or before the nine month anniversary of the date
of issuance, each unredeemed share shall become immediately convertible, at the
election of the holder thereof, into such number of shares of common stock as
shall be obtained by dividing $25.00 by $2.75 (proportionately adjusted for
common stock splits, combinations of common stock and dividends paid in shares
of common stock).
The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Regulation D for the issuance of the Units. The Company
used no general advertising or solicitation in connection with such issuance,
there were a limited number of purchasers, all of whom were "accredited
investors" within the meaning Regulation D promulgated under the Act, and the
Company had reason to believe that such purchasers did not intend to engage in a
distribution of such securities.
In July 1998, the Company issued $15,000,000 in Senior Secured Notes due
January 6, 1999 (the "Prudential Senior Notes") to The Prudential Insurance
Company of America ("Prudential") and $30,000,000 of 11.28% Senior Subordinated
Notes due July 23, 2006 (the "Prudential Subordinated Notes") to Prudential. The
Prudential Senior Notes were subsequently repaid using proceeds from the
Company's revolving credit facility. In conjunction with the sale of the
Prudential Subordinated Notes, the Company issued to Prudential a warrant to
purchase 3,165,396 shares of common stock at an exercise price of $6.70 per
share (the "Prudential Warrant"), subject to anti-dilution protection and
adjustments under certain circumstances. The Prudential Warrant is not
exercisable until after July 23, 2000 and terminates on the later of July 23,
2008, or six months after the date the Prudential Subordinated Notes are fully
retired. The Company utilized the proceeds of the Prudential Senior Notes and
Prudential Subordinated Notes for working capital and to fund the acquisition of
Baylor.
The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), for the issuance of the Prudential Senior Notes and
Prudential Subordinated Notes. The Company used no general advertising or
solicitation in connection with such issuance, the purchaser was an "accredited
investor" within the meaning Regulation D promulgated under the Act, and the
Company had reason to believe that such purchaser did not intend to engage in a
distribution of such securities.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical financial data of the
Company for each of the fiscal years ended as of June 30, 1996 and 1997, the six
months ended December 31, 1996 and 1997, and the years ended December 31, 1997
and 1998, which was derived from the Company's audited consolidated financial
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<PAGE> 17
statements. In the opinion of management of the Company, the unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the financial
data for such period. The results of operations for the six months ended
December 31, 1996 and 1997 are not necessarily indicative of results for a full
fiscal year. The data should be read in conjunction with the Consolidated
Financial Statements (including the Notes thereto) and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
----------------------- ------------------------ -------------------------
1996 1997 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $1,662,000 $2,564,000 $ 743,000 $5,389,000 $ 7,154,000 $76,283,000
Operating income
(loss)............... (481,000) (68,000) (395,000) (432,000) (360,000) 1,466,000
Extraordinary
Item -- Loss on Debt
Extinguishment....... -- -- -- (193,000) -- --
Net loss................ (339,000) (156,000) (409,000) (758,000) (567,000) (2,996,000)
Net loss per share...... (0.03) (0.01) (0.04) (0.03) (0.05) (0.12)
Weighted average common
Shares outstanding... 11,500,000 12,191,000 11,500,000 23,864,000 12,136,000 31,753,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $14,062,000 $97,585,000
Long-term debt and notes payable.......................... 1,664,000 53,660,000
Working capital........................................... 2,312,000 17,813,000
Shareholders' equity...................................... 10,232,000 20,236,000
Common shares outstanding................................. 29,999,000 33,044,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto and the other financial
information contained in the Company's periodic reports previously filed with
the Commission and incorporated herein by reference.
As discussed herein, the Company completed the acquisitions of Boots &
Coots, L.P. as of July 31, 1997; ABASCO, Inc. as of September 25, 1997; ITS
Supply Corporation as of January 2, 1998; Boots & Coots Special Services, Inc.
(formerly known as Code 3, Inc.) as of February 20, 1998; Baylor Company as of
July 23, 1998, and HAZ-TECH Environmental Services, Inc. as of November 4, 1998.
The results of operations for such acquisitions are included in the condensed
Statements of Operations set forth hereinafter from the respective dates of
acquisitions through the reporting period end.
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<PAGE> 18
The Company elected in 1997 to change its fiscal year from June 30, 1997,
to December 31, 1997. A summary of operating results for the fiscal years ended
June 30, 1996 and 1997, the six months ended December 31, 1996 and 1997, and the
years ended December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
YEARS ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
----------------------- ---------------------- ------------------------
1996 1997 1996 1997 1997 1998
---------- ---------- --------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $1,662,000 $2,564,000 $ 743,000 $5,389,000 $7,154,000 $76,283,000
Costs and Expenses:
Operating Expenses........ 1,320,000 1,460,000 732,000 3,786,000 4,619,000 57,782,000
Selling, General and
Administrative......... 773,000 1,061,000 371,000 1,536,000 2,328,000 14,475,000
Depreciation and
Amortization........... 50,000 111,000 37,000 499,000 567,000 2,560,000
Operating Income (Loss)... (481,000) (68,000) (395,000) (432,000) (360,000) 1,466,000
Other Income (Expense).... 4,000 (63,000) (1,000) (92,000) (153,000) (4,239,000)
Extraordinary Item -- Loss
on Debt
Extinguishment......... -- -- -- (193,000) -- --
Income Tax (Expense)
Benefit................ 138,000 (25,000) (13,000) (41,000) (54,000) (223,000)
Net Loss.................... (339,000) (156,000) (409,000) (758,000) (567,000) (2,996,000)
</TABLE>
COMPARISON OF YEAR ENDED JUNE 30, 1996 WITH YEAR ENDED JUNE 30, 1997
Revenues were $1,662,000 for the year ended June 30, 1996 ("fiscal 1996")
compared to $2,564,000 for the year ended June 30, 1997 ("fiscal 1997"). This
increase was the result of increased market share from diversification of IWC
Service's client base.
Operating expenses were $1,320,000 for fiscal 1996, compared to $1,460,000
for fiscal 1997. The increase was the result of expanded operations in the
fourth quarter of fiscal 1997 due to expanded business activity.
General and administrative expenses were $773,000 for fiscal 1996, compared
to $1,061,000 for fiscal 1997. The increase was primarily the result of
investments in expanded corporate infrastructure and expanded marketing and
advertising to increase market share and diversify the Company's client base.
Depreciation and amortization expense increased from $50,000 for fiscal
1996, compared to $111,000 for fiscal 1997, primarily as the result of a full
year of depreciation on equipment additions made in fiscal 1996.
Other income (expenses) was $4,000 for fiscal 1996, compared to a net
expense of ($63,000) for fiscal 1997, resulting primarily from higher interest
expense on financed equipment purchases made during the 1996 period and interest
expense on the 12% Senior Subordinated Notes sold through June 30, 1997.
Income taxes for fiscal 1996, includes a credit for the reversal of a
deferred federal income tax provision of $139,000 for the 1995 start-up period.
Substantially all of the balance of income taxes for both fiscal 1996 and fiscal
1997 represents foreign taxes withheld on various international projects.
IWC Services sustained a net loss of $339,000 for fiscal 1996, compared to
a net loss of $156,000 for the comparable period in 1997 as a result of the
revenue and expense variations discussed above.
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED) WITH SIX MONTHS
ENDED DECEMBER 31, 1997
Revenues were $743,000 for the six months ended December 31, 1996 ("1996
Interim Period") compared to $5,389,000 for the six months ended December 31,
1997 ("1997 Interim Period"). This increase principally resulted from: (1)
product sales from the ABASCO acquisition completed in September 1997
($972,000); (2) sales of two fire fighting equipment packages in the 1997
Interim Period ($908,000); and, (3) increased market share for the Company's
Well Control business unit.
16
<PAGE> 19
Operating expenses were $732,000 for the 1996 Interim Period compared to
$3,786,000 for the 1997 Interim Period. This increase principally resulted from:
(1) cost of sales and operating expenses from the ABASCO acquisition completed
in September 1997 ($632,000); (2) costs associated with the sales of two fire
fighting equipment packages in the 1997 Interim Period ($686,000); (3) personnel
and equipment mobilizations costs incurred in connection with an international
well control incident in October 1997 ($540,000); and, (4) costs associated with
an increase in personnel and support facilities resulting from the July 31, 1997
acquisition of the Boots & Coots operating assets and growth in the Company's
Well Control business unit.
General and administrative expenses were $371,000 for the 1996 Interim
Period compared to $1,536,000 for the 1997 Interim Period. This increase
principally resulted from: (1) expenses associated from the ABASCO acquisition
completed in September 1997 ($246,000); and, (2) expenses associated with an
increase in personnel and other overhead to support the Company's increased
operational level in Well Control.
Depreciation and amortization expenses increased from $37,000 for the 1996
Interim Period compared to $499,000 for the 1997 Interim Period due to the
significant increase in property and equipment acquired with the July 31, 1997
acquisition of the Boots & Coots operating assets.
The loss of debt extinguishment of $193,000 resulted from the early
conversion to common stock of $2,900,000 in face amount of the Company's 12%
Senior Subordinated Notes during the 1997 Interim Period.
The increase in other expenses from $1,000 during the 1996 Interim Period
to $92,000 during the 1997 Interim Period is principally due to interest expense
on the Company's 12% Senior Subordinated Notes.
Income taxes of $13,000 during the 1996 Interim Period and $41,000 during
the 1997 Interim Period results from foreign taxes incurred on Well Control
projects.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 WITH THE YEAR ENDED DECEMBER 31,
1997 (UNAUDITED)
As a result of the acquisition program carried out during 1998, the
Company's business strategy of expanding from principally a well control and
fire fighting company into three principal business sets (emergency response and
restoration; programs and services; and manufacturing and distribution) has
evolved.
Revenues were $7,154,000 for the year ended December 31, 1997 compared to
$76,283,000 for the year ended December 31, 1998. This increase was the result
of increased market share from diversification of IWC Services' well control and
fire fighting client-base ($9,630,000) and business acquisitions ($59,499,000).
Operating expenses were $4,619,000 for the year ended December 31, 1997
compared to $57,782,000 for the year ended December 31, 1998. The increase was
the result of expanded well control operations beginning in the fourth quarter
of calendar 1997 ($5,238,000) and business acquisitions ($47,925,000).
Selling, general and administrative expenses were $2,328,000 for the year
ended December 31, 1997 compared to $14,475,000 for the year ended December 31,
1998. The increase resulted from additional investments in personnel, systems
and infrastructure necessary to support the Company's expanded scope of
operations; new marketing and advertising programs to increase market share and
diversify the Company's well control client base, development of and marketing
of the Company's WELLSURE(SM) risk management programs ($5,522,000) and business
acquisitions ($6,625,000).
Depreciation and amortization expense increased from $567,000 for the year
ended December 31, 1997 to $2,560,000 for the year ended December 31, 1998,
primarily as the result of depreciation and amortization relating to property
and equipment obtained in, and goodwill resulting from, business acquisitions.
Interest expense was $184,000 for the year ended December 31, 1997 compared
to $3,977,000 for the year ended December 31, 1998. The increase is primarily
from interest expense on increased debt incurred for business acquisitions.
17
<PAGE> 20
Income taxes for the years ended December 31, 1997 and 1998 represents
foreign taxes on international operations.
LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS
The Company's cash expenditures in connection with the acquisitions of
Boots & Coots L.P., ABASCO, ITS and B & C Special Services required a
substantial portion of the Company's then existing cash reserves. Further, the
terms upon which ABASCO, ITS and B & C Special Services 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 the sale in July 1997 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 3,867,000 shares of common stock; $6,238,000
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"); seller financing on the acquired
businesses in the aggregate principal amount of $5,761,000 all of which has been
retired as of the date hereof; and approximately $4,678,000 in net proceeds from
the private placement of 196,000 Units of the Company's 10% Junior Redeemable
Convertible Preferred Stock, each Unit consisting of one share of the Preferred
Stock and one Unit Warrant representing the right to purchase five shares of
common stock of the Company at a price of $5.00 per share.
On July 23, 1998, the Company completed a $45 million private placement to
The Prudential Insurance Company of America ("Prudential") consisting of
$15,000,000 of Senior Secured Notes due January 6, 1999 (the "Prudential Senior
Notes") and $30,000,000 of 11.28% Senior Subordinated Notes due July 23, 2006
(the "Prudential Subordinated Notes"), the proceeds of which were used to fund
the acquisition of Baylor, repay $5,000,000 in bridge financing provided through
Prudential Securities Credit Corporation on July 6, 1998 and to provide working
capital.
On October 28, 1998, the Company entered into a Loan Agreement with
Comerica Bank Texas ("Comerica"), as agent and lender, providing for a
$25,000,000 revolving loan facility (the "Loan Agreement"), subject to a
borrowing base determination. The Company used $15,458,000 of the initial draw
of $20,000,000 from the Comerica loan facility to repay the Prudential Senior
Notes which had provided interim working capital. The balance of funds from the
initial Comerica loan draw was added to working capital. The Company was not in
compliance with one financial covenant and has obtained a waiver from the
lender.
The loan agreement relating to the Comerica Loan Facility imposes certain
restrictions on the Company's activities, including, without limitation, a
prohibition on the payment of cash dividends on the Company's equity securities;
limitations on incurring additional borrowed money indebtedness; limitations on
incurring or permitting liens upon the assets of Company and its subsidiaries;
limitations on making loans or advances to, or investments in, other persons or
entities; limitations the Company or its subsidiaries liquidating, dissolving or
merging with another company; limitations on the disposition of assets by the
Company and its subsidiaries; a prohibition on the Company changing the nature
of its business; and a prohibition of the Company repurchasing its equity
securities. The Subordinated Note and Warrant Purchase Agreement relating to the
Prudential Subordinated Notes imposes restrictions on the Company's activities
which are similar to those imposed by the Loan Agreement. The Loan Agreement and
the Subordinated Note and Warrant Purchase Agreement each require that the
Company meet certain minimum financial tests. Such restrictions may make it
difficult for the Company to acquire businesses and raise the capital necessary
to pursue its business strategy without the consent and cooperation of the
holders of such notes.
Based on the results of operations for the year ended December 31, 1998,
the Company was not in compliance with certain financial covenants in the
Comerica Loan Agreement. Effective April 15, 1999, the Comerica Loan Agreement
was amended to waive compliance with these financial covenants through
18
<PAGE> 21
December 31, 1998 and to modify certain financial accounts, prospectively.
Comerica's commitment under this credit facility was reduced to $20,000,000, the
interest rate was adjusted to a base rate approximating prime plus 1%, and the
maturity date was modified to May 31, 2000.
The Company receives the majority of its revenues from customers in the
energy industry. The liquidity of the Company needs to be considered in light of
the significant fluctuations that are being experienced by oilfield service
providers as changes in oil and gas exploration and production change customer's
forecasts and budgets in response to oil and gas prices. These fluctuations can
rapidly impact the Company's cash flows as supply and demand factors impact the
number and size of projects available. During 1998 and continuing into 1999,
world-wide oil and gas prices and related activity have hit new lows, on an
inflation adjusted basis, for the past several decades, impacting the Company
and its competitors.
The Company has grown rapidly during 1998, primarily through acquisitions;
net assets this past year increased from approximately $14 to $98 million. Many
of the acquisitions have been made through debt financing; long-term debt has
increased from $1.7 million to $53.7 million and interest expense has climbed
from approximately $0.1 million to $4.2 million. Substantially all of the
Company's assets have been pledged to secure existing debt. The Company
curtailed its acquisition strategy in the last half of 1998 in response to the
industry conditions and credit availability. As of December 31, 1998, the
Company was in violation of its loan covenants with its two major lenders.
Management has arranged waivers of past violations and modifications of existing
loan covenants the Company believes will allow it to be in compliance with its
loan agreements for 1999. (April 15, 1999 debt modifications -- See note F)
Management believes the steps it has taken will allow the Company to comply with
loan covenants and provide cash flows to operate, realize its assets and
discharge its liabilities in the normal course of business.
Management's actions include downsizing personnel and operations to meet
market demand and slow down of the cash drain caused in 1998 by acquisitions
made to exploit new market opportunities. As mentioned, the level of
acquisitions will be curtailed unless unusual market opportunities with
favorable financing terms are identified. Each of the operating units is
tightening its working capital requirements, and a very high threshold has been
established for routine capital expenditures. Management is exploring
opportunities for new equity investments or improved financing including an
acquisition line of credit. As yet, none of these opportunities have matured. A
significant equity infusion could have a substantially dilutive impact on
existing shareholders.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes a prolonged
depression in oil and gas prices will have a material adverse effect on the
Company's financial position and results of operations.
On April 15, 1999, the Company completed the sale of $5,000,000 of Series A
Cumulative Senior Preferred Stock ("Series A Stock") to Halliburton Energy
Services, Inc. ("Halliburton"), a wholly-owned subsidiary of Halliburton
Company. The Series A Stock has a dividend requirement of 6.25% per annum
payable quarterly until the fifth anniversary at the date of issuance, whereupon
the dividend requirement increases the greater of prime plus 6.25% or 14% per
annum, which is subject to adjustment for stock splits, stock dividends and
certain other events. In addition, Halliburton received warrants to purchase,
for a 7 year period, 1,250,000 shares of the Company's $.00001 Par Value Common
Stock at $4 per share.
Also in connection with the equity investment, the Company and Halliburton
entered into an expanded Alliance Agreement which effectively broadens the
alliance between the Company and Halliburton that has been in effect since 1995.
RECENT ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than January 1, 2000.
19
<PAGE> 22
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain
disclosures no longer considered useful. The Company adopted this statement in
the fourth quarter of 1998 and there was no effect on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in interim and annual financial statements. The Company adopted this
statement in the fourth quarter of 1998 and there was no material effect on the
Company's presentation of segment disclosures.
Also in June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998 and there was no effect on the Company's financial
statements as there were no material items of other comprehensive income in any
of the years in the three year period ended December 31, 1998.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings per share. This
statement was adopted in the fourth quarter of 1997 and had no material effect
on the Company's computation of earnings per share.
YEAR 2000 ISSUES
The Company has assessed issues regarding its computer accounting and other
systems' compliance capabilities to process transactions beginning with "Year
2000." This assessment has been updated to include computer systems utilized by
the Company's acquisitions through and including the November 4, 1998
acquisition of HAZ-TECH.
All computer accounting systems of the Company and its operating
subsidiaries' are "Year 2000" compliant with the exception of one subsidiary.
The upgrade of this operating subsidiary's existing computer accounting software
package to a later generation software version that is "Year 2000" compliant is
estimated to cost approximately $275,000 to $300,000, inclusive of software and
hardware procurement, installation, customization of certain purchase and sales
modules, and user training. Initial program customizations; hardware
modifications; and conversion of historical data have been completed and testing
is in process. It is believed this project will be completed and operational
during the quarter ended June 30, 1999.
The remaining "Year 2000" issue involves a limited number of microprocessor
controlled manufacturing equipment units. The modifications necessary to bring
such control processors into compliance with "Year 2000" requirements are
estimated to cost between $30,000 to $40,000 and will be completed during the
quarter ended June 30, 1999.
The implications to the Company, should such upgrades not be completed, are
projected as follows. With respect to the above noted operating unit's
accounting system, the principal area of exposure would be an inability to
interface with customer and vendor computer systems, a primary driver of the
business of this operating unit. This operating unit was acquired during the
first quarter 1998 and for the year ended December 31, 1998, contributed
revenues of $25,336,000 and operating profits of $230,000. It is expected that
this business unit will continue in its present configuration, therefore the
planned computer system modifications are essential to long-term growth and
profitability.
With regard to the manufacturing equipment microprocessor modifications,
should such changes not be completed timely, the projected impact to the Company
is not deemed to be material and would be limited to potential delays in the
initial set up of such equipment and/or rescheduling production to be processed
on alternative plant equipment.
20
<PAGE> 23
The Company's assessment of the potential implication of broad based
non-compliance with "Year 2000" by its customers and suppliers has not been
completed at this date. A significant number of the Company's customers are
large international and U.S. domestic oil and gas and petrochemical companies
who typically maintain their systems on the leading edge of technology. From
contact with a limited number of customers, the Company believes that "Year
2000" non-compliance should not be a major concern. Isolated problems could
occur for smaller customers as a result of delays in processing the Company's
billings for services and products, the payment for which could conceivably be
delayed and cause isolated cash flow problems.
With regard to "Year 2000" non-compliance by the above noted operating
unit's vendors and suppliers, the requirement to interface with their computer
systems for purchase orders could reasonably present a problem that would result
in procurement orders placed by the Company's operating unit being either
delayed or not processed. This would require clerical intervention, resulting in
reduced margins, the magnitude of which cannot be reasonably quantified at this
point. With respect to a number of other suppliers and vendors to the Company,
there is a diversification of practice between the use of rudimentary computer
systems and manually prepared source documents. It is not expected that a
broad-based scenario of "Year 2000" exceptions would present a material obstacle
to the Company's orderly conduct of its business.
The Company will continue to monitor potential implications from
broad-based non-compliance by customers and vendors.
FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statements for the reasons
detailed in this report. The forward-looking statements contained herein are
made as of the date of this report and the Company assumes no obligation to
update such forward-looking statements, or to update the reasons why actual
results could differ from those projected in such forward-looking statements.
Investors should consult the information set forth from time to time in the
Company's reports on Forms 10-Q and 8-K, and its Annual Report to Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of the Company's market sensitive financial
instruments contains "forward looking statements".
Interest Rate Risk. At December 31, 1998, the Company had minimal interest
rate risk since a majority of the Company's long-term debt is fixed-rate and,
therefore, does not expose the Company to a significant risk of earnings loss
due to changes in market interest rates.
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in U.S. dollars. The Company typically denominates its contracts
in U.S. dollars to mitigate the exposure to fluctuations in foreign currencies.
ITEM 8. FINANCIAL STATEMENTS.
Attached following the Signature Pages and Exhibits.
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<PAGE> 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not had any disagreements with its independent accountants
and auditors.
On January 21, 1999, the "Company" dismissed its independent accountants,
Hein + Associates, LLP (the "Former Accountants") and engaged Arthur Andersen
LLP (the "New Accountants"). The decision to dismiss the Former Accountants and
engage the New Accountants has been approved by the Audit Committee of the
Company's Board of Directors. The reason for the change from the Former
Accountants, who have been the Company's primary auditors to date, was the
growth over the past year of the Company in terms of both revenue and asset base
and significant expansion of the international scope of the Company's
operations.
During each of the transition periods for the Six Months Ended December 31,
1997, the Year Ended June 30, 1997, the Year Ended December 31, 1998, and in the
interim period to the date hereof (i) there were no "reportable events" as such
term is described in Item 304 (a)(1)(v) of Regulation S-K and (ii) the Former or
New Accountants' reports on the financial statements of the Company did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. In addition,
management of the Company knows of no disagreements with the Former or New
Accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure in connection with their
reports.
22
<PAGE> 25
PART III
ITEM 14.
Pursuant to Instruction G.3 to Form 10-K, the information in Items 10 to 13
is incorporated by reference from the Company's definitive proxy statement which
will be filed with the Commission pursuant to Regulation 14A on or about April
30, 1999; if such proxy statement is not filed by such date, this Form 10-K will
be amended to include Items 10 to 13 on or before April 30, 1999.
<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 Options 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 -- Certificate of Designation of 10% Junior Redeemable
Convertible Preferred Stock(3)
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 (assigned to
Prudential)(2)
10.09 -- Stock Pledge Agreement with Main Street/Geneva (assigned
to Prudential)(2)
10.10 -- First Amendment to Stock Pledge Agreement (assigned to
Prudential)(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)
10.19 -- Senior Loan Agreement dated July 6, 1998, between Boots &
Coots International Well Control, Inc., and Prudential
Securities Credit Corporation(4)
10.20 -- First Amendment to Senior Loan Agreement (Bridge
Facility) dated July 23, 1998, between Boots & Coots
International Well Control, Inc., and The Prudential
Insurance Company of America(4)
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.21 -- Subordinated Note and Warrant Purchase Agreement dated
July 23, 1998, between Boots & Coots International Well
Control, Inc., and The Prudential Insurance Company of
America(4)
10.22 -- Registration Rights Agreement dated July 23, 1998,
between Boots & Coots International Well Control, Inc.
and The Prudential Insurance Company of America(4)
10.23 -- Participation Rights Agreement dated July 23, 1998, by
and among Boots & Coots International Well Control, Inc.,
The Prudential Insurance Company of America and certain
stockholders of Boots & Coots International Well Control,
Inc.(4)
10.24 -- Common Stock Purchase Warrant dated July 23, 1998(4)
10.25 -- Loan Agreement dated October 28, 1998, between Boots &
Coots International Well Control, Inc. and Comerica
Bank -- Texas(5)
10.26 -- Security Agreement dated October 28, 1998, between Boots
& Coots International Well Control, Inc. and Comerica
Bank -- Texas(5)
10.27 -- Amendment No. 1 to Subordinated Note and Warrant Purchase
Agreement between Boots & Coots International Well
Control, Inc., and The Prudential Insurance Company of
America(5)
*10.28 -- Executive Employment Agreement of H. B. Payne, Jr.
*10.29 -- Executive Employment Agreement of Jerry Winchester
*10.30 -- Executive Employment Agreement of Dewitt Edwards
*10.31 -- Office Lease
*21.01 -- List of subsidiaries
24.01 -- Power of Attorney (included on Signature Page)
</TABLE>
- ---------------
(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 for the six-month transition period ended
December 31, 1997 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-QSB for the quarter ended March 31, 1998,
filed with the Commission on May 19, 1998.
(4) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 7, 1998.
(5) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 10-Q filed with the Commission on November 16, 1998.
* Filed herewith
24
<PAGE> 27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By: /s/ LARRY H. RAMMING
----------------------------------
Larry H. Ramming,
Chief Executive Officer
Date: April 14, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
By: /s/ LARRY H. RAMMING Chief Executive Officer and April 14, 1999
------------------------------------------------- Director
Larry H. Ramming
By: /s/ THOMAS L. EASLEY Chief Financial Officer and April 14, 1999
------------------------------------------------- Director
Thomas L. Easley
By: /s/ BRIAN KRAUSE President and Director April 14, 1999
-------------------------------------------------
Brian Krause
By: /s/ K. KIRK KRIST Director April 14, 1999
-------------------------------------------------
K. Kirk Krist
By: /s/ JERRY WINCHESTER Director April 14, 1999
-------------------------------------------------
Jerry Winchester
</TABLE>
25
<PAGE> 28
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Boots & Coots International Well Control, Inc.
We have audited the accompanying consolidated balance sheet of Boots &
Coots International Well Control, Inc. and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boots &
Coots International Well Control, Inc. and subsidiaries as of December 31, 1998,
and the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
------------------------------------
Arthur Andersen LLP
Houston, Texas
April 15, 1999
F-1
<PAGE> 29
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Boots & Coots International Well Control, Inc.
We have audited the accompanying consolidated balance sheets of Boots &
Coots International Well Control, Inc. and subsidiaries as of June 30, 1997 and
December 31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended June 30, 1997 and for the
six-month period ended December 31, 1997 (as revised, see Note B). These
consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boots &
Coots International Well Control, Inc. and subsidiaries as of June 30, 1997 and
December 31, 1997, and the results of their operations and their cash flows for
the year ended June 30, 1997 and for the six-month period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP
------------------------------------
Hein + Associates LLP
Houston, Texas
March 27, 1998
F-2
<PAGE> 30
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,718,000 $ 4,213,000
Receivables -- net of allowance for doubtful accounts of
$7,000 and $915,000 at December 31, 1997 and 1998,
respectively........................................... 2,766,000 24,721,000
Inventories............................................... 1,131,000 14,819,000
Prepaid expenses and other current assets................. 427,000 987,000
----------- -----------
Total current assets.............................. 6,042,000 44,740,000
PROPERTY AND EQUIPMENT, net................................. 6,949,000 28,114,000
OTHER ASSETS:
Deferred financing costs and other assets -- net of
accumulated amortization of $17,000 and $448,000 at
December 31, 1997 and 1998, respectively............... 87,000 5,637,000
Goodwill -- net of accumulated amortization of $46,000 and
$560,000 at December 31, 1997 and 1998, respectively... 984,000 19,094,000
----------- -----------
Total assets...................................... $14,062,000 $97,585,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,679,000 $14,014,000
Accrued liabilities and customer advances................. 486,000 8,329,000
Long-term debt and notes payable -- current portion....... 1,565,000 4,584,000
----------- -----------
Total current liabilities......................... 3,730,000 26,927,000
----------- -----------
DEFERRED TAXES AND OTHER.................................... -- 1,346,000
LONG-TERM DEBT AND NOTES PAYABLE -- net of current
portion................................................... 99,000 49,076,000
COMMITMENTS AND CONTINGENCIES (Note I)
SHAREHOLDERS' EQUITY:
Preferred stock ($.00001 par, 5,000,000 shares authorized,
0 and 140,000 shares issued and outstanding at December
31, 1997 and 1998, respectively)....................... -- --
Common stock ($.00001 par, 50,000,000 shares authorized,
29,998,662 and 33,044,091 shares issued and outstanding
at December 31, 1997 and 1998, respectively)........... -- --
Additional paid-in capital................................ 11,213,000 25,154,000
Accumulated deficit....................................... (982,000) (4,918,000)
----------- -----------
Total shareholders' equity........................ 10,232,000 20,236,000
----------- -----------
Total liabilities and shareholders' equity........ $14,062,000 $97,585,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 31
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
REVENUES............................................... $2,564,000 $5,389,000 $76,283,000
COSTS AND EXPENSES:
Cost of Sales and Operating Expenses................. 1,460,000 3,786,000 57,782,000
Selling, General and Administrative.................. 1,061,000 1,536,000 14,475,000
Depreciation and Amortization........................ 111,000 499,000 2,560,000
---------- ---------- -----------
2,632,000 5,821,000 74,817,000
---------- ---------- -----------
OPERATING INCOME (LOSS)................................ (68,000) (432,000) 1,466,000
OTHER EXPENSES, PRIMARILY INTEREST..................... 63,000 92,000 4,239,000
---------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM AND INCOME TAXES........ (131,000) (524,000) (2,773,000)
INCOME TAX EXPENSE..................................... 25,000 41,000 223,000
---------- ---------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEM..................... $ (156,000) $ (565,000) $(2,996,000)
EXTRAORDINARY ITEM -- LOSS ON DEBT EXTINGUISHMENT...... -- 193,000 --
---------- ---------- -----------
NET LOSS............................................... $ (156,000) $ (758,000) $(2,996,000)
PREFERRED STOCK ACCRETION.............................. -- -- (865,000)
PREFERRED DIVIDENDS ACCRUED............................ -- -- (76,000)
---------- ---------- -----------
NET LOSS TO COMMON SHAREHOLDERS........................ $ (156,000) $ (758,000) $(3,937,000)
========== ========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE................. $ (0.01) $ (0.03) $ (0.12)
========== ========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE............... $ (0.01) $ (0.03) $ (0.12)
========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............. 12,191,000 23,864,000 31,753,000
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 32
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1997, SIX-MONTH PERIOD ENDED DECEMBER 31, 1997 AND
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------- PAID-IN ACCUMULATED SHAREHOLDERS
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ---------- ------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, July 1, 1996....................... -- $ -- 11,500,000 $115 $ 801,000 $ (67,000) $ 734,000
Common stock issued for services
rendered................................. -- -- 1,058,000 11 46,000 -- 46,000
Common stock issued as Placement fees...... -- -- -- -- 46,000 -- 46,000
Common stock issued in connection with
equity offering.......................... -- -- 1,629,000 16 -- -- --
Sale of common stock warrants.............. -- -- -- -- 156,000 -- 156,000
Net loss................................... -- -- -- (156,000) (156,000)
------- ---- ---------- ---- ----------- ----------- -----------
BALANCES, June 30, 1997...................... -- -- 14,187,000 142 1,048,000 (223,000) 826,000
Common stock issued in connection with
equity offering.......................... -- -- 1,315,000 13 -- -- --
Exchange conversion with Havenwood reverse
merger................................... -- -- 1,173,000 12 -- -- --
Common stock issued to acquire Boots &
Coots L.P. assets........................ -- -- 260,000 3 1,000,000 -- 1,000,000
Sale of common stock warrants.............. -- -- -- -- 145,000 -- 145,000
Common stock issued to extinguish debt..... -- -- 3,867,000 39 2,447,000 -- 2,447,000
Sale of common stock, net of offering
costs.................................... -- -- 7,475,000 75 6,238,000 -- 6,238,000
Common stock issued to purchase ABASCO,
Inc. .................................... -- -- 300,000 3 240,000 -- 240,000
Common stock issued for services
rendered................................. -- -- 100,000 1 80,000 -- 80,000
Common stock issued upon exercise of
options.................................. -- -- 1,287,000 12 -- -- --
Common stock issued upon exercise of
options.................................. -- -- 35,000 -- 15,000 -- 15,000
Net loss................................... -- -- -- (759,000) (759,000)
------- ---- ---------- ---- ----------- ----------- -----------
BALANCES, December 31, 1997.................. -- -- 29,999,000 300 11,213,000 (982,000) 10,232,000
Common stock issued upon exercise of
options.................................. -- -- 354,000 4 557,000 -- 557,000
Common stock issued in connection with
acquisitions............................. -- -- 500,000 5 650,000 -- 650,000
Common stock issued to acquire Baylor
Company, net of offering costs........... -- -- 540,000 5 2,855,000 -- 2,855,000
Common stock issued to acquire Boots &
Coots Special Services, Inc., net of
offering costs........................... -- -- 488,000 5 2,143,000 -- 2,143,000
Common stock issued to acquire HAZ-TECH
Environmental Services, Inc., net of
offering costs........................... -- -- 269,000 2 695,000 -- 695,000
Preferred stock issued in connection with
equity offering, net of offering costs... 196,000 -- -- -- 4,678,000 -- 4,678,000
Preferred stock dividends accrued.......... -- -- -- -- -- (76,000) (76,000)
Preferred stock accretion.................. -- -- -- -- 865,000 (865,000) --
Preferred stock redemption................. (56,000) -- -- -- (1,400,000) -- (1,400,000)
Sale of common stock warrants.............. -- -- -- -- 2,898,000 -- 2,898,000
Exercise of common stock warrants.......... -- -- 894,000 9 -- -- --
Net loss................................... -- -- -- -- -- (2,996,000) (2,996,000)
------- ---- ---------- ---- ----------- ----------- -----------
BALANCES, December 31, 1998.................. 140,000 $ -- 33,044,000 $330 $25,154,000 $(4,918,000) $20,236,000
======= ==== ========== ==== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 33
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (156,000) $ (758,000) $ (2,996,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 111,000 499,000 2,560,000
Common stock issued as compensation....................... 36,000 --
Bad debt expense.......................................... -- 7,000 634,000
Loss on debt extinguishment, net of tax................... -- 193,000 --
Changes in operating assets and liabilities, net of assets
acquired:
Receivables............................................. (1,076,000) (1,392,000) (12,509,000)
Inventories............................................. (288,000) 338,000 (4,745,000)
Prepaid expenses and other current assets............... (43,000) (380,000) (217,000)
Deferred costs and other assets......................... (34,000) -- (4,405,000)
Accounts payable, accrued liabilities and customer
advances.............................................. 1,098,000 1,004,000 9,352,000
----------- ----------- ------------
Net cash used in operating activities................... (352,000) (490,000) (12,326,000)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, including transaction costs,
net of cash acquired.................................... (45,000) (2,874,000) (29,529,000)
Property and equipment additions.......................... (123,000) (188,000) (4,394,000)
Disposition of assets..................................... 4,000 39,000 --
----------- ----------- ------------
Net cash used in investing activities............... (164,000) (3,023,000) (33,923,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised............................ -- 15,000 557,000
Proceeds from issuance of debt and warrants............... 1,555,000 1,445,000 65,312,000
Borrowings under line of credit........................... -- -- 21,000,000
Deferred financing costs.................................. (321,000) (210,000) (2,605,000)
Debt repayments........................................... (71,000) (3,223,000) (38,722,000)
Proceeds from sales of common stock....................... -- 6,503,000 --
Proceeds from the issuance of redeemable preferred stock
and warrants............................................ -- -- 4,678,000
Preferred stock dividends................................. -- -- (76,000)
Preferred stock redemption................................ -- -- (1,400,000)
----------- ----------- ------------
Net cash provided by financing activities........... 1,163,000 4,530,000 48,744,000
----------- ----------- ------------
NET INCREASE IN CASH........................................ 647,000 1,017,000 2,495,000
CASH AND CASH EQUIVALENTS, beginning of year................ 54,000 701,000 1,718,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of year...................... $ 701,000 $ 1,718,000 $ 4,213,000
=========== =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 53,000 $ 66,000 $ 2,581,000
Cash paid for income taxes................................ $ 23,000 $ 41,000 $ 315,000
=========== =========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock and common stock options issued in exchange
for property and equipment and services rendered........ $ 56,000 $ 80,000 $ 650,000
Conversion of subordinated debt to common stock........... -- 2,900,000 --
Issuance of common stock in acquisitions.................. -- 1,240,000 6,235,000
Stock offering costs...................................... -- 541,000 587,000
Warrants issued with financings........................... -- -- 2,898,000
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 34
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION:
Boots & Coots International Well Control, Inc. (the "Company"), formerly
known as Havenwood Ventures, Inc. ("Havenwood"), was incorporated in Delaware in
April 1988. Havenwood was originally formed to serve as a blind pool investment
fund, and in July 1988 Havenwood raised $500,000 in an initial public offering
of its common stock. After completing its initial public offering, Havenwood
expended its available resources in the development of a business enterprise
which it ultimately divested, thereafter remaining inactive, with no material
assets or liabilities, until it entered into a business combination with IWC
Services Inc. on July 29, 1997.
The Company acquired IWC Services, Inc. ("IWC Services") on July 29, 1997,
in a transaction in which it issued shares of common stock to the stockholders
of IWC Services in exchange for all of the issued and outstanding common stock
of IWC Services and issued options and warrants to purchase common stock of the
Company in exchange for all of the options and warrants to purchase common stock
of IWC Services then outstanding. As a result of the merger, IWC Services became
a wholly-owned subsidiary of the Company, the stockholders of IWC Services
became the beneficial holders of approximately 93% of the post-merger issued and
outstanding shares of common stock and the board of directors and management of
IWC Services began management of the Company. For accounting purposes this was
treated as an acquisition by IWC Services of Havenwood.
IWC Services, incorporated in Texas on June 27, 1995, was formed with the
issuance of 100,000 shares of no par common stock (increased to 5,000,000
pursuant to a 50-to-one stock split discussed in Note G) in exchange for cash of
$549,000, property and equipment valued at $108,925 assigned by Buckingham
Capital Corporation, and services performed by certain other shareholders, prior
to the transaction. The shareholders of Hell Fighters, a Texas corporation,
incorporated on May 4, 1995, contributed to IWC Services all of their
outstanding common shares of Hell Fighters to IWC Services, becoming a
wholly-owned subsidiary of IWC Services. IWC Services had no operations prior to
its acquisition of Hell Fighters, Inc. ("Hell Fighters").
Under the plan of merger between Havenwood and IWC Services, (i) the
outstanding voting securities of the Company were reverse split in the ratio of
one post-split share for every 135 pre-split shares held by a shareholder,
provided, however, that no single shareholder's share ownership was reduced to
fewer than 100 post-split shares; (ii) certain principal shareholders of the
Company surrendered a total of 741,000 post-split shares to the Company for
cancellation, leaving a total of 1,173,000 shares of common stock issued and
outstanding on the closing date; (iii) each issued and outstanding share of
common stock of IWC Services was converted into 2.30 post-merger shares of the
Company's common stock, amounting to approximately 15,502,000 post-merger shares
in the aggregate (all share amounts herein have been adjusted to reflect this
2.30 for 1 split); (iv) outstanding options and warrants to purchase shares of
the authorized and unissued common stock of IWC Services were converted into
substantially similar options and warrants to purchase shares of the Company's
authorized and unissued common stock, and (v) IWC Services became a wholly-
owned subsidiary of the Company with the former IWC Services shareholders, as a
group, acquiring shares representing approximately 93% of the resulting
capitalization of the Company. Following the completion of the transactions,
there were approximately 16,675,000 shares of the Company's common stock issued
and outstanding. Immediately after the merger, all the officers and directors of
the Company resigned and were replaced by representatives of IWC.
The Company receives the majority of its revenues from customers in the
energy industry. The liquidity of the Company needs to be considered in light of
the significant fluctuations that are being experienced by oilfield service
providers as changes in oil and gas exploration and production change customer's
forecasts and budgets in response to oil and gas prices. These fluctuations can
rapidly impact the Company's cash flows as supply and demand factors impact the
number and size of projects available. During 1998 and continuing into
F-7
<PAGE> 35
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, world-wide oil and gas prices and related activity have hit new lows, on
an inflation adjusted basis, for the past several decades, impacting the Company
and its competitors.
The Company has grown rapidly during 1998, primarily through acquisitions;
net assets this past year increased from approximately $14 to $98 million. Many
of the acquisitions have been made through debt financing; long-term debt has
increased from $1.7 million to $53.7 million and interest expense has climbed
from approximately $0.1 million to $4.2 million. Substantially all of the
Company's assets have been pledged to secure existing debt. The Company
curtailed its acquisition strategy in the last half of 1998 in response to the
industry conditions and credit availability. As of December 31, 1998, the
Company was in violation of its loan covenants with its two major lenders.
Management has arranged waivers of past violations and modifications of existing
loan covenants to allow the Company to be in compliance with its loan agreements
for 1999 (April 15, 1999 debt modification -- See Note F). Management believes
the steps it has taken will allow the Company to comply with loan covenants and
provide cash flows to operate, realize its assets and discharge its liabilities
in the normal course of business.
Management's actions include downsizing personnel and operations to meet
market demand and slow down of the cash drain caused in 1998 by recent
acquisitions made to exploit new market opportunities. As mentioned, the level
of acquisitions will be curtailed unless unusual market opportunities with
favorable financing terms are identified. Each of the operating units is
tightening its working capital requirements, and a very high threshold has been
established for routine capital expenditures. Management is exploring
opportunities for new equity investments or improved financing including an
acquisition line of credit. As yet, none of these opportunities have matured. A
significant equity infusion could have a substantially dilutive impact on
existing shareholders.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes a prolonged
depression in oil and gas prices will have a material adverse effect on the
Company's financial position and results of operations.
B. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation -- The accompanying consolidated financial statements include
the financial transactions and accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Revenue Recognition -- Revenue is recognized on the Company's service
contracts either as earned on the basis of day work completed or; for turnkey
contracts, on the percentage-of-completion method based upon costs incurred to
date and estimated total contract costs. Revenue and cost from product and
equipment sales is recognized upon contract completion.
The Company recognizes profits on long-term manufacturing contracts on the
percentage-of-completion and uses the completed contract methods of accounting
on a contract-per-contract basis. The completed contract method is used when a
lack of dependable estimates and inherent hazards may cause the production of
unreliable data. A contract is considered to be complete when all costs except
insignificant items have been incurred and the installation is operating
according to specifications or has been accepted by the customer.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Costs in excess of amounts billed are classified as current assets and
billings in excess of costs are classified as current liabilities. Contract
retentions are included in accounts receivable.
F-8
<PAGE> 36
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Inventories consist primarily of equipment, parts and
supplies, work-in-progress and finished goods. Inventories are valued at the
lower of cost or market with cost determined using the first-in first-out
method.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is provided principally using the straight-line method over the
estimated useful lives of the respective assets as follows: buildings and
improvements (15-31.5 years), manufacturing equipment (8-12 years), well control
and fire-fighting equipment (8 years), shop and other equipment (8 years),
vehicles (5 years) and office equipment and furnishings (5 years). Facilities
and leasehold improvements are amortized over remaining primary lease terms.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated over the
remaining useful life of the equipment. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statement of operations.
Long Lived Assets -- Long-lived assets consist primarily of certain
property and equipment and the excess of cost over net assets of acquired
businesses (goodwill). Management continually evaluates whether events or
circumstances have occurred that indicate the remaining useful life of
intangible assets and other long-lived assets may warrant revision or that
remaining balances may not be recoverable.
Goodwill -- The Company amortizes costs in excess of fair value of net
assets of businesses acquired using the straight-line method over periods
ranging from 15 to 40 years. Recoverability is reviewed annually or sooner if
events or changes in circumstances indicate that the carrying amount may exceed
fair value. Recoverability is then determined by comparing the estimated
undiscounted net cash flows of the assets to which the goodwill applies to the
net book value including goodwill of those assets. Goodwill shown in the
consolidated financial statements relates to the Company's acquisitions of the
assets of IWC, Boots & Coots LP, ABASCO Inc., ITS Supply Corporation, Boots &
Coots Special Services, Inc. (f/k/a Code 3, Inc.), Baylor Company and HAZ-TECH
Environmental Services, Inc. For business acquisitions made prior to December
31, 1997, goodwill is amortized over 15 years. Management performs a fair market
value computation for each acquisition and the resulting goodwill is amortized
over the appropriate lives, typically 40 years for each acquisition. The
allocations of the purchase prices to the assets acquired and liabilities
assumed of these companies have been recorded based upon preliminary estimates
of fair value and may be adjusted in the year following the acquisition as
additional information becomes available.
Amortization expense of goodwill was $13,000 for the year ended June 30,
1997, $20,000 for the six-month period ended December 31, 1997, and $515,000 for
the year ended December 31, 1998.
Foreign Currency Transactions -- The functional currency of the Company's
foreign operations is the U.S. dollar. Substantially all customer invoices and
vendor payments are denominated in U.S. currency. Revenues and expenses from
foreign operations are remeasured into U.S. dollars on the respective
transaction dates and foreign currency gains or losses are included in the
Consolidated Statements of Operations. The majority of the foreign transactions
have terms that require a reimbursement of the currency fluctuation. This
mitigates the exposure to foreign currency losses. The Company does not enter
into hedge contracts, derivatives or interest rate swaps.
Income Taxes -- The Company accounts for income taxes pursuant to the
liability method, which requires recognition of deferred income tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on the
temporary differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities and available tax carryforwards.
F-9
<PAGE> 37
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Risk Factors -- Risk factors of the Company include, but are not limited
to, liquidity constraints, acquisition financing, acquisition strategy including
the related uncertainty of future profitability, environmental and governmental
regulations, and the ability to generate sufficient cash flows to meet working
capital requirements and to finance its business plan.
Earnings Per Share -- Basic and diluted earnings (loss) per share was
computed by dividing net income (loss) by the weighted average common shares
outstanding during the year ended June 30, 1997, the six-month period ended
December 31, 1997, and the year ended December 31, 1998. Options and warrants to
purchase shares of common stock were outstanding during the respective periods
but were not included in the computation of diluted earnings (loss) per common
share, because of losses which made the options and warrants anti-dilutive.
Fair Value of Financial Instruments -- The carrying values of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to the short-term maturities of these instruments. Management believes that the
carrying amount of long-term debt approximates fair value as the majority of
borrowings bear interest at current market interest rates for similar debt
structures.
Recent Accounting Pronouncements -- In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company is currently evaluating what effect, if any,
this statement will have on the Company's financial statements. The Company will
adopt this statement no later than January 1, 2000.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain
disclosures no longer considered useful. The Company adopted this statement in
the fourth quarter of 1998 and there was no effect on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in interim and annual financial statements. The Company adopted this
statement in the fourth quarter of 1998 and there was no material effect on the
Company's presentation of segment disclosures.
Also in June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998 and there was no effect on the Company's financial
statements as there were no material items of other comprehensive income in any
of the years in the three year period ended December 31, 1998.
The FASB issued SFAS No. 128, Earnings Per Share, effective for financial
statements issued after December 31, 1997, including interim periods, that
establishes standards for computing and presenting earnings per share. The new
statement requires retroactive restatement of all prior-period per share data
presented. The Company adopted the disclosure requirements of this statement and
has restated its 1997 amounts to reflect the adoption retroactively.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1 providing guidance on
accounting for the costs of computer software developed or obtained for internal
use. This statement requires expenditures to be expensed as incurred. The
effective date of the pronouncement is for fiscal years beginning after December
15, 1998. The Company believes its current
F-10
<PAGE> 38
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
policies are materially consistent with the SOP and the impact on the Company's
future results of operations will not be material.
In April 1998, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued by the AICPA. SOP 98-5 requires that all non-governmental entities
expense costs of start-up activities as those costs are incurred. The Company is
required to adopt SOP 98-5 as of January 1, 1999. The Company does not expect
the adoption of SOP 98-5 to have a material effect on its future financial
position or results of operations.
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Actual
results could differ from these estimates.
Cash Flow Information -- The Company considers all unrestricted, highly
liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Change in Fiscal Year -- Effective December 8, 1997, the Company changed
its fiscal year from June 30 to December 31. The consolidated financial
statements include presentation of the transition period beginning on July 1,
1997 and ending December 31, 1997.
Change in Presentation -- Certain reclassifications have been made in prior
period consolidated financial statements to conform to current year
presentation.
Revision of Prior Period Financial Statements -- The consolidated statement
of operations for the six month period ended December 31, 1997 has been revised
to present the $193,000 loss on extinguishment of debt (see Note F) as an
extraordinary item. The restatement had no effect on the consolidated net loss.
C. BUSINESS ACQUISITIONS:
On July 31, 1997, IWC Services acquired all of the operating assets,
including stock of its 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) $369,000 cash payable to Boots & Coots, (ii) $681,000 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 $4,761,000 and (iv)
260,000 shares of common stock valued at $3.85 per share of the Company. The
promissory notes, secured by the acquired assets of Boots & Coots, were paid in
1998, after the determination of foreign tax obligations. This transaction was
accounted for as a purchase and the acquired assets and liabilities of Boots &
Coots were valued at fair market value as of July 31, 1997 resulting in goodwill
of $1,420,000 which is being amortized over 15 years.
For all acquisitions, the fair value of common stock issued is estimated
using management's and the board of directors' judgment, which is based on
recent transactions, the trading value of Company stock, trading value of
similar investments, discussions with financial advisors, and the negotiations
with sellers.
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 of rapid response oil and chemical spill
containment and reclamation equipment and products since 1975. The Company paid
$1,590,000 in cash and issued 300,000 shares of common stock valued at $0.80 per
share to acquire the manufacturing equipment, inventory and customer lists. This
transaction was accounted for as a purchase and the acquired assets and
liabilities of ABASCO were valued at fair market value effective as of September
12, 1997 resulting in goodwill of $750,000 which is being amortized over 25
years.
On January 2, 1998, the Company funded the acquisition, effective as of
December 31, 1997, of all of the capital stock of ITS Supply Corporation
("ITS"), an ISO 9002 certified materials and equipment procure-
F-11
<PAGE> 39
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ment, transportation and logistics company that serves the energy industry
worldwide, with offices in Houston, Venezuela, Peru, Dubai (UAE) and the United
Kingdom. ITS also serves as a distributor in Venezuela and Peru of artificial
lift oil recovery systems. Total consideration of $6,000,000 for the acquisition
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).
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
(subsequently renamed Boot & Coots Special Services, Inc.,) included $571,000
cash; the repayment of Code 3 corporate secured debt and interest thereon of
approximately $1,250,000; the allotment of $550,000 of Code 3 accounts
receivable to the former shareholders; and the issuance of 488,000 shares of the
Company's common stock valued at $5.06 per share, of which 159,000 shares were
delivered into escrow to secure the indemnification obligations of the
stockholders of Code 3. This transaction was accounted for as a purchase and the
acquired underlying net assets of Code 3 have been valued at fair market value
on a preliminary basis resulting in goodwill of $4,064,000 which is being
amortized over 40 years.
On July 23, 1998, the Company completed the acquisition of 100% of the
outstanding shares of common stock of Elmagco, Inc., a Delaware Corporation
("Elmagco") from Begemann, Inc., a Delaware Corporation ("Begemann"). Elmagco
and its subsidiaries conduct business using the tradename Baylor Company
("Baylor"). Baylor is engaged in the design and manufacture of electrical
braking and control equipment predominantly used in the drilling and marine
markets, highly engineered specialty products such as SCR systems and custom
pedestal leg locking systems for the offshore market. Additionally, Baylor
designs and manufactures a broad line of custom AC generators, which are used in
a variety of industrial, commercial and governmental applications.
Consideration for the acquisition of Baylor, with a June 30, 1998 effective
date, was approximately $25,000,000 in cash, a $2,000,000 dividend payment and
the issuance at closing of 540,000 shares of the Company's common stock valued
at $5.63 per share. This transaction was accounted for as a purchase and the
acquired net assets and liabilities of Baylor have been valued at fair market
value on a preliminary basis resulting in goodwill of $7,294,000 which is being
amortized over 40 years.
On November 4, 1998 the Company's wholly-owned subsidiary, Boots & Coots
Special Services, Inc., completed the acquisition through merger of HAZ-TECH
Environmental Services, Inc. ("HAZ-TECH"), an emergency prevention and response
services company with operations in Arkansas, Oklahoma, Louisiana and Northeast
Texas. Consideration for the HAZ-TECH acquisition was $316,000 in cash and the
issuance of 269,000 shares of the Company's common stock valued at $2.69 per
share and assumed liabilities. This transaction was accounted for as a purchase
and the acquired net assets of HAZ-TECH have been valued on a preliminary basis
at fair market value resulting in goodwill of $1,413,000 which is being
amortized over 40 years.
The operations of the acquired entities are included in the Company's
consolidated operations from the respective acquisition dates. The Company's
1997 and 1998 revenues, net income (loss) applicable to common shareholders, and
net earnings (loss) per share on an unaudited pro forma basis, assuming that the
F-12
<PAGE> 40
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IWC, ABASCO, ITS, B & C Special Services, Baylor and HAZ-TECH acquisitions
occurred on January 1, 1997 would be as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.................................................. $96,997,000 $104,428,000
Net Income (Loss) to Common Shareholders.................. 43,000 4,481,000
Basic Earnings (Loss) Per Common Share.................... .00 (.11)
Diluted Earnings (Loss) Per Common Share.................. .00 (.11)
</TABLE>
D. INVENTORIES, PROPERTY AND EQUIPMENT:
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Raw material and supplies.................................. $ 239,000 $ 2,862,000
Work in process............................................ 35,000 4,327,000
Finished goods............................................. 857,000 7,630,000
---------- -----------
$1,131,000 $14,819,000
========== ===========
</TABLE>
Property and equipment consisted of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Land..................................................... $ 140,000 $ 2,241,000
Buildings and improvements............................... 561,000 7,544,000
Well control and firefighting equipment.................. 5,993,000 6,902,000
Shop and other equipment................................. 380,000 10,663,000
Vehicles................................................. 134,000 737,000
Office equipment and furnishings......................... 303,000 2,649,000
---------- -----------
Total property and equipment............................. 7,511,000 30,736,000
Less: Accumulated depreciation and
amortization................................... (562,000) (2,622,000)
---------- -----------
Net property and equipment....................... $6,949,000 $28,114,000
========== ===========
</TABLE>
F-13
<PAGE> 41
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. INCOME TAXES:
The Company and its wholly-owned domestic subsidiaries file a consolidated
federal income tax return. The provision for income taxes shown in the
Consolidated Statements of Operations differs from the amount that would be
computed if the loss before income taxes were multiplied by the federal income
tax rate (statutory rate) as follows:
<TABLE>
<CAPTION>
YEAR SIX-MONTH
ENDED PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1997 1998
-------- ------------ ------------
<S> <C> <C> <C>
Tax benefit at statutory rate..................... $(45,000) $(258,000) $(943,000)
Foreign taxes in excess of statutory rate......... 25,000 41,000 176,000
State income taxes................................ -- -- 47,000
Unrecognized net operating losses................. 45,000 258,000 902,000
Other, primarily meals and entertainment.......... -- -- 41,000
-------- --------- ---------
Provision for income taxes.............. $ 25,000 $ 41,000 $ 223,000
======== ========= =========
</TABLE>
The current provision for income taxes consists primarily of state taxes
and foreign taxes on international operations.
The tax effect of temporary differences representing deferred tax assets
and liabilities are not significant in the year ended June 30, 1997 and the
six-month period ended December 31, 1997 as the net operating loss carryforwards
of $74,000 and $332,000, respectively, carried a full valuation allowance. The
Company records a valuation allowance for deferred tax assets when management
believes it is more likely than not the assets will not be realized. The
deferred tax asset related to the net operating loss carryforwards at December
31, 1998 of $1,205,000 also carries a full valuation allowance.
Other temporary differences representing deferred tax assets and
liabilities at December 31, 1998 include assets related to the allowance for
doubtful accounts ($270,000), inventory (298,000), accruals (329,000), warranty
reserves (244,000) and other assets (33,000) offset by liabilities related to
book depreciation and amortization in excess of tax ($1,181,000). The net
difference is not material.
As of December 31, 1998, the Company has net domestic operating loss
carryforwards of approximately $3,544,000 expiring in various amounts beginning
in 2011.
F-14
<PAGE> 42
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. LONG-TERM DEBT AND NOTES PAYABLE:
Long-term debt and notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
11.28% Senior Subordinated Note -- Net of Warrant Value
($30,000,000 -- Face)..................................... $ -- $27,748,000
Revolving Loan Agreement.................................... -- 21,000,000
10% Shareholder Note........................................ -- 1,217,000
Subordinated Note to Supplier............................... -- 3,194,000
12% Subordinated Note....................................... 90,000 90,000
Acquisition Note --
Boots & Coots L.P. ....................................... 1,544,000 --
Vehicle and equipment notes bearing interest at rates from
9.25% to 12.25%, payable in monthly installments, through
April 2003 and collateralized by vehicles and equipment... 30,000 411,000
---------- -----------
Total............................................. 1,664,000 53,660,000
Less: current portion of long-term debt and notes
payable......................................... 1,565,000 4,584,000
---------- -----------
Total long-term debt and notes payable............ $ 99,000 $49,076,000
========== ===========
</TABLE>
As of December 31, 1998, the maturities of long-term obligations for the
five years after 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31: AMOUNT
- ------------------------- -----------
<S> <C>
1999.................................................... $ 4,584,000
2000.................................................... 21,263,000
2001.................................................... 65,000
2002.................................................... 6,000,000
2003.................................................... 6,000,000
Thereafter.............................................. 15,748,000
-----------
$53,660,000
===========
</TABLE>
In January 1997, through a Private Placement Memorandum, the Company issued
Investment Units which consisted of a 12% Senior Subordinated Note (the "Notes")
in the principal amount of $1,000 with a warrant to purchase shares of the
Company's common stock at a discounted price. Management estimated the fair
value of the proceeds applicable to the warrants issued through June 30, 1997 to
be $156,000 and for the six month period ended December 31, 1997 to be $145,000,
which have been amortized to interest expense over the term of the notes.
Interest on the Notes at the rate of 12% per annum (13.3% effective interest
rate based on reduced note balances) is payable semi-annually commencing July 1,
1997 with maturity date for the Notes on December 31, 2000, subject to extension
for up to two periods of six months each with an increase in the interest rate
to 14%. Net proceeds, after sales commissions and offering expenses, (deferred
and amortized over term of notes) from $3,000,000 in notes sold pursuant to this
financing were utilized for working capital and business expansion purposes.
Effective September 12, 1997, holders of the Company's 12% Senior Subordinated
Notes were offered the election to exercise the warrants into common stock of
the Company at an exchange rate of $.75 per share with payment accomplished
through surrender and retirement of their notes. An aggregate face amount of
$2,900,000 of Notes were converted into an aggregate of 3,867,000 shares of
common stock with $193,000 recognized as an extraordinary charge to
F-15
<PAGE> 43
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations for early extinguishment of indebtedness. The carrying amount, net of
costs associated with debt offering, was transferred to equity at time of
conversion.
In connection with the acquisition of ITS, the Company sold through private
placement 10% Senior Secured Notes on January 2, 1998, and concurrently 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 which had a scheduled maturity date of May 2, 1998. The commitment for the
Senior Secured Notes by the note holders also required the payment by the
Company of a $50,000 commitment fee. The 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. Using the Black-Scholes pricing model, an estimated fair value was
attributed to the warrants issued, has been subsequently charged to operations
as interest expense over the term of the 10% Senior Secured Notes. During 1998,
through mutual agreement with the holder of the warrants, the warrants were
converted to 777,000 shares of common stock. Also in connection with the
acquisition of ITS, seller financing of $1,000,000 was obtained. The seller
note, together with interest at the rate of 10% per annum, was repaid during
1998.
In connection with the acquisition 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 attached 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. Using the
Black-Scholes pricing model, an estimated fair value of $516,000 was attributed
to the warrants issued in connection with the 10% Senior Secured Notes and has
been charged to operations as interest expense over the three-month term of the
notes during the year ended December 31, 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 $7,000,000 remaining
balance outstanding on the 10% Senior Secured Notes issued by the Company in
connection with the acquisitions of ITS and Code 3. Mr. Ramming agreed to extend
the maturity dates of such notes to October 1, 1998 and thereafter on a
month-to-month basis, in exchange for a fee of 1% of the principal balances of
such note. As of December 31, 1998, the Company had paid Mr. Ramming $5,783,000
to be applied toward the principal balance of the 10% Notes held by Mr. Ramming
and $383,000 in interest and extension fees.
Concurrent with the acquisition of Baylor on July 23, 1998, and to provide
the Company with cash to fund the acquisition and for other corporate purposes,
the Company completed the sale of $15,000,000 of Senior Secured Notes due
January 6, 1999 (the "Senior Notes") and $30,000,000 of 11.28% Senior
Subordinated Notes due July 23, 2006 (the "Subordinated Notes") to The
Prudential Insurance Company of America ("Prudential"). Proceeds from these
financing transactions were used to fund the Baylor acquisition, repay
$5,000,000 in bridge financing provided through Prudential Securities Credit
Corporation on July 6, 1998 and provide working capital.
The Subordinated Note and Warrant Purchase Agreement relating to the
Subordinated Notes imposes restrictions on the Company's activities including,
without limitation, with respect to the payment of dividends or other
distributions on its capital stock; incurring additional indebtedness; granting
liens to secure any other indebtedness; making loans or advances to, or
investments in, other persons or entities; liquidating, dissolving or merging
with another company; dispositions of assets; transactions with affiliates;
changing the nature of its business; and the issuance of additional shares of
preferred stock. Further, the Company is required to meet certain minimum
financial tests so long as the Subordinated Notes are outstanding. The
Subordinated Note
F-16
<PAGE> 44
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Warrant Purchase Agreement also provide for customary affirmative and
negative covenants. The Company was not in compliance with one financial
covenant and has obtained a waiver from the lender.
In connection with the sale of the Notes, the Company issued to Prudential
a warrant to purchase, commencing on July 23, 2000 and terminating with the
later of July 23, 2008, or six months after the Notes are fully retired,
3,165,000 shares of common stock (the "Warrant") of the Company at an initial
exercise price of $6.70 per share. The Warrant contains anti-dilution and
repricing provisions that may result in downward adjustments to the exercise
price upon the occurrence of certain events and a provision for the "cashless"
exercise of the Warrant. The Company granted Prudential a one-time demand
registration right and unlimited "piggyback" registration rights for the shares
of common stock issuable upon the exercise of the Warrant. The Company and
certain stockholders of the Company also agreed with Prudential that in the
event of significant sales of securities of the Company by the Company or such
stockholders, Prudential would be entitled to participate in such sale. Using
the Black-Scholes pricing model, an estimated fair value of $2,382,000 was
attributed to the warrants issued in connection with the sale of the Notes and
is being periodically charged to interest expense over the term of the Notes.
On October 28, 1998, the Company entered into a Revolving Loan Agreement
with Comerica Bank Texas ("Comerica"), as agent and lender, providing for a
$25,000,000 revolving loan facility (the "Loan Agreement"). The Company, subject
to a borrowing base formula, has drawn through December 31, 1998 $21,000,000
under the Comerica Loan Agreement to repay all of the interim $15,000,000
Prudential Senior Notes. Advances under the Loan Agreement bear interest at the
greater of Comerica's daily prime rate or the federal funds rate plus .5%.
Subject to certain limitations, the Company has the option under the Loan
Agreement to convert to a LIBOR based interest rate calculation. The Company
also pays a commitment fee equal to .25% per annum on the unused portion of the
commitment under the Loan Agreement.
Advances under the Loan Agreement are secured by substantially all of the
assets of the Company and its subsidiaries. The Loan Agreement imposes certain
restrictions on the Company's activities, including, without limitation, a
prohibition on the payment of cash dividends on the Company's equity securities;
limitations on incurring additional borrowed money indebtedness; limitations on
incurring or permitting liens upon the assets of Company and its subsidiaries;
limitations on making loans or advances to, or investments in, other persons or
entities; limitations the Company or its subsidiaries liquidating, dissolving or
merging with another company; limitations on the disposition of assets by the
Company and its subsidiaries; a prohibition on the Company changing the nature
of its business; and a prohibition of the Company repurchasing its equity
securities.
Based on finalized results of operations for the year ended December 31,
1998, the Company was not in compliance with certain financial covenants in the
Comerica Loan Agreement. Effective April 15, 1999, the Comerica Loan Agreement
was amended to waive compliance with these financial covenants through December
31, 1998 and to modify certain financial covenants prospectively. Comerica's
commitment under this credit facility was reduced to $20,000,000, the interest
rate adjusted to a base rate approximating prime plus 1%, and the maturity date
was modified to May 31, 2000.
G. SHAREHOLDERS' EQUITY:
Capital Structure:
At June 30, 1996, IWC Services authorized 1,000,000 shares of no par common
stock of which 100,000 shares were issued and outstanding. Effective December
17, 1996, IWC Services amended its Articles of Incorporation and By-Laws
increasing its authorized capital stock to 50,000,000 shares of $0.01 par value
common stock and effected a 50-to-1 stock split and 5,000,000 shares of $0.00001
par value preferred stock, which may be issued at the discretion of the Board of
Directors. At December 31, 1997 and 1998, a total of 29,998,000 shares and
33,044,000 shares, respectively, of common stock were issued and outstanding. In
June
F-17
<PAGE> 45
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, the Company completed the sale through private placement of 196,000 Units
of 10% Junior Redeemable Convertible Preferred Stock ("Redeemable Preferred"),
each Unit consisting of one share of the Preferred Stock and one Unit Warrant
representing the right to purchase five shares of common stock of the Company at
a price of $5.00 per share. The Redeemable Preferred Stock could be redeemed by
the Company at any time on or before the six month anniversary of the date of
issuance (from October 17, 1998 through December 8, 1998) without prior written
notice in an amount per share equal to $25.00, plus any accrued and unpaid
dividends thereon. After the six month anniversary of the date of issuance of
the Redeemable Preferred Stock and for so long as such shares are outstanding,
the Company could redeem such shares upon fifteen days prior written notice.
In the event shares of Redeemable Preferred Stock were not redeemed by the
Company on or before the six month anniversary of the date of issuance, each
unredeemed share shall thereafter, until the nine month anniversary of the date
of issuance be convertible, at the election of the holder thereof, into such
number of shares of common stock at 85% of the average of the last reported
sales prices of shares of the common stock (or the average of the closing bid
and asked prices if no transactions have been reported), not to exceed $6.00 per
share, for the 10 trading days immediately preceding the receipt by the Company
of written notice from the holder thereof of an election to so convert such
share of Redeemable Preferred Stock. In the event the Company has not redeemed
shares of Redeemable Stock on or before the nine month anniversary of the date
of issuance, each unredeemed share shall become immediately convertible, at the
election of the holder thereof, into such number of shares of common stock as
shall be obtained by dividing $25.00 by $2.75 (proportionately adjusted for
common stock splits, combinations of common stock and dividends paid in shares
of common stock).
Using the Black-Scholes pricing model and taking into account the discount
upon conversion, an estimated fair value of $865,000 was attributed to the
warrants issued in connection with the Redeemable Preferred Stock. This amount
was accreted over the six-month redemption period as a charge to net loss to
common shareholders.
Through December 31, 1998, the Company redeemed 56,000 shares of Redeemable
Preferred Stock for $1,400,000 and subsequently retired those shares.
Warrants:
On September 18, 1997, the Company closed a private placement offering for
the sale of 7,475,000 shares of common stock at $1 per share for a total of
$7,475,000. Proceeds to the Company after placement agents' fees and expenses of
the offering were approximately $6,323,000 and were used for payment on the
Boots & Coots, L.P. acquisition notes and for working capital. Additionally, the
placement agents were awarded 748,000 warrants at an exercise price of $1.20,
which are exercisable for a period of four years from grant date.
F-18
<PAGE> 46
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note F, in connection with various short-term interim and
long-term financings, the Company has granted to the lenders warrants to
purchase common stock of the Company. A summary of warrants outstanding as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE NUMBER
EXPIRATION DATE PER SHARE OF SHARES
- --------------- -------------- ---------
<S> <C> <C>
06/30/00.................................................. $3.84 26,000
12/01/01.................................................. 2.85 300,000
09/18/02.................................................. 1.20 748,000
05/31/03.................................................. 5.00 980,000
01/02/04.................................................. 2.62 800,000
03/07/04.................................................. 4.50 300,000
07/23/08.................................................. 6.70 3,165,000
---------
6,319,000
=========
</TABLE>
Voting Trust Agreement:
In May 1995, certain officers and directors of the Company entered into a
Voting Trust Agreement giving the Company's chairman and director of the Company
the absolute right to vote all shares of common stock owned by certain other
officers of the Company during a five-year period ending December 31, 2000. The
Voting Trust Agreement provides that twenty percent of the shares subject to
such agreement are eligible for release therefrom on each one year anniversary
date of the agreement. Currently, 1,380,000 shares (representing 4.2% of the
Company's outstanding stock) are subject to the Voting Trust Agreement.
401-(k) Plan:
The Company's wholly owned subsidiary, Baylor Company, was sponsor of the
Baylor Company 401-(k) Plan for eligible employees having six months of service
and being at least twenty-one years of age. Employees can make elective
contributions of 1% to 15% of compensation, as defined. Baylor Company matched
50% of participant contributions up to 6% of considered compensation. During the
period from July 23, 1998 (acquisition date) through December 31, 1998, Baylor
Company contributed $73,000 under this plan. Effective February 1, 1999, the
Baylor 401-(k) Plan was renamed the Boots & Coots Group 401-(k) Plan and the
amended Plan was adopted by the Company and its other operating subsidiaries.
Stock Option Plan:
A summary of Stock Option Plans in effect as of December 31, 1998, follows:
1996 Incentive Stock Plan authorizing the Board of Directors to provide a
number of key employees with incentive compensation commensurate with their
positions and responsibilities. The 1996 Plan permitted the grant of incentive
equity awards covering up to 960,000 shares of common stock. In connection with
the acquisition of IWC Services by the Company, the Company issued incentive
stock options covering an aggregate of 460,000 shares of common stock to
employees who were the beneficial owners of 200,000 options that were previously
granted by IWC Services. These incentive stock options were exercisable for a
period of 10 years from the original date of grant at an exercise price of $0.43
per share.
1997 Boots & Coots Employee Option Grant, providing for IWC Services to
issue options to purchase a total of 100,000 shares of its common stock at a
price of $1.00 per share to nine employees of Boots & Coots. In connection with
the acquisition of IWC Services by the Company, the Company issued incentive
stock options covering an aggregate of 230,000 shares of common stock to the
Boots & Coots employees who were the beneficial owners of the 100,000 options
that were previously granted by IWC Services. These stock
F-19
<PAGE> 47
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options vest at the rate of 20% per year commencing in July 1998 and are
exercisable for a period of 10 years from the original date of grant at an
exercise price of $0.43 per share.
1997 Incentive Stock Plan authorizing the Board of Directors to provide key
employees with incentive compensation commensurate with their positions and
responsibilities. The 1997 Incentive Stock Plan permits the grant of incentive
equity awards covering up to 1,475,000 shares of common stock. Grants may be in
the form of qualified or nonqualified stock options, restricted stock, phantom
stock, stock bonuses and cash bonuses. As of the date hereof, stock options
covering an aggregate of 1,305,000 shares of common stock have been made under
the 1997 Incentive Stock Plan. Such options vest ratably over a five year period
from the date of grant.
1997 Executive Compensation Plan authorizing the Board of Directors to
provide executive officers with incentive compensation commensurate with their
positions and responsibilities. The 1997 Executive Compensation Plan permits the
grant of incentive equity awards covering up to 1,475,000 shares of common
stock. Grants may be in the form of qualified or nonqualified stock options,
restricted stock, phantom stock, stock bonuses and cash bonuses.
1997 Outside Directors' Option Plan authorizing the issuance each year of
an option to purchase 15,000 shares of common stock to each member of the Board
of Directors who is not an employee of the Company. The purpose of the
Directors' Plan is to encourage the continued service of outside directors and
to provide them with additional incentive to assist the Company in achieving its
growth objectives. Options may be exercised over a five-year period with the
initial right to exercise starting one year from the date of the grant, provided
the director has not resigned or been removed for cause by the Board of
Directors prior to such date. After one year from the date of the grant, options
outstanding under the Directors' Plan may be exercised regardless of whether the
individual continues to serve as a director. Options granted under the
Directors' Plan are not transferable except by will or by operation of law. As
of the date hereof, stock options covering an aggregate of 45,000 shares of
common stock have been made under the 1997 Outside Directors' Option Plan.
Activity in these option plans for the year ended June 30, 1997, six months
ended December 31, 1997, and year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
---------- --------------
<S> <C> <C>
Outstanding June 30, 1996................................... -- $ --
Granted................................................... 690,000 0.43
Exercised................................................. -- --
Expired................................................... -- --
---------- -----
Outstanding June 30, 1997................................... 690,000 0.43
Granted................................................... 1,920,000 1.14
Exercised................................................. (1,426,000) 0.43
Cancelled................................................. (12,000) 0.43
---------- -----
Outstanding December 31, 1997............................... 1,172,000 1.59
Granted................................................... 1,645,000 2.85
Exercised................................................. (354,000) 0.80
Cancelled................................................. (21,000) 2.00
---------- -----
Outstanding December 31, 1998............................... 2,442,000 $2.55
========== =====
</TABLE>
F-20
<PAGE> 48
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, 756,000 options are currently exercisable at
exercise prices ranging from $0.43 to $6.00 and the remaining options vest over
a period of five years from date of grant.
In December 1996 and May 1997, the Company issued a total of 1,265,000
contractual stock options to five persons, including 460,000 options issued to
certain officers and directors and 805,000 options issued to two attorneys.
These contractual stock options have a two-year term beginning on the original
date of grant, are fully vested and are immediately exercisable by the holders
thereof at a price of $0.43 per share. During the six months ended December 31,
1997, the Company allowed the exercise of these options through the redemption
of common shares owned by the option holders.
In September 1997, the Company granted 80,000 options to two consultants at
an exercise price of $2.00 per share. These options are exercisable upon grant
and remain exercisable for a period of four years from the grant date.
In December 1997, the Company granted 50,000 options to a consultant at an
exercise price of $3.62 per share. These options are exercisable upon grant and
remain exercisable for a period of five years from the grant date.
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its employee and director stock
option plans. Had compensation expense for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans, consistent with the method of SFAS No. 123, the
Company's reported net loss and net loss per common share would have changed to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1997 1998
---------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss to common shareholders... As reported $(156,000) $ (759,000) $(3,987,000)
Pro forma $(220,000) $(1,029,000) (5,460,000)
Net loss per common share......... As reported $ (0.01) $ (0.03) $ (0.12)
Pro forma $ (0.02) $ (0.04) $ (0.17)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using Black-Scholes option pricing model with the following assumptions:
risk-free rate of 6%, volatility of 45%, no assumed dividend yield and expected
lives of one to three years, depending on the term.
H. RELATED PARTY TRANSACTIONS:
Through December 31, 1997, the Company shared certain administrative
facilities and services including corporate office space, administrative
personnel and office support equipment with Buckingham Capital Corporation, an
affiliate of the Company's major individual shareholder, Chairman and Chief
Executive Officer, Larry H. Ramming. For the year ended June 30, 1997 and
six-month period ended December 31, 1997, the Company paid approximately
$236,000 and $186,000, respectively, to Buckingham Capital Corporation for such
services. Management believes such charges are comparable to what would have
been paid to outside parties for such facilities and services.
During the year ended June 30, 1997 and the six-month period ended December
31, 1997, the Company incurred $155,500 and $144,500, respectively, in financial
consulting fees for services rendered by Buckingham Capital Corporation in
connection with the Company's private offering of $3,000,000 principal amount of
12% Senior Subordinated Notes. Such fees were included with deferred financing
costs in the consolidated
F-21
<PAGE> 49
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance sheet and amortized over the term of the Notes, $2,900,000 of which were
converted to common stock in September 1997 (see Note F).
As discussed in Note F, the Company's major individual shareholder Chairman
and Chief Executive Officer, Larry H. Ramming, loaned $7,000,000 to the Company
to retire certain bridge financing. As of December 31, 1998, interest (10%) and
extension (2%) aggregating $383,000 and principal reductions of $5,783,000 have
been paid to Mr. Ramming. Management believes the terms and conditions of Mr.
Ramming's loan to the Company are favorable to those that could have been
negotiated with outside parties.
In 1998 the Company entered into an agreement with a company controlled by
Mr. Ramming to have available for charter, on a 24 hour per day, 365 days per
year stand-by status, a jet aircraft to be utilized in connection with the
Company's mobilization of personnel and selected equipment for emergency
response well control and spill containment and remediation spills and for other
corporate purposes as needed. $399,000 was paid pursuant to such charter
arrangement, based on rates comparable to those available from third party
aircraft charter operators for comparable charter arrangements.
I. COMMITMENTS AND CONTINGENCIES:
The Company leases vehicles, equipment and shop and equipment storage
facilities under operating leases with terms in excess of one year.
At December 31, 1998, future minimum lease payments under these
noncancellable operating leases are approximately:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31: AMOUNT
- ------------------------- ----------
<S> <C>
1999.................................................... $1,765,000
2000.................................................... 1,580,000
2001.................................................... 1,262,000
2002.................................................... 1,141,000
2003.................................................... 1,209,000
Thereafter.............................................. 868,000
----------
$7,825,000
==========
</TABLE>
Rent expense for the year ended June 30, 1997, the six-month period ended
December 31, 1997, and the year ended December 31, 1998, was approximately
$77,000, $140,000, and $1,158,000, respectively.
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Management of the
Company does not believe that any liabilities resulting from any such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
J. BUSINESS SEGMENT INFORMATION, REVENUES FROM MAJOR CUSTOMERS AND CONCENTRATION
OF CREDIT RISK:
Information concerning operations in different business segments at
December 31, 1998, and for the year then ended is presented below (in
thousands). The Company considers that it operates in three segments: Emergency
Response and Restoration, Programs and Services (Risk Management, outsource
purchasing, manufacturer's representation and services); and Manufacturing and
Distribution. Intercompany transfers between segments were not material. The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies. For purposes of this
presentation, general and corporate expenses have been allocated between
segments on a pro rata basis based on revenue. In addition,
F-22
<PAGE> 50
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
general and corporate are included in the calculation of identifiable assets and
are included in the Emergency Response and Restoration business segment and the
domestic segment.
<TABLE>
<CAPTION>
EMERGENCY MANUFACTURING
RESPONSE AND PROGRAMS AND AND
RESTORATION SERVICES DISTRIBUTION CONSOLIDATED
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
Net Operating Revenues................ $28,809,000 $25,526,000 $21,948,000 $76,283,000
Operating Income (Loss)............... (672,000) (368,000) 2,506,000 1,466,000
Identifiable Operating Assets......... 34,509,000 17,103,000 45,973,000 97,585,000
Equity Income (Loss).................. -- -- (105,000) (105,000)
Investments in Affiliates............. -- -- 158,000 158,000
Capital Expenditures.................. 3,703,000 244,000 447,000 4,394,000
Depreciation and Amortization......... 1,402,000 344,000 814,000 2,560,000
Interest expense...................... 2,606,000 73,000 1,702,000 4,381,000
Six Month Period Ended December 31, 1997
Net Operating Revenues................ $ 4,417,000 $ -- $ 972,000 $ 5,389,000
Operating Income (Loss)............... (493,000) -- 61,000 (432,000)
Identifiable Operating Assets......... 11,540,000 -- 2,521,000 14,061,000
Equity Income......................... -- -- -- --
Investments in Affiliates............. -- -- -- --
Capital Expenditures.................. 188,000 -- -- 188,000
Interest expense...................... 117,000 -- -- 117,000
Depreciation and Amortization......... 467,000 -- 33,000 500,000
</TABLE>
For the year ended June 30, 1997, there was only one business
segment -- Emergency Response and Restoration. Thus, the segment information for
this period is presented in the accompanying financial statements.
During the periods presented below, the following customers represented
significant concentrations of consolidated revenues:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Customer A....................................... $385,000 $ -- $--
Customer B....................................... 757,000 -- --
Customer C....................................... 416,000 -- --
Customer D....................................... -- 1,454,000 --
Customer E....................................... -- 568,000 --
</TABLE>
The Company's revenues are generated geographically as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD YEAR ENDED
JUNE 30, ENDED DECEMBER 31, DECEMBER 31,
1997 1997 1998
---------- ------------------ ------------
<S> <C> <C> <C>
Domestic customers.......................... 71% 61% 47%
Foreign customers........................... 29% 39% 53%
</TABLE>
Two of the Company's customers collectively accounted for 27% of
outstanding accounts receivable at December 31, 1997. None of the Company's
customers at December 31, 1998 accounted for greater than ten percent of
outstanding accounts receivable. The Company believes that future accounts
receivable will
F-23
<PAGE> 51
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continue to be collected under normal credit terms based on previous experience.
The Company performs ongoing evaluations of its customers and generally does not
require collateral. The Company assesses its credit risk and provides an
allowance for doubtful accounts for any accounts which it deems doubtful of
collection.
The Company maintains deposits in banks which may exceed the amount of
federal deposit insurance available. Management believes that any possible
deposit loss is minimal.
K. EVENTS SUBSEQUENT TO DECEMBER 31, 1998:
On April 15, 1999, the Company completed the sale of $5,000,000 of Series A
Cumulative Senior Preferred Stock ("Series A Stock") to Halliburton Energy
Services, Inc. ("Halliburton"), a wholly-owned subsidiary of Halliburton
Company. The Series A Stock has a dividend requirement of 6.25% per annum
payable quarterly until the fifth anniversary of the date of issuance, whereupon
the dividend requirement increases to the greater of prime plus 6.25% or 14% per
annum, which is subject to adjustment for stock splits, stock dividends and
certain other events. In addition, Halliburton received warrants to purchase,
for a 7 year period 1,250,000 Shares of the Company's $.00001 Par Value Common
Stock at $4 per share.
Also in connection with the equity investment, the Company and Halliburton
entered into an expanded Alliance Agreement which effectively broadens the
alliance between the Company and Halliburton that has been in effect since 1995.
F-24
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.28 Executive Employment Agreement of H.B. Payne, Jr.
10.29 Executive Employment Agreement of Jerry Winchester
10.30 Executive Employment Agreement of Dewitt Edwards
10.31 Lease Ageement Dated May 4, 1998
21.01 List of Subsidiaries
</TABLE>
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
ELMAGCO, INC., a Delaware corporation (the "Company") hereby employs H.B. PAYNE,
JR. (hereinafter referred to as "Employee") as President and Chief Executive
Officer of the Company, effective July 1, 1998, on the terms and conditions set
forth herein. BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC., ("Boots & Coots"),
is a party hereto for the purposes of Section 3(f) hereof and to ensure the
performance by the Company of its obligations hereunder.
WITNESSETH
1. Duties. Employee shall perform such services regarding the operations
of the Company as the Board of Directors may from time to time reasonably
request, and Employee will only be assigned duties of the type, nature and
dignity normally assigned to an officer of his position with respect to a
corporation of the size, status and nature of the Company. Employee shall at all
times faithfully, with diligence, and to the best of his ability, experience and
talents, perform all the duties that may be required of and from him pursuant to
the terms of this agreement. It is expressly understood and agreed that in the
performance of his duties and obligations hereunder, Employee shall at all times
be subject to the direction and control of the Board of Directors of the
Company. Employee shall devote substantially all of his time to the performance
of his duties hereunder and shall exclusively conduct the business of Employer
and its affiliates. The expenditure of reasonable amounts of time by the
Employee for personal, charitable or professional activities or to the business
of L. E., Inc., and Lynn Elliott Company, Inc. shall not be a breach of this
Agreement, provided such activities do not materially interfere with the
services required to be rendered by Employee under this Agreement, and are not
contrary to the business or other interests of the Company. Employee shall at
all times faithfully, with diligence and to the best of his ability, experience
and talents, perform all the duties that may be required of and from him
pursuant to the terms hereof.
2. Term. The employment contemplated by this Agreement shall commence on
July 1, 1998 and continue (unless terminated pursuant to the terms hereof) for a
term of five (5) years.
3. Compensation. In consideration of the work and other services that
Employee performs for the Company hereunder, the Company shall pay Employee the
following:
(a) Base Salary. During the term hereof, the Company shall pay Employee
a gross annual salary of $140,000, payable semi-monthly in accordance
with the company's normal payroll policies, subject to withholding for
federal income tax, social security, state and local taxes, if any, and
any other sums that the Company may be legally required to withhold.
Employee will be eligible for all cost of living adjustments that are
awarded to the Company employees.
(b) 1998 Incentive Bonus. For the year ending December 31, 1998, the
Company will pay to Employee an incentive bonus of $200,000 (the "1998
Incentive Bonus"), which may be paid in cash or, at the election of the
Company, up to one-half may be paid in shares of common stock, $.00001
par value, of Boots & Coots ("Common Stock").
<PAGE> 2
If the Company elects to pay a portion of the 1998 Incentive Bonus in
Common Stock, the value of each share of Common Stock, for the purposes
hereof, shall be equal to the Market Price (as defined in subsection
3(e) hereof) and the cash portion of the 1998 Incentive Bonus shall be
reduced by the product of the number of shares of Common Stock issued
to Employee multiplied by the Market Price. In the event the Company
exercises its election to pay a portion of the bonus in shares of
Common Stock, it shall increase the cash paid to Employee by an amount
equal to (i) the federal income tax liability of Employee applicable to
the portion of such bonus paid in shares of Common Stock and (ii) the
federal income tax liability of Employee applicable to the cash
adjustment paid pursuant to (i) above.
(c) Default Incentive Bonus. For the year ended December 31, 1999, and
each succeeding year during the term hereof in which the Company fails
to enact the Alternative Incentive Bonus Plan discussed in subsection
3(d) below, the Company shall pay Employee a bonus based on the
Company's annual financial performance, as follows: Employee will
receive an amount equal to 4% of the net after tax income of the
Company up to $2,000,000; 5% of the net after tax income of the Company
in excess of $2,000,000 but less than $3,000,000; and 5.5% of the net
after tax income of the Company that is in excess of $3,000,000.
The Default Incentive Bonus shall be calculated using the audited
financial statements of the Company for the year ended December 31
prepared in accordance with generally accepted accounting principles
consistently applied and adjusted on a "tax-affected" basis to exclude
increases in amortization and depreciation expense resulting from the
step-up in basis from the Company's 338(h)(10) election in connection
with the acquisition of the Company by Boots & Coots on July 23, 1998
(the "Acquisition"), the treatment of the Acquisition as a purchase,
intercompany charges that the Company would not ordinarily have paid or
incurred in connection with the conduct of its business, and to include
interest expense for the Company's working capital and capital
expenditure requirements for such period incurred on behalf of the
Company by Boots & Coots or another affiliate of the Company (unless
already reflected in such financial statements as intercompany
charges). In no event shall interest expense on account of debt
incurred by Boots & Coots to acquire the Company be included in such
calculation.
If the bonus amount which will accrue to the Employee under this
Section 3(c) is reduced as a result of the sale, transfer, or
assignment of any "core business" of the Company (after taking into
account any increases through additions to existing or new core
businesses), the manner in which the Default Incentive Bonus is
calculated shall be equitably adjusted in order to give the Employee
the opportunity to earn the same level of Default Incentive Bonus he
would have earned if not for such sale, transfer, or assignment. The
terms "core business" or
2
<PAGE> 3
"core businesses" means the brake, industrial generator or thruster
businesses of the Company or any other business line that represents
25% or more of the fair market value of the assets of the Company or
25% or more of the annual operating revenues of the Company.
(d) Alternative Incentive Bonus Plan. Boots & Coots intends to develop
a broad based incentive compensation plan for senior management which
takes into account the consolidated financial performance of Boots &
Coots in addition to the financial performance of the subsidiary or
business group by which the plan participants are employed.
Accordingly, the Company and Employee agree that should Boots & Coots
implement an incentive plan (the "Alternative Incentive Bonus Plan")
covering key employees (including Employee) and such plan offers
Employee "Comparable Economic Value" (as defined below) to the Default
Incentive Bonus, at the election of the Company Employee's bonuses, if
any, shall be determined in accordance with the terms of such
Alternative Incentive Bonus Plan for all periods covered by such plan
and the Default Incentive Bonus provisions of subsection (c) hereof
shall be of no further force or effect.
"Comparable Economic Value" means a plan that, through any combination
of cash, stock, stock options, stock appreciation rights or any similar
compensation arrangement, offers potential compensation to Employee
equal to or greater than the Default Incentive Bonus set forth above.
For purposes of such comparison, the Default Incentive Bonus shall have
a value of $185,000 per year. The value of the Alternative Incentive
Bonus Plan will be determined based upon the projected bonus
compensation payable to Employee thereunder for the calendar year in
which it is to go into effect and the bonus compensation that would
have been paid to Employee under the Alternative Incentive Bonus Plan
for the year immediately preceding the year such plan is to go into
effect. The projected compensation and proforma compensation shall be
determined in the good faith judgment of the Board of Directors of the
Company. In other words, if the Alternative Incentive Bonus Plan would
have provided and is projected to provide incentive compensation to
Employee equal to or greater than $185,000 for the preceding year and
for the current year, the Company shall, at its option, have the right
to elect by written notice to Employee that such plan shall govern
Employee's incentive compensation, if any, in lieu of subsection 3(c)
hereof. Thereafter all incentive compensation shall be governed by the
terms of such plan, without the necessity for any further calculation
of "Comparable Economic Value." Further, the specific terms and
provisions of such plan shall be solely within the discretion of Boots
& Coots, the only obligation hereunder being that the Comparable
Economic Value determination be met upon implementation of the plan
with respect to Employee.
(e) Definition of Market Price. As used herein, the term "Market Price"
means the average of the daily closing prices per share of the Common
Stock for the thirty (30) consecutive trading days immediately
preceding the day as of which Market Price is being determined. The
closing price for each day shall be the last reported
3
<PAGE> 4
sale price or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, in either case on
the American Stock Exchange, or, if the shares of the Common Stock are
not listed or admitted to trading on the American Stock Exchange, on
the principal national securities exchange on which the shares are
listed or admitted to trading, or, if the shares are not so listed or
admitted to trading, the average of the highest reported bid and lowest
reported asked prices as furnished by the National Association of
Securities Dealers, Inc. (the "NASD") through NASDAQ or through a
similar organization if NASDAQ is no longer reporting such information
or as reported on the NASD's OTC Electronic Bulletin Board ("OTC"). If
shares of the Common Stock are not listed or admitted to trading on any
exchange or quoted through NASDAQ or any similar organization or
reported on OTC, the Market Price shall be deemed to be the value of a
share of the Common Stock as determined in good faith by the Company's
Board of Directors as expressed by a resolution of such board as of a
date which is within fifteen (15) days of the date as of which the
determination is to be made.
Payment of incentive bonuses under subsections 3(b) and 3(c) will be
made as soon as practical after receipt by the Company of the audited
financial statements of the Company, but not later than 45 days after
receipt of such statements. Incentive bonuses under subsection 3(d)
will be paid in accordance with the terms of such plan or, if such plan
does not specify the date of payment, in accordance with the foregoing.
(f) Options. Upon the execution of this Agreement, Boots & Coots will
grant to Employee the option to acquire 100,000 shares of Boots & Coots
subject to the following vesting schedule:
July 1, 1998 20,000 shares
July 1, 1999 20,000 shares
July 1, 2000 20,000 shares
July 1, 2001 20,000 shares
July 1, 2002 20,000 shares
The option price will be $2.50 per share, and the option shall
be represented by a written agreement containing terms and provisions
substantially the same as those contained in similar options granted by
Boots & Coots (except as expressly modified herein) and shall be
granted in a transaction structured so as to comply with the exemption
granted by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. All unexercised options will expire on July 1, 2008. Vested
options will survive any termination of Employee's employment
hereunder. In the event Employee's employment is terminated without
cause, or upon a change of control (the acquisition of 50% or more of
the voting stock by any unaffiliated person, entity or related group)
of Boots & Coots or the Company during the term of Employee's
employment, the unvested portion of Employee's option shall immediately
vest. The unvested portion of Employee's option shall immediately
terminate if Employee's employment is terminated pursuant to Section
10(c) or 7(d) hereof.
4
<PAGE> 5
(g) Vacation. Employee shall be entitled to vacation in accordance with
the vacation policies of the Company from time to time in effect with
respect to the executive employees of the Company.
(h) Other Benefits. During the term of this Agreement, Employee shall
be entitled to participate in all employee benefit plans from time to
time made available to the executives or general employees of the
Company or the executives of Boots & Coots.
(i) Insurance. The Company will provide Employee with coverage under a
policy of hospitalization and major medical insurance at no cost to the
Employee. Employee's dependents may be covered under such insurance
policy, subject to the terms of such policy, at the expense of
Employee. The Company will provide life insurance coverage and short
term and long term disability insurance coverage in an amount to be
determined by the Board of Directors of the Company. Employee
acknowledges that Boots & Coots or the Company may seek to secure a
policy of Key Man life insurance on the life of Employee, with death
benefits payable to Boots & Coots or the Company. Employee agrees to
cooperate in securing the same.
4. Expenses. The Company shall reimburse Employee or any affiliate of
Employee for all reasonable expenses and disbursements incurred by Employee or
such affiliate, respectively, in connection with Employee's duties hereunder,
including expenses for entertainment and travel, as are consistent with the
policies and procedures of the Company.
5. Confidential Information. Employee acknowledges that in the course of
employment by the Company, Employee will receive certain trade secrets and
confidential information belonging to the Company or Boots & Coots and its
affiliates that such companies desire to protect as confidential. For the
purposes of this agreement, the term "confidential information" shall mean
information of any nature and in any form which at the time is not generally
known to those persons engaged in business similar to that conducted by the
Company or Boots & Coots and its affiliates which is proprietary or trade secret
in nature, or which has been revealed to Employee accompanied by the delivery of
a written statement which identifies such information as confidential. Employee
agrees that such information is confidential and that he will not reveal such
information to anyone other than officers, directors and employees of the
Company or Boots & Coots and its affiliates. Upon termination of employment, for
any reason, Employee shall surrender to the party owning such information all
papers, documents and other property of such party.
6. Obligation of Loyalty. During the term of employment, Employee agrees
that he will not:
5
<PAGE> 6
(a) make a statement or perform any act intended to advance an interest
of any existing or prospective competitor of the Company or Boots &
Coots or its affiliates in any way; that will or may injure the Company
or Boots & Coots or its affiliates in any way; or solicit or encourage
any other employee of such companies to do any such act;
(b) inform any existing or potential customer, supplier or creditor of
the Company or Boots & Coots or its affiliates that Employee intends to
resign; or make any statement or do any act intended to cause any
existing or potential customer, supplier or creditor of the Company or
Boots & Coots or its affiliates to learn of Employee's intention to
resign; or
(c) discuss with any existing or potential customer, supplier or
creditor of the Company or Boots & Coots or its affiliates the present
or future availability of services provided by a business that competes
with the Company or Boots & Coots or its affiliates.
7. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries
and Inventions. Employee agrees that during his employment, Employee shall
promptly disclose in writing to the Company all information, ideas, concepts,
improvements, discoveries and inventions, whether patentable or not, and whether
or not reduced to practice, which are conceived, developed, made or acquired by
Employee, either individually or jointly with others, and which relate to the
business, products or services of the Company or Boots & Coots or its
affiliates, irrespective of whether Employee utilized the Company's time or
facilities and irrespective of whether such information, idea, concept,
improvement, discovery or invention was conceived, developed, discovered or
acquired by the Employee on the job, at home, or elsewhere (collectively, the
"Inventions").
8. Ownership of Information, Ideas, Concepts, Improvements, Discoveries,
Inventions, and All Original Works of Authorship.
(a) All Inventions are and shall be the sole and exclusive property of
the Company. Moreover, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs,
maps and all other writings or materials of any type embodying any of
such Inventions are and shall be the sole and exclusive property of the
Company. (b) Employee hereby specifically sells, assigns and transfers
to the Company all of his worldwide right, title and interest in and to
all such Inventions, and any United States or foreign applications for
patents, inventor's certificates or other industrial rights that may be
filled thereon, including divisions, continuations,
continuations-in-part, reissues and/or extensions thereof, and
applications for registration of any names and marks included
therewith. Both during the period of Employee's employment and
thereafter, Employee shall assist the Company and its nominee at all
times in the protection of such Inventions, both in the United States
and all foreign countries, including but not limited to, the execution
of all lawful oaths and all assignment documents requested by the
Company or its nominee in connection with the preparation, prosecution,
issuance or enforcement of any applications for United
6
<PAGE> 7
States or foreign letters patent, including divisions, continuations,
continuations-in-part, reissue, and/or extensions thereof, and any
application for the registration of names and marks included therewith.
(c) Moreover, if during Employee's employment, Employee creates any
original work of authorship which is the subject matter of copyright
relating to the business, products, or services of the Company or Boots
& Coots or its affiliates whether such work is created solely by
Employee or jointly with others, the Company shall be deemed the author
of such work if the work is prepared by Employee in the scope of his or
her employment; or, if the work is not prepared by Employee within the
scope of his or her employment but is specifically ordered by Employer
as a contribution to a collective work, as a part of a motion picture
or other audiovisual work, as a translation, as a supplementary work,
as a compilation or as an instructional text, then the work shall be
considered to be work made for hire and the Company shall be the author
of the work. In the event such work is neither prepared by the Employee
within the scope of his employment or is not a work specially ordered
and deemed to be a work made for hire, then Employee hereby agrees to
assign, and by these presents, does assign, to the Company all of
Employee's worldwide right, title and interest in and to such work and
all rights of copyright therein. During the period of Employee's
employment, Employee agrees to assist the Company and its nominee, at
any time, in the protection of the Company's worldwide right, title and
interest in and to the work and all rights or copyright therein,
including but not limited to, the execution of all formal assignment
documents requested by the Company or its nominee and the execution of
all lawful oaths and applications for registration of copyright in the
United States and foreign countries.
9. Agreement Not To Solicit or Compete. During the term hereof and for a
period of two years after the termination of employment hereunder (the
"Termination Date"), regardless of how terminated, Employee will not, singly,
jointly, or as a partner, member, contractor, employee or agent of any
partnership or as an officer, director, employee, agent, contractor, stockholder
or investor in any other entity or in any other capacity, directly or
indirectly:
(a) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, work for, permit the
use of his name by, provide financial or other assistance to, or be
connected in any manner with, any business which engages in a business
substantially similar to or competitive with the Company's business as
carried on as of the Termination Date, in any markets in which the
Company conducts business as of the Termination Date or conducted
business at any time within the three (3) years prior to such date;
(b) induce, or attempt to induce, any person or party who, on the
Termination
7
<PAGE> 8
Date is employed by the Company or Boots & Coots or its affiliates or
at any time during the term of this covenant is, or may be, or becomes
an employee of any of such companies, to terminate his, her or its
employment with such company;
(c) induce, or attempt to induce, any person, business or entity which
is or becomes a customer or supplier of the Company or Boots & Coots or
its affiliates, or which otherwise is a contracting party with the
Company or Boots & Coots or its affiliates, as of the Termination Date,
or at any time during the term hereof, to terminate any written or oral
agreement or understanding with the Company or Boots & Coots or its
affiliates, or to interfere in any manner with any relationship between
the Company or Boots & Coots or its affiliates and such customer or
supplier;
(d) employ or otherwise engage in any capacity any person who at the
Termination Date or at any time during the period two years prior
thereto was employed, or otherwise engaged, in any capacity by the
Company or Boots & Coots or its affiliates and who, by reason thereof
is or is reasonably likely to be in possession of any confidential
information.
Employee acknowledges and agrees that the provisions of this section constitute
a material, mutually bargained for portion of the consideration to be delivered
under this agreement and that it is a condition precedent to the creation and
existence of the obligations of the Company and Boots & Coots hereunder.
Employee acknowledges and agrees that (i) the breach or anticipated breach by
Employee of any provision of this Section 9 will result in immediate and
irreparable injury for which there will not be an adequate remedy at law; (ii)
in the event of the termination of this agreement, Employee has experience and
capabilities that will enable him to obtain alternative employment that will not
cause or require him to violate the covenants in this Section 9; and (iii)
specific enforcement of this agreement by way of an injunction shall not prevent
Employee from earning a reasonable livelihood. Employee covenants and agrees
that the Company shall be entitled, in the event of a breach or an anticipated
breach of such provisions by Employee, to bring a civil action in any court of
competent jurisdiction for specific performance, affirmative and/or negative
injunctive relief and/or to seek any and all legal and equitable remedies to
which the Company may be entitled. Accordingly, Employee hereby submits to the
jurisdiction of such court and waives the defense in any equitable proceeding
that there is an adequate remedy at law for any such breach or anticipated
breach and such party shall not urge in any such action or proceeding the claim
or defense that such remedy at law exists. Any remedy provided for hereunder
shall not be exclusive or exhaustive and the Company may resort to other
remedies or any combination of remedies as it may choose or as otherwise may be
available to it.
Employee hereby acknowledges and agrees that the geographic area and the time
period and nature of the agreed restrictions evidenced hereby are necessary and
reasonable for the protection of the Company and Boots & Coots. Employee
acknowledges and agrees
8
<PAGE> 9
that should the totality of the time period and/or geographic area of this
Section 9 be declared unenforceable, for whatever reason, the terms and
provisions hereof shall be construed and enforced such that the maximum
permissible effect will be given to such terms and provisions in order to effect
the Company's and Boots & Coots' interests.
10. Termination for Cause by the Company. The Company may terminate
employment of Employee under this agreement if any of the following occur:
(a) the death of Employee;
(b) the Employee becomes, in the good faith opinion of the Company,
physically or mentally disabled, for a period of more than thirty (30)
consecutive days, or for a period of more than sixty (60) days in the
aggregate during a twelve (12) month period, to extent he is unable to
perform his duties hereunder;
(c) the Employee continues to be in breach of any material provision of
this agreement after notice thereof and a ten (10) day opportunity to
cure;
(d) the Employee fails, or refuses to comply with the policies,
standards or regulations of the Company that have been made known to
Employee after notice thereof and a ten (10) day opportunity to cure;
or
(e) the Employee commits, is arrested or officially charged with any
felony, or any crime involving moral turpitude, which, in the good
faith opinion of the Company, would impair Employee's ability to
perform his duties hereunder or would impair the business reputation of
the Company or Employee misappropriates any funds or property of
Employer.
In the event of a termination for cause pursuant to the provisions of this
agreement, the Company shall give a written statement to Employee (or his
representative) specifying the event causing such termination, and the
termination will be immediately effective. In the event of a termination for
cause pursuant to the provisions above, this agreement shall be wholly
terminated (except with respect to any of the provisions of this agreement
relating to activities and conduct after the termination of the employment
relationship between the Company, Boots & Coots and Employee which shall remain
in full force and effect, and be enforceable as provided for herein) and
Employee shall not be entitled to any further compensation or any other benefits
provided for herein, and shall not be entitled to severance pay; provided,
however, that if such termination is pursuant to the death or disability of
Employee, Employee (or his estate) shall be entitled to receive the base salary
and bonus compensation, if any, to which Employee would have been entitled
pursuant to Section 3 hereof to the date of Employee's death or disability. The
calculation of Employee's bonus in such event shall be determined using the
financial information of the Company to the date of death or disability and
shall be calculated to such date rather than on a full fiscal year.
11. Termination for Cause by Employee. Employee may terminate his
employment hereunder if any of the following occurs:
9
<PAGE> 10
(a) there is a material change or alteration in the duties,
responsibilities or working conditions of Employee after notice thereof
and a ten (10) day opportunity to cure; or
(b) Boots & Coots or the Company continues to be in breach of any
material provisions of this agreement after notice thereof and a ten
(10) day opportunity to cure.
12. Notices. All notices or other communications pursuant to this contract
may be given by personal delivery, or by certified mail, addressed to the home
office of Boots & Coots or to the last known address of Employee. Notices given
by personal delivery shall be deemed given at the time of delivery, and notices
sent by certified mail shall be deemed given when deposited with the U.S. Post
Office.
13. Entirety of Agreement. This Agreement contains the entire understanding
of the parties and all of the covenants and agreements between the parties with
respect to the employment.
14. Governing Law. This Agreement shall be construed and enforced in
accordance with, and be governed by, the laws of the State of Texas.
15. Waiver. The failure of either party to enforce any rights hereunder
shall not be deemed to be a waiver of such rights, unless such waiver is an
express written waiver which has been signed by the waiving party. Waiver of one
breach shall not be deemed a waiver of any other breach of the same or any other
provision hereof.
16. Assignment. This Agreement shall not be assignable by Employee. In the
event of a future disposition of the properties and business of the Company or
Boots & Coots by merger, consolidation, sale of assets, or otherwise, then the
Company and Boots & Coots may assign this Agreement and all of its rights and
obligations to the acquiring or surviving entity; provided that any such entity
shall assume all of the obligations of the Company and Boots & Coots hereunder.
17. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement shall be submitted to and finally settled by binding
arbitration to be held in Houston, Texas, in accordance with the rules of the
American Arbitration Association in effect on the date of this Agreement, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. All agreements contemplated herein to be
entered into to which the parties hereto are parties shall contain provisions
which provide that all claims, actions or disputes pursuant to, or related to,
such agreements shall be submitted to binding arbitration. In any proceeding to
enforce the provisions hereof by specific performance or such other remedy as
may be available at law or in equity, the prevailing party shall be entitled to
recover reasonable expenses incurred by him, including reasonable attorney's
fees.
10
<PAGE> 11
DATED, this day of , 1998.
----- ----------
ELMAGCO, INC. EMPLOYEE
By:
------------------------------ -------------------------------
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
By:
------------------------------
<PAGE> 1
EXHIBIT 10.29
EMPLOYMENT CONTRACT
This Agreement is made and entered into by and between BOOTS & COOTS
INTERNATIONAL WELL CONTROL, INC., and its wholly owned subsidiaries, referred to
together in this Contract as "Employer", and JERRY WINCHESTER, referred to in
this Contract as "Employee". Employer hereby employs Employee and Employee
accepts such employment on the following terms and conditions:
1. Term. Employee shall be employed by Employer for a period of five (5)
years from the effective date hereof. This letter agreement shall be
automatically renewed for successive additional five (5) year terms unless
notice of termination is given in writing by either party to the other party at
least thirty (30) days prior to the expiration of the initial term or any such
renewal term.
2. Duties. Employee shall hold the title of President and Chief Operating
Officer, and shall perform such services regarding the operations of Employer as
are appropriate for the position and as the Board of Directors, or Senior
management, may from time to time request. Employee shall at all times
faithfully, with diligence, and to the best of his ability, experience and
talents, perform all the duties that may be required of and from him pursuant to
the terms of this letter agreement. It is expressly understood and agreed that
in the performance of his duties and obligations hereunder, Employee shall at
all times, be subject to the direction and control of the Executive Committee
and Senior management of Employer.
3. Compensation. In consideration of the work and other services that
Employee performs for Boots & Coots hereunder, Boots & Coots shall pay Employee
the following:
a) Base Salary. A gross annual base salary of $250,000,
payable semi-monthly in accordance with Employer's normal
payroll policies, subject to withholding for federal income
tax, social security, state and local taxes, if any, and any
other sums that Employer may be legally required to withhold;
b) Auto Allowance. In addition to the Base Salary, Employer
shall pay $12,000 per year for Employee's use of his personal
automobile on behalf of Employer. Such auto allowance shall be
payable in accordance with Employer's normal payroll policies,
subject to withholding for federal income tax, social
security, state and local taxes, if any, and any other sums
that Employer may be legally required to withhold;
c) Incentive Stock Plan. Employer has adopted an Employee
Incentive Stock Plan and will, as a condition of employment,
award Employee an Option to purchase up to 1,000,000 shares of
the $0.00001 par value Common Stock of Employer, at a price
equal to eighty percent (80%) of the last bid price of such
Common Stock on the American Stock Exchange on the day
preceding the date hereof. 200,000 of such Options shall be
vested upon execution hereof and the balance shall vest at the
rate of 200,000 on each anniversary of Employee's employment
and shall be further conditioned upon Employee's continued
employment at the time of each vesting.
<PAGE> 2
d) Retirement Plan. Employer has proposed to adopt a defined
contribution retirement plan permitting employees to
contribute a percentage of their annual salary to a managed
retirement plan. The amount of such contribution shall be the
lesser of 10% of an employee's annual salary, or the maximum
permitted by law. Employer will match employee's annual
contribution to such a retirement plan by an equal
contribution denominated in common stock of Employer.
e) Insurance. Employer will provide Employee with coverage
under a policy of hospitalization and major medical insurance
at no cost to the Employee. Such of Employee's dependants may
be covered under such insurance policy, subject to the terms
of such policy, at the expense of Employee. Employer will
provide life insurance coverage in amount of not less than
$250,000 and short term disability insurance coverage in an
amount to be determined by the company. Employee acknowledges
that Employer may seek to secure a policy of Key Man life
insurance on the life of Employee, with death benefits payable
to the company. Employee agrees to cooperate with the company
in securing the same.
f) Annual Review. Employee shall be eligible each year during
the five year term of this agreement and each extension hereof
for a merit review by the President, Chairman of the Board, or
Board of Directors, of Employer to consider increases to
Employee's compensation.
g) Consideration for Execution. Employer and Employee agree
that the market value cannot be established for all inventions
that may be discovered or developed by Employee which are
required to be transferred and assigned to Employer pursuant
to the terms of paragraph 7 of this Agreement. In
consideration for the opportunity costs and rights relinquised
by Employee for Inventions and for the restrictive covenants
contained in paragraphs 6 and 8 hereof, Employer shall pay the
sum of $25,000, contemporaniously with the execution herof, as
additional consideration for the execution of this Employment
Contract. Employee acknowledges that this sum, together with
the other considerations set forth herein, is sufficient
consideration for his execution hereof and the undertakings
contained in paragraphs 6, 7 and 8.
4. Vacation and Sick Leave. Employee shall be entitled to three weeks of
paid vacation each year of his employment hereunder. Such vacation shall be
taken at such time, or times, as shall not be disruptive to the business of
Employer. Scheduling shall be accomplished with the Executive Committee. In
addition, Employee shall be entitled to paid sick leave of five (5) days for
each year of service to Employer, up to a maximum os fifteen days annually.
5. Expenses. Boots & Coots shall reimburse Employee for all reasonable
expenses and disbursements incurred by Employee, and approved by appropriate
designees of the Executive Committee, in the performance of his duties
hereunder, including expenses for entertainment and travel, as are consistent
with the policies and procedures of Employer and Internal Revenue Service
regulations. Travel and other expenses from Employee's home to company's office
are not included. Employer shall furnish Employee with a cellular telephone and
pager, at the expense of Employer.
<PAGE> 3
6. Confidential Information. Employee acknowledges that in the course of
employment by Employer, Employee will receive certain trade secrets and
confidential information belonging to the Employer which Employer desires to
protect as confidential. For the purposes of this Agreement, the term
"confidential information" shall mean information of any nature and in any form
which at the time is not generally known to those persons engaged in business
similar to that conducted by Employer. Employee agrees that such information is
confidential and that the will not reveal such information to anyone other than
officers, directors and employees of Employer. Upon termination of employment,
for any reason, Employee shall surrender all papers, documents and other
property of Employer.
7. Information, Ideas, Concepts, Improvements, Discoveries, Inventions,
etc.. Employee agrees that during his employment he will promptly disclose, in
writing, all information, ideas, concepts, improvements, discoveries and
inventions, whether patentable or not, and whether or not reduced to practice,
which are conceived, developed, made or acquired by Employer, either
individually, or jointly with others, and which relate to the business, products
or services of Employer, or any of its subsidiaries or affiliates, irrespective
of whether such information, idea, concept, improvement, discovery or invention
was conceived, developed, discovered or acquired by Employee on the job, or
elsewhere (collectively, the "Inventions"). Employer and Employee have agreed as
follows regarding the Inventions:
a) All Inventions are, and shall be, the property of Employer.
In this context, all drawings, memoranda, notes, records,
files, correspondence, manuals, models, specifications,
computer programs, maps and all other writings, or materials
of any type embodying any such Inventions are and shall be the
sole and exclusive property of Employer.
b) Employee hereby specifically sells, assigns and transfers
to Employer all of his worldwide right, title and interest in
an to all such Inventions, and any United States or foreign
applications for patents, inventor's certificates or other
industrial rights that may be filed thereon, including
divisions, continuations, continuations-in-part, reissues
and/or extensions thereof, and applications for registration
of any names and marks included therewith. Both during the
period of Employee's employment by Employer and thereafter,
Employee shall assist Employer and its nominees at all times
in the protection of such Inventions, both in the United
States and all foreign countries, including but not limited
to, the execution of all lawful oaths and all assignment
documents, not inconsistent with this agreement, requested by
Employer, or its nominee in connection with the preparation,
prosecution, issuance or enforcement of any applications for
United States or foreign letters patent, including divisions,
continuations, continuations-in-part, reissue, and/or
extensions thereof, and any application for the registration
of names and marks included therewith.
c) Moreover, if during Employee's employment by Employer,
Employee creates any original work of authorship which is the
subject matter of copyright relating to Employer's business,
products, or services, whether such work is created solely by
Employee or jointly with others, Employer shall be deemed the
author of such work if the work is prepared by Employee in the
scope of his or her employment; or, if the work is not
prepared by Employee within the scope of his
<PAGE> 4
or her employment, but is specifically ordered by Employer as
a contribution to a collective work, as a part of a motion
picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation or as an instructional
text, then the work shall be considered to be a work made for
hire and Employer shall be the author of the work. In the
event such work is neither prepared by the Employee within the
scope of his or her employment or is not a work specially
ordered and deemed to be a work made for hire, then Employee
hereby agrees to assign, and by these presents, does assign,
to Employer an undivided one-half interest in and to all of
Employee's worldwide right, title and interest in and to the
work and all rights or copyright therein, including but not
limited to, the execution of all formal assignment documents
requested by Employer or its nominee, not inconsistent with
this agreement, and the execution of all lawful oaths and
applications for registration of copyright in the United
States and foreign countries.
8. Agreement Not To Solicit. During the term hereof and for a period of one
year after the termination of employment hereunder (the "Termination Date"),
regardless of how terminated, Employee will not, singly, jointly, or as a
partner, member, contractor, employee or agent of any partnership or as an
officer, director, employee, agent, contractor, stockholder or investor in any
other entity or in any other capacity, directly or indirectly:
a) induce, or attempt to induce, any person or party who, on
the Termination Date is employed by or affiliated with Boots &
Coots or at any dime during the term of this covenant is, or
may be, or becomes an employee of or affiliated with Employer,
to terminate his, her or its employment or affiliation with
Employer;
b) induce, or attempt to induce, any person, business or
entity which is or becomes a customer or supplier of Employer,
or which otherwise is a contracting party with Employer, as of
the Termination Date, or at any time during the term hereof,
to terminate any written or oral agreement or understanding
with Employer, or to interfere in any manner with any
relationship between Employer and such customer or supplier;
c) employ or otherwise engage in any capacity any person who
at the Termination Date or at any time during the period two
years prior thereto was employed, or otherwise engaged, in any
capacity by Employer and who, by reason thereof is or is
reasonable likely to be in possession of any confidential
information.
Employee acknowledges and agrees that the provisions of this paragraph
constitute a material, mutually bargained for portion of this consideration to
be delivered under this letter agreement and that it is a condition precedent to
the creation and existence of Employer's obligations hereunder.
9. Termination for Cause. Employer may terminate employment of Employee
under this letter agreement if any of the following occur:
a) the death of Employee;
<PAGE> 5
b) the Employee becomes, in the good faith opinion of
Employer, physically or mentally disabled, for a period of
more than sixty (60) consecutive days, or for a period of more
than ninety (90) days in the aggregate during a twelve (12)
month period, to extent he is unable to perform his duties
hereunder;
c) the Employee breaches any material provision of this
agreement;
d) the Employee fails, or refuses to perform any job duty
resulting in substantial prejudice to Employer's business
interests; or
e) the Employee engages in conduct, if not in connection with
the performance of his duties hereunder, which would result in
substantial prejudice to the interests of Employer if he were
retained as an employee.
In the event of a termination for cause pursuant to the provisions of this
letter agreement, Employer shall give a written statement to Employee specifying
the event causing such termination, and the termination will be immediately
effective. In the event of a termination for cause pursuant to the provision
above, this agreement shall be wholly terminated and Employee shall not be
entitled to any further compensation or any other benefits provided for herein,
and shall not be entitled to severance pay. However, any of the provisions of
this agreement relating to activities and conduct after the termination of the
employment relationship between Employer and Employee shall remain in full force
and effect, and be enforceable.
10. Termination and Compensation. In the event that Employer elects to
terminate Employee from employment prior to the expiration of a five (5) year
initial term, or renewal term, of this Agreement for any reason other than
termination for cause as expressly provided for in Paragraph 9, then, and in
that event, Employer shall pay to Employee, on the effective date of such
termination, the following compensation: (1) a lump sum payment equal to one
year's gross annual base salary, (2) a lump sum payment equal to three months
automobile allowance, and (3) shall continue the payment of premiums for
hospitalization and major medical insurance for the lesser period of either
twelve (12) months or the date on which Employee secures full time employment
that affords equivalent medical coverage.
11. Notices. All notices or other communications pursuant to this contract
may be given by personal delivery, or by certified mail, addressed to the home
office of Boots & Coots or to the last known address of Employee. Notices given
by personal delivery shall be deemed given at the time of delivery, and notices
sent by certified mail shall be deemed given when deposited with the U. S. Post
Office.
12. Notices. All notices or other communications pursuant to the Agreement
may be given by personal deliver, or by certified mail, addressed to the home
office of Employer or the last known address of Employee. Notices given by
personal delivery shall be deemed given at the dime of delivery, and notices
sent by certified mail shall be deemed given when deposited with the U. S.
Postal Service.
13. Entirety of Agreement. This letter agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to the employment.
<PAGE> 6
14. Governing Law. This letter agreement shall be construed and enforced in
accordance with, and be governed by, the laws of the State of Texas.
15. Waiver. The failure of either party to enforce any rights hereunder
shall not be deemed to be a waiver of such rights, unless such waiver is an
express written waiver which has been signed by the waiving party. Waiver of one
breach shall not be deemed a waiver of any other breach of the same or any other
provision hereof.
17. Assignment. This letter agreement shall not be assignable by Employee.
In the event of a future disposition of the properties and business of Boots &
Coots by merger, consolidation, sale of assets, or otherwise, then Boots & Coots
may assign this letter agreement and all of its rights and obligations to the
acquiring or surviving entity; provided that any such entity shall assume all of
the obligations of Boots & Coots hereunder.
18. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement and Employee's job duties shall be submitted to and
finally settled by binding arbitration to be held in Houston, Texas, in
accordance with the rules of the American Arbitration Association in effect on
the date of this letter agreement, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. All
agreements contemplated herein to be entered into to which the parties hereto
are parties shall contain provisions which provide that all claims, actions or
disputes pursuant to, or related to, such agreements shall be submitted to
binding arbitration.
This Employment Contract is entered into this the _____ day of _________, 1998.
"EMPLOYER"
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:
---------------------------------
L. H. Ramming, Chairman
"EMPLOYEE"
- ------------------------------------
Jerry Winchester
<PAGE> 1
EXHIBIT 10.30
EMPLOYMENT CONTRACT
This Agreement is made and entered into by and between BOOTS & COOTS
INTERNATIONAL WELL CONTROL, INC., and its wholly owned subsidiaries, referred to
together in this Contract as Employer, and DEWITT EDWARDS, referred to in this
Contract as Employee. Employer hereby employs Employee and Employee accepts such
employment on the following terms and conditions:
1. Term. Employee shall be employed by Boots & Coots for a period of five
(5) years from the effective date hereof. This letter agreement shall be
automatically renewed for successive additional one (1) year terms unless notice
of termination is given in writing by either party to the other party at least
thirty (30) days prior to the expiration of the initial term or any such renewal
term.
2. Duties. Employee shall perform such services regarding the operations of
Boots & Coots as the Board of Directors, or Senior management, may from time to
time request. Employee shall at all times faithfully, with diligence, and to the
best of his ability, experience and talents, perform all the duties that may be
required of and from him pursuant to the terms of this letter agreement. It is
expressly understood and agreed that in the performance of his duties and
obligations hereunder, Employee shall at all times, be subject to the direction
and control of the Executive Committee and Senior management of Boots & Coots.
3. Compensation. In consideration of the work and other services that
Employee performs for Boots & Coots hereunder, Boots & Coots shall pay Employee
the following:
a) Base Salary. During the term hereof, Boots & Coots shall
pay Employee a an initial gross annual salary of $150,000,
payable semi-monthly in accordance with the company's normal
payroll policies, subject to withholding for federal income
tax, social security, state and local taxes, if any, and any
other sums that Boots & Coots may be legally required to
withhold.
b) Auto Allowance. In addition to the Base Salary, Employer
shall pay Employee an amount equal to $12,000 per year for the
use of his personal automobile on behalf of Employer. Such
auto allowance shall be payable in accordance with the
Company's normal payroll policies, subject to withholding for
federal income tax, social security, state and local taxes, if
any, and any other sums that Employer may be legally required
to withhold.
c) Incentive Stock Plan. Employer has adopted an Employee
Incentive Stock Plan and will, as a condition of employment,
award Employee an Option to purchase up to 100,000 shares of
the $0.00001 par value Common Stock of Employer, at a price
equal to eighty percent (80%) of the last bid price of such
Common Stock on the American Stock Exchange on the day
preceding the date hereof. 20,000 of such Options shall be
vested upon execution hereof and the balance shall vest at the
rate of 20,000 on each anniversary of Employee's employment
and shall be further conditioned upon Employee's continued
employment at the time of each vesting.
17
<PAGE> 2
d) Retirement Plan. Boots & Coots has proposed to adopt a
defined contribution retirement plan permitting employees to
contribute a percentage of their annual salary to a managed
retirement plan. The amount of such contribution shall be the
lesser of 10% of an employee's annual salary, or the maximum
permitted by law. Boots & Coots will match employee's annual
contribution to such a retirement plan by an equal
contribution denominated in common stock of Boots & Coots.
e) Insurance. Boots & Coots will provide Employee with
coverage under a policy of hospitalization and major medical
insurance at no cost to the Employee. Such of Employee's
dependants may be covered under such insurance policy, subject
to the terms of such policy, at the expense of Employee. Boots
and Coots will provide life insurance coverage in amount of
$150,000 and short term disability insurance coverage in an
amount to be determined by the company. Employee acknowledges
that Boots & Coots may seek to secure a policy of Key Man life
insurance on the life of Employee, with death benefits payable
to the company. Employee agrees to cooperate with the company
in securing the same.
f) Annual Review. Employee shall be eligible each year during
the five year term of this agreement and each extension hereof
for a merit review by the President, Chairman of the Board, or
Board of Directors, of Employer to consider increases to
Employee's compensation.
g) Consideration for Execution. Boots & Coots shall pay the
sum of $10,000 as additional consideration for the execution
of this Employment Contract. Employee acknowledges that this
sum, together with the other considerations set forth herein,
is sufficient consideration for his execution hereof and the
undertakings contained in paragraphs 7 and 8.
4. Vacation and other Benefits. Employee shall be entitled to three weeks of
paid vacation each year of his employment hereunder. Such vacation shall be
taken at such time, or times, as shall not be disruptive to the business of
Boots & Coots. Scheduling shall be accomplished with Executive Committee. In
addition, Employee shall be entitled to paid sick leave of up to fifteen days,
based upon Employee's years of service. Employee shall be entitled to five days
of paid sick leave for each year of service to the company, up to a maximum of
fifteen days, annually.
5. Expenses. Boots & Coots shall reimburse Employee for all reasonable
expenses and disbursements incurred by Employee, and approved by appropriate
designees of the Executive Committee, in the performance of his duties
hereunder, including expenses for entertainment and travel, as are consistent
with the policies and procedures of Boots & Coots. Travel and other expenses
from Employee's home to company's office are not included.
6. Confidential Information. Employee acknowledges that in the course of
employment by Boots & Coots, Employee will receive certain trade secrets and
confidential information
18
<PAGE> 3
belonging to the company which Boots & Coots desires to protect as confidential.
For the purposes of this letter agreement, the term "confidential information"
shall mean information of any nature and in any form which at the time is not
generally known to those persons engaged in business similar to that conducted
by Boots & Coots. Employee agrees that such information is confidential and that
the will not reveal such information to anyone other than officers, directors
and employees of Boots & Coots. Upon termination of employment, for any reason,
Employee shall surrender to Boots & Coots all papers, documents and other
property of Boots & Coots.
7. Information, Ideas, Concepts, Improvements, Discoveries, Inventions,
etc.. Employee agrees that during his employment by Boots & Coots, Employee
shall promptly disclose, in writing, all information, ideas, concepts,
improvements, discoveries and inventions, whether patentable or not, and whether
or not reduced to practice, which are conceived, developed, made or acquired by
Boots & Coots, either individually, or jointly with others, and which relate to
the business, products or services of Boots & Coots, or any of its subsidiaries
or affiliates, irrespective of whether such information, idea, concept,
improvement, discovery or invention was conceived, developed, discovered or
acquired by Employee on the job, or elsewhere (collectively, the "Inventions").
Boots & Coots and Employee have agreed as follows regarding the Inventions:
a) All Inventions are, and shall be, the property of Boots &
Coots. In this context, all drawings, memoranda, notes,
records, files, correspondence, manuals, models,
specifications, computer programs, maps and all other
writings, or materials of any type embodying any such
Inventions are and shall be the sole and exclusive property of
Boots & Coots.
b) Employee hereby specifically sells, assigns and transfers
to Boots & Coots all of his worldwide right, title and
interest in an to all such Inventions, and any United States
or foreign applications for patents, inventor's certificates
or other industrial rights that may be filed thereon,
including divisions, continuations, continuations-in-part,
reissues and/or extensions thereof, and applications for
registration of any names and marks included therewith. Both
during the period of Employee's employment by Boots & Coots
and thereafter, Employee shall assist Boots & Coots and its
nominees at all times in the protection of such Inventions,
both in the United States and all foreign countries, including
but not limited to, the execution of all lawful oaths and all
assignment documents, not inconsistent with this agreement,
requested by Boots & Coots, or its nominee in connection with
the preparation, prosecution, issuance or enforcement of any
applications for United States or foreign letters patent,
including divisions, continuations, continuations-in-part,
reissue, and/or extensions thereof, and any application for
the registration of names and marks included therewith.
c) Moreover, if during Employee's employment by Boots & Coots,
Employee creates any original work of authorship which is the
subject matter of copyright relating to Boots & Coots
business, products, or services, whether such work is created
solely by Employee or jointly with others, Boots & Coots shall
be deemed the author of such work if the work is prepared by
Employee in the scope
<PAGE> 4
of his or her employment; or, if the work is not prepared by
Employee within the scope of his or her employment, but is
specifically ordered by Boots & Coots as a contribution to a
collective work, as a part of a motion picture or other
audiovisual work, as a translation, as a supplementary work,
as a compilation or as an instructional text, then the work
shall be considered to be a work made for hire and Boots &
Coots shall be the author of the work. In the event such work
is neither prepared by the Employee within the scope of his or
her employment or is not a work specially ordered and deemed
to be a work made for hire, then Employee hereby agrees to
assign, and by these presents, does assign, to Boots & Coots
an undivided one-half interest in and to all of Employee's
worldwide right, title and interest in and to the work and all
rights or copyright therein, including but not limited to, the
execution of all formal assignment documents requested by
Boots & Coots or its nominee, not inconsistent with this
agreement, and the execution of all lawful oaths and
applications for registration of copyright in the United
States and foreign countries.
8. Agreement Not To Solicit. During the term hereof and for a period of one
year after the termination of employment hereunder (the "Termination Date"),
regardless of how terminated, Employee will not, singly, jointly, or as a
partner, member, contractor, employee or agent of any partnership or as an
officer, director, employee, agent, contractor, stockholder or investor in any
other entity or in any other capacity, directly or indirectly:
a) induce, or attempt to induce, any person or party who, on
the Termination Date is employed by or affiliated with Boots &
Coots or at any dime during the term of this covenant is, or
may be, or becomes an employee of or affiliated with Boots &
Coots, to terminate his, her or its employment or affiliation
with Boots & Coots;
b) induce, or attempt to induce, any person, business or
entity which is or becomes a customer or supplier of Boots &
Coots, or which otherwise is a contracting party with Boots &
Coots, as of the Termination Date, or at any time during the
term hereof, to terminate any written or oral agreement or
understanding with Boots & Coots, or to interfere in any
manner with any relationship between Boots & Coots and such
customer or supplier;
c) employ or otherwise engage in any capacity any person who
at the Termination Date or at any time during the period two
years prior thereto was employed, or otherwise engaged, in any
capacity by Boots & Coots and who, by reason thereof is or is
reasonable likely to be in possession of any confidential
information.
Employee acknowledges and agrees that the provisions of this paragraph
constitute a material, mutually bargained for portion of this consideration to
be delivered under this letter agreement and that it is a condition precedent to
the creation and existence of Boots & Coots obligations hereunder.
<PAGE> 5
9. Termination for Cause. Boots & Coots may terminate employment of Employee
under this letter agreement if any of the following occur:
a) the death of Employee;
b) the Employee becomes, in the good faith opinion of Boots &
Coots, physically or mentally disabled, for a period of more
than thirty (30) consecutive days, or for a period of more
than sixty (60) days in the aggregate during a twelve (12)
month period, to extent he is unable to perform his duties
hereunder;
c) the Employee breaches any material provision of this
agreement;
d) the Employee fails, or refuses to comply with the policies,
standards or regulations of Boots & Coots; or
e) the Employee engages in conduct, if not in connection with
the performance of his duties hereunder, which would result in
serious prejudice to the interests of Boots & Coots if he were
retained as an employee.
In the event of a termination for cause pursuant to the provisions of this
letter agreement, Boots & Coots shall give a written statement to Employee
specifying the event causing such termination, and the termination will be
immediately effective. In the event of a termination for cause pursuant to the
provision above, this agreement shall be wholly terminated and Employee shall
not be entitled to any further compensation or any other benefits provided for
herein, and shall not be entitled to severance pay. However, any of the
provisions of this agreement relating to activities and conduct after the
termination of the employment relationship between Boots & Coots and Employee
shall remain in full force and effect, and be enforceable as provided for
herein.
10. Notices. All notices or other communications pursuant to this contract
may be given by personal delivery, or by certified mail, addressed to the home
office of Boots & Coots or to the last known address of Employee. Notices given
by personal delivery shall be deemed given at the time of delivery, and notices
sent by certified mail shall be deemed given when deposited with the U. S. Post
Office.
11. Entirety of Agreement. This letter agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to the employment.
12. Governing Law. This letter agreement shall be construed and enforced in
accordance with, and be governed by, the laws of the State of Texas.
13. Waiver. The failure of either party to enforce any rights hereunder shall
not be deemed to be a waiver of such rights, unless such waiver is an express
written waiver which has been signed by the waiving party. Waiver of one breach
shall not be deemed a waiver of any other breach of the same or any other
provision hereof.
<PAGE> 6
14. Assignment. This letter agreement shall not be assignable by Employee.
In the event of a future disposition of the properties and business of Boots &
Coots by merger, consolidation, sale of assets, or otherwise, then Boots & Coots
may assign this letter agreement and all of its rights and obligations to the
acquiring or surviving entity; provided that any such entity shall assume all of
the obligations of Boots & Coots hereunder.
15. Arbitration. Any dispute, controversy or claim arising out of or
relating to this letter agreement shall be submitted to and finally settled by
binding arbitration to be held in Houston, Texas, in accordance with the rules
of the American Arbitration Association in effect on the date of this letter
agreement, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. All agreements contemplated
herein to be entered into to which the parties hereto are parties shall contain
provisions which provide that all claims, actions or disputes pursuant to, or
related to, such agreements shall be submitted to binding arbitration.
This Employment Contract is entered into this the _____ day of _________, 1998.
"EMPLOYER"
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:
---------------------------------
L. H. Ramming, Chairman
"EMPLOYEE"
- ------------------------------------
Dewitt "Dee" Edwards
<PAGE> 1
EXHIBIT 10.31
OFFICE LEASE
This Lease is made this 4th day of May, 1998 by and between HOUSTON POST
OAK ASSOCIATES, LTD., a Texas limited partnership ("Landlord") and Boots & Coots
International Well Control, Inc. a Delaware corporation ("Tenant").
WITNESSETH:
1. BASIC LEASE PROVISIONS:
1.1 Project Name: 777 Post Oak
Address: 777 Post Oak
Houston, Texas 77056
Building: 777 Post Oak
Unit/Suite No.: 700 and 800
Floor(s): 7 and 8
1.2 Premises: 39,356 square feet of Net Rentable Area as reflected on
the floor plans attached hereto as Schedule 1. (Floors 7 and 8 are
comprised of 19,678 square feet of Net Rentable Area each.)
1.3 Tenant's Percentage Share: 22.34% (said Percentage Share shall be
adjusted in the event the Net Rentable Area of the Building is
increased or decreased) which is based upon Premises of 39,356
square feet of Net Rentable Area in a Building of 176,165 square
feet of Net Rentable Area.
1.4 Commencement Date Floor 7: The Commencement Date for Floor 7 is
July 1, 1998. Notwithstanding the foregoing, if Tenant occupies
all or any part of the Premises prior to July 1, 1998, the
Commencement Date shall be the date of such occupancy.
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<PAGE> 2
Commencement Date Floor 8: The Commencement Date for Floor 8 is
September 1, 1998. Notwithstanding the foregoing, if Tenant
occupies all or any part of the Premises prior to September 1,
1998, the Commencement Date shall be the date of such occupancy.
If the Commencement Date for Floor 7 commences prior to Floor 8,
the Term of the Lease will be extended by one (1) additional
month.
The Commencement Dates are hereby subject to any unreasonable
Landlord delays.
1.5 Expiration Date: August 31, 2005.
1.6 Base Rent: The Base Rent Payable by Tenant pursuant to this Lease
shall be determined according to the following schedule:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Months Following the Amount Base Rent Rate Per Monthly Base
Commencement Date Square Foot of Net Rentable Area Rent
-------------------------------------------------------------------------
<S> <C> <C>
Month 1 $ 0.00 $ 0.00
Months 2 - 6 $18.50 $60,673.83
Months 7 $ 0.00 $ 0.00
Months 8 - 38 $18.50 $60,673.83
Months 39 - 62 $20.50 $67,233.17
Months 63 - 86 $21.50 $70,512.83
-------------------------------------------------------------------------
</TABLE>
1.7 Security Deposit: $60,673.83.
1.8 Permitted Use: The Premises are to be used and occupied by Tenant
(and its permitted assignees and subtenants)
solely for the purpose of general office space and
for no other purpose.
1.9 Trade Name: Boots & Coots International Well Control, Inc.
1.10 Renewal Option: One (1) five (5) year option(s), as more fully
described on Schedule 4.
1.11 Base Year for Operating Expenses and Taxes: 1998.
1.12 Calculation of Operating Expense Rent: See Paragraph 6.
1.13 Guarantor(s): None
-3-
<PAGE> 3
1.14 Address for payment of rent and notices:
Landlord: Tenant:
Houston Post Oak Associates, Ltd. Boots & Coots IWC, Inc.
c/o Songy Partners Realty, Ltd. 5777 Post Oak Boulevard,
777 Oak Boulevard, Suite 300 Suite 700
Houston, Texas 77056 Houston, Texas 77056
Attn: Property Manager Attn: ___________________
(713) 572-9100 (713) 621-7911
1.15 Broker: The Broker is Bert Keller with A. P. Keller, Inc. and
Landlord will bear the cost of the commission payable to Broker in
connection with this Lease. Landlord and Tenant warrant and
represent to each other that they have not consulted or negotiated
with any broker or finder with regard to the Premises or this
Lease other than Broker. If either party shall be in breach of the
foregoing warranty, such party shall indemnify the other against
any loss, liability and expense (including attorneys' fees and
court costs) arising out of claims for fees or commissions from
anyone having dealt with such party in breach.
2. DEFINITIONS: Unless the context otherwise specifies or requires, the
following terms will have the meanings set forth below:
2.1 COMMON AREAS: All areas and facilities outside the Premises and
within the exterior boundaries of the Project that are not leased
to other tenants and that are provided and designated by Landlord,
in its sole discretion from time to time, for the general use and
convenience of Tenant and other tenants of the Project and their
authorized representatives, entities, invitees and the general
public. Common Areas are areas within and outside of the Building
in the Project, such as common entrances, lobbies, pedestrian
walkways, patios, landscaped areas, sidewalks, service corridors,
elevators, restrooms, stairways, decorative walls, plazas, loading
areas, parking areas and roads.
2.2 NET RENTABLE AREA: As to any lease space in the Building, the area
of such space as measured and determined in accordance with the
standards published by the Building Owners and Managers
Association International, Publication ANSI Z 65.1-1980, as
amended from time to time.
2.3 OPERATING EXPENSES: All costs of operating, servicing,
administering, repairing and maintaining the Project (excluding
costs paid directly by Tenant and other tenants in the Project or
otherwise reimbursable to Landlord), the landscaping of Common
Areas of the Project and the parking lot or garage located within
the Project. All costs of operating, servicing, administering,
repairing and maintaining the Project include any
-4-
<PAGE> 4
reasonable and necessary costs of operation, maintenance and
repair, computed in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP"), and will
include, by way of illustration, but not limitation:
(a) all necessary costs of managing, operating and
maintaining the Project, including, without limitation,
wages, salaries, fringe benefits and payroll burden for
employees on-site at or below the level of area manager
utilized in the day to day operation of the Project; public
liability, flood, property damage and all other insurance
premiums paid by Landlord with respect to the Project
including any amounts that would be charged as premiums if
Landlord self-insures any of the insurance risks; water,
sewer, heating, electricity, air conditioning, ventilating
and all other utility charges (other than with respect to
utilities separately metered and paid directly by Tenant or
other tenants); the cost of contesting the validity or
amount of real estate and personal property taxes;
janitorial services; access control; window cleaning;
elevator maintenance; fire detection and security
services; gardening and landscape maintenance; trash,
rubbish, garbage and other refuse removal; pest control;
painting; facade maintenance; lighting; exterior and
partition (demising) wall repairs; roof repairs;
maintenance of all steam, water and other water retention
and discharging piping, fountains, pumps, weirs, lift
stations, catch basins and other areas and facilities
on-site; repair and repainting of sidewalks due to
settlement and potholes and general resurfacing and
maintenance of parking areas; sanitary control;
depreciation of machinery and equipment used in any of such
maintenance and repair activities; management fees; union
increases; road sidewalk and driveway maintenance; and all
other Project maintenance, repairs and insurance.
(b) the costs (amortized together with a reasonable finance charge in
accordance with GAAP) of any capital improvements: (A) made to the
Project by Landlord primarily for the purpose of reducing Operating
Expenses; or (B) made to the Project by Landlord primarily to comply with
any governmental law or regulation that was not in force at the
Commencement Date;
(c) the costs of supplies, materials, tools and equipment used in the
operation and maintenance of the Project;
(d) all taxes, assessments and governmental charges, whether or not
directly paid by Landlord, whether federal, state, county or municipal
and whether they be by taxing districts or authorities presently taxing
the Project or by others subsequently created or otherwise, and any other
taxes and assessments attributable to the Project or its operation,
excluding, however, federal and state taxes on income, death taxes,
franchise taxes, and any taxes imposed or measured on or by the income of
Landlord from the operation of the Project; provided, however, that if at
any time during the term of this Lease, the present method of taxation or
-5-
<PAGE> 5
assessment shall be so changed that the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or
imposed on real estate and the improvements thereto shall be discontinued
and as a substitute therefor, or in lieu of an addition thereto, taxes,
assessments, levies, impositions or charges shall be levied, assessed
and/or imposed wholly or partially as a capital levy or otherwise on the
rents received from the Project or the rents reserved herein or any part
thereof, then such substitute or additional taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed or imposed,
shall be deemed to be included within Operating Expenses to the extent
that such substitute or additional tax would be payable if the Project
were the only property of the Landlord subject to such tax. It is agreed
that Tenant will be responsible for ad valorem taxes on its personal
property and on the value of the leasehold improvements in the Premises
to the extent that the same exceed Building standard allowances (and if
the taxing authorities do not separately assess Tenant's leasehold
improvements, Landlord may make a reasonable allocation of the ad valorem
taxes assessed on the Project to give effect to this sentence).
Operating Expenses shall not include:
(a) depreciation on the Project or any Common Areas, except for amortization
charges related to the capital improvements set forth in Paragraph
2.3(b);
(b) costs of space planning, tenant improvements, marketing
expenses, finders fees and real estate broker commissions;
(c) any and all expenses for which Landlord is reimbursed
(either by an insurer, condemnor or other person or
entity), but only to the extent of such reimbursement, and
any and all expenses for which Landlord is reimbursed or
entitled to reimbursement by a tenant in the Project
pursuant to a lease provision in such tenant's lease;
(d) salaries for personnel above the grade of senior property
manager, senior controller, senior accountant and senior
engineer;
(e) costs in connection with services or benefits of a type
which are not provided to Tenant, but are provided to
another tenant or occupant; and
(f) Landlord's general overhead and administrative expenses not
directly allocable to the operation of the Project.
3. TERM AND PREMISES:
3.1 Lease of Premises: Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, for the term and subject to the
agreements, covenants, conditions and
-6-
<PAGE> 6
provisions set forth in this Lease, to which Landlord and Tenant
hereby mutually agree, the premises (the "Premises") described in
Paragraphs 1.1 and 1.2 above.
3.2 Term. Subject to and upon the terms and conditions set forth
herein, or in any schedule hereto, the term of the Lease shall
commence on the Commencement Date and expire on the Expiration
Date.
3.3 Project: The Project shall consist of the tract or parcel of land
described on metes and bounds on Schedule 2 attached hereto and
made a part hereof for all purposes, the building (the "Building")
situated thereon, related pedestrian walkways, landscaping,
roadways, parking garage and other parking facilities, and such
additional facilities to service any of the foregoing in
subsequent years as may be necessary or desirable in Landlord's
discretion (the "Project"). Landlord may increase, reduce or
change the number, dimensions or locations of the walks,
buildings, mall areas, parking and other Common Areas and other
improvements located in the Project in any manner that Landlord,
in its sole discretion shall deem proper. Landlord further
reserves the right to make alterations and/or additions to and to
build or cause to be built additional stories on the Building in
which the Premises are situated and to add any buildings adjoining
the Premises or elsewhere in the Project. Landlord reserves the
right to install, maintain, use, repair and replace, pipes, ducts,
conduits and wires leading through the Premises and serving other
parts of the Project in a manner that will not materially
interfere with Tenant's use of the Premises. Landlord will also
have the right to increase and expand the size of the Project by
other structures to the Project. Landlord shall have the right to
change the Project's name without notice, to change the Project's
street address upon 90 days prior notice, to grant to any person
or entity the exclusive right to conduct any business or render
any service in or to the Project, provided such exclusive right
shall not operate to prohibit Tenant from using the Premises for
the purpose set forth in Paragraph 1.8, to retain at all times
master keys or passkeys to the Premises, and to place such signs,
notices or displays as Landlord reasonably deems necessary or
desirable upon the roof and exterior of the Project.
3.4 Relocation of Tenant: Intentionally deleted.
3.5 Initial Tenant Improvements: The Premises shall be delivered to
Tenant at the Commencement Date in the following condition: main
air distribution ducts in place to ceiling-hung VAV boxes and
perimeter air distribution duct to slot diffusers tied above the
grid; main "T's" of building standard ceiling grid installed with
secondary "T's" and tile stocked on floor; parabolic 2 x 4 light
fixtures provided on floor at one (1) per eighty (80) square feet
of Net Rentable Area; fire sprinkler system with primary lines and
all heads turned up and installed on a code approved grid; and
mini-blinds installed at all exterior windows with only the
additional leasehold improvements and Tenant finish, if any, set
forth and described on Schedule 3 attached hereto.
-7-
<PAGE> 7
4. COMMON AREAS:
4.1 Tenant's Right to Use Common Areas: Landlord grants Tenant and
its authorized representatives and invitees the non-exclusive
right to use the Common Areas with others who are entitled to use
the Common Areas subject to Landlord's rights as set forth in this
Lease.
4.2 Landlord's Control: Landlord has the right to:
(a) establish and enforce reasonable rules and regulations
applicable to all tenants concerning the maintenance, management,
use and operation of the Common Areas;
(b) close, if necessary, any of the Common Areas to prevent
dedication of any of the Common Areas or the accrual of any rights
of any person or of the public to the Common Areas;
(c) close temporarily any of the Common Areas for maintenance
purposes;
(d) select a person, firm or corporation which may be an entity
related to Landlord to maintain and operate any of the Common
Areas; and
(e) designate other lands outside the exterior boundaries of the
Project but which are contiguous to the Project to become part of
the Common Areas.
Notwithstanding the provisions of this Paragraph 4.2, in
exercising its rights hereunder, Landlord will provide reasonable
access to and from the Premises.
5. RENT:
5.1 Base Rent: Tenant will pay to Landlord as rent for the use and
occupancy of the Premises at the times and in the manner provided
below, Base Rent in the amount specified in Paragraph 1.6 above
payable in advance on the Commencement Date and on or before the
first day of each and every successive calendar month during the
term hereof without demand, setoff or deduction. Tenant agrees to
pay to Landlord contemporaneously with the execution of this
Lease, the amount of $60,673.83 which amount shall be applied to
August 1998 Base Rent.
5.2 Late Charge: All rent shall bear interest from the date due until
paid at the greater of (1) two percent (2%) above the "prime rate"
per annum of Chase Texas or its successor ("Chase") in effect on
said due date (or if the "prime rate" be discontinued, the base
reference rate then being used by Chase to define the rate of
interest charged to commercial borrowers) or (2) eighteen percent
(18%) per annum; provided, however,
-8-
<PAGE> 8
in no event shall the rate of interest hereunder exceed the
maximum non-usurious rate of interest (hereinafter called the
"Maximum Rate") permitted by the applicable laws of the State of
Texas or the United States of America, whichever shall permit the
higher non-usurious rate, and as to which Tenant could not
successfully assert a claim or defense of usury, and to the extent
that the Maximum Rate is determined by reference to the laws of
the State of Texas, the Maximum Rate shall be the weekly ceiling
(as defined and described in Chapter 303 of the Texas Finance
Code, as amended) at the applicable time in effect. Twice per
annum, Landlord shall provide Tenant with a gracious period of
three (3) days if Tenant is late paying its rent.
6. OPERATING EXPENSES:
6.1 Operating Expenses Rent: In addition to Base Rent, Tenant shall
pay Tenant's Percentage Share, as specified in Paragraph 1.3
above, of the Operating Expenses paid or incurred by Landlord in
such year in excess of the Operating Expenses for the Base Year
("Operating Expenses Rent"). All sums of money as shall become
due and payable by Tenant to Landlord under this Lease, including,
without limitation, Operating Expenses Rent shall be additional
rent which Tenant shall be obligated to pay. Landlord shall have
the same remedies for default in the payment of additional rent as
are available to Landlord in the case of a default in the payment
of Base Rent.
6.2 Controllable Expenses: Notwithstanding anything in this Lease to
the contrary, Landlord agrees, for purposes of computing Tenant's
Operating Expenses Rent, that any increase in total Controllable
Expenses in excess of ten percent (10%) in any given calendar year
shall be excluded in such computation. For purposes of this
Paragraph 6.2, Landlord and Tenant acknowledge and agree that
"Controllable Expenses" are defined as all Operating Expenses
except the following: (i) utilities, (ii) property taxes, (iii)
insurance and (iv) those items affected by labor costs, such as
janitorial services, in the event of an increase in the legal
minimum wage or a general increase in the wage level in the
Houston, Texas area.
6.3 Payment: During December of each calendar year or as soon
thereafter as practicable, Landlord will give Tenant written
notice of its estimate (line item and detailed support included)
of Operating Expenses Rent for the ensuing calendar year. On or
before the first day of each month during the ensuing calendar
year, Tenant will pay to Landlord 1/12th of such estimated
amounts, provided that if such notice is not given in December,
Tenant will continue to pay on the basis of the prior year's
estimate until the month after such notice is given. If at any
time or times it appears to Landlord that the amounts payable for
Operating Expenses Rent for the current calendar year will vary
from its estimate by more than 10%, Landlord, by written notice to
Tenant, will revise its estimate for such year, and subsequent
payments by Tenant for such year will be in an amount so that by
the end of such year Tenant will have paid a total sum equal
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to such revised estimate. Landlord will indicate in its notice to
Tenant the reasons Landlord believes its estimate varies by more
than 10%.
6.4 Statement: Within 120 days after the close of each calendar year
or as soon after such 120 day period as practicable, Landlord will
deliver to Tenant a statement of amounts of Operating Expenses
Rent payable under this Lease for such calendar year. If such
statement shows an amount owing by Tenant that is more than the
estimated payments for such calendar year previously made by
Tenant, Tenant will pay the deficiency to Landlord within 30 days
after delivery of the statement to Tenant. If the statement shows
an amount which is less than the estimated payments previously
paid by Tenant for the calendar year, provided Tenant is not then
in default, Landlord will remit the amount owed Tenant within 30
days after delivery of the statement to Tenant. Tenant has the
right, exercisable no more than once each calendar year on
reasonable notice and at a time reasonably acceptable to Landlord,
to cause an audit to be performed of Landlord's operations and/or
books and records pertaining to Operating Expenses for the
preceding 2 calendar years. Landlord, at Landlord's sole
discretion, may provide an audit prepared by a certified public
accountant in lieu of allowing Tenant to audit Landlord's
operations and/or books. Any such inspection and audit shall be at
Tenant's expense and shall be conducted in Landlord's office
during normal business hours by Tenant's accounting personnel or
by independent public accountants or other qualified consultants
and in no event will Landlord be obligated to permit any such
inspection or audit to be performed by a consultant or firm that
is compensated on a contingent fee or percentage of recovery
basis.
6.5 Proration: If for any reason other than the default of Tenant,
this Lease terminates on a day other than the last day of a
calendar year, the amount of Operating Expenses Rent payable by
Tenant applicable to the calendar year in which such termination
occurs will be prorated on the basis which the number of days from
the commencement of such calendar year to and including such
termination date bears to 365.
6.6 Computation: Tenant's Percentage Share of the Operating Expenses
is the proportion that the Net Rentable Area occupied by Tenant
bears to the Net Rentable Area of the Building, as determined by
Landlord. Notwithstanding any provision of this Paragraph 6.5 to
the contrary, if the Building is less than ninety-five percent
(95%) leased and/or occupied during any calendar year, an
adjustment shall be made in computing each component of the
Operating Expenses that varies with the rate of occupancy of the
Building (such as, but not limited to, utility and janitorial
expenses) so that Operating Expenses Rent shall be computed for
such year as though 95% of the Building had been leased and
occupied during such year.
6.7 Taxes Payable by Tenant: Tenant shall be directly responsible for
taxes upon, measured, by or reasonably attributable to the cost or
value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises or by the cost or
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value of any leasehold improvements made in or to the Premises by
or for Tenant other than the initial improvements to be installed
at Landlord's expense regardless of whether title to such
improvements is in Tenant or Landlord,
7. USE OF PREMISES:
7.1 Effect on Insurance: Tenant shall not use any portion of the
Premises for purposes other than those specified in Paragraph 1.8
and no use shall be made or permitted to be made upon the
Premises, nor acts done, which will increase the existing rate of
insurance upon the Project, or cause cancellation of insurance
policies covering said Project.
7.2 Continuous Operation: Tenant will not leave the Premises
unoccupied or vacant and will continuously conduct and carry on in
the Premises the type of business for which the Premises are
leased.
7.3 Miscellaneous Restrictions: Tenant will operate from the Premises
using the Trade Name set forth in Paragraph 1.9. Tenant will not
use the Premises for or permit in the Premises any offensive,
noisy, or dangerous trade, business, manufacture or occupation or
interfere with the business of any other tenant in the Project.
Tenant agrees not to cause, permit or suffer any waste or damage,
disfigurement or injury to the Premises or the fixtures or
equipment thereof or the Common Areas. Tenant will not use the
Premises for washing clothes or cooking and nothing will be
prepared, manufactured or mixed in the Premises which might emit
any offensive odor into the Project. Tenant will not obstruct the
sidewalks, mall or Common Areas in the Project or use the same for
business operations or advertising. Tenant will not use the
Premises for any purpose which would create unreasonable elevator
loads, cause structural loads to be exceeded or adversely affect
the mechanical, electrical, plumbing or other base building
systems. Tenant will at all times comply with the rules and
regulations of the Project attached hereto as Schedule 5, and with
such additional rules and regulations as may be adopted by
Landlord from time to time.
8. PARKING: Parking spaces for the Premises shall be governed by the terms
and provisions of Schedule 6 attached hereto and made a part hereof for
all purposes.
9. GRAPHICS: Landlord, at Tenant's sole cost and expense, will install and
maintain all letters or numerals on the entrance doors for the Premises.
All such letters and numerals shall be in the form specified by
Landlord, and no other shall be used or permitted on the Premises.
Tenant shall not place any signs within the Premises which are visible
from the outside the Premises without Landlord's prior written approval.
In addition, Landlord agrees that it will maintain Tenant's name
identity (in size, graphic style and material approved by Landlord in
its reasonable discretion and the purchase and installation of Tenant's
signage to be borne by Tenant) on the monument sign constructed by
Landlord at the street level entrance to the
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Building on Post Oak Boulevard. Tenant's name shall appear on the upper
half of the monument sign above the street address. Tenant's name will
be one of two names to appear on the upper half of the sign. If, as of
October 1, 1998, Tenant is the largest Tenant to have signed a Lease for
Lease Space for the Building, Tenant's name will appear first on the
monument sign.
10. ASSIGNMENT AND SUBLETTING; ENCUMBRANCE: Tenant shall not assign this
Lease or sublet any portion of the Premises without prior written
consent of the Landlord, which will not be unreasonably withheld or
delayed, it being understood that it shall be reasonable for Landlord,
among other things, to withhold consent if Landlord is not satisfied
with the financial responsibility, identity, reputation or business
character of the proposed assignee or sublessee. Any change in the
ownership of Tenant, if Tenant is a corporation or partnership, shall
constitute an assignment for purposes of this Paragraph 10.
Notwithstanding any consent by Landlord, Tenant and Guarantor(s), if
any, shall remain jointly and severally liable (along with each approved
assignee and sublessee, which shall automatically become liable for all
obligations of Tenant hereunder with respect to that portion of the
Premises so transferred), and Landlord shall be permitted to enforce the
provisions of this Lease directly against Tenant or any assignee or
sublessee without proceeding in any way against any other party. In the
event of an assignment, contemporaneously with the granting of
Landlord's consent, Tenant shall cause the assignee to expressly assume
in writing and agree to perform all of the covenants, duties and
obligations of Tenant hereunder and such assignee shall be jointly and
severally liable therefore along with Tenant. No usage of the Premises
different from the usage provided for in Paragraph 1.8 above shall be
permitted, and all other terms and provisions of the Lease shall
continue to apply after such assignment or sublease. Tenant shall not
make or consent to any conditional, contingent or deferred assignment of
some or all of Tenant's interest in this Lease without the prior written
consent of Landlord, which Landlord may withhold in its sole and
absolute discretion. Tenant shall not enter into, execute or deliver any
financing or security agreement that can be given priority over any
mortgage given by Landlord or its successors, and, in the event Tenant
does so execute or deliver such financing or security agreement, such
action on the part of Tenant shall be considered a breach of the terms
and conditions of this Lease and a default by Tenant entitling Landlord
to such remedies as are provided for in this Lease. Landlord shall have
the right to freely assign or transfer, in whole or in part, Landlord's
rights and obligations hereunder and in the Project and the Premises.
The prohibition against an assignment or sublease described in this
Section 10 shall be deemed to include a prohibition against Tenant's
mortgaging or otherwise encumbering its leasehold estate, as well as
against an assignment or sublease which may occur by operation of law,
each of which shall be ineffective and void and shall constitute an
event of default under this Lease unless consented to by Landlord in
writing in advance.
11. ORDINANCES AND STATUTES: From and after the Commencement Date, at
Tenant's sole cost, Tenant will comply with all statutes, ordinances and
requirements of all municipal, state and federal authorities now in
force, or which may hereafter be in force, pertaining to the Premises,
occasioned by or affecting the use thereof by Tenant. In addition,
Tenant shall be
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<PAGE> 12
wholly responsible for any accommodations or alterations that are
required by applicable governmental codes, ordinances, rules,
regulations and laws to be made to the Premises from and after the
Commencement Date to accommodate disabled employees and customers of
Tenant, including, without limitation, compliance with the American with
Disabilities Act (42 U.S.C. Sections 1201 et seq.) ("ADA") and the Texas
Architectural Barriers Act (Tex.Rev.Civ.Stat. Art 9201) ("TABA"). The
commencement or pendency of any state or federal court abatement
proceeding affecting the use of the Premises shall, at the option of the
Landlord, be deemed a breach thereof.
12. MAINTENANCE, REPAIRS, ALTERATIONS:
12.1 Tenant's Obligations: Tenant acknowledges that to the best of its
knowledge the Premises are in good order and repair, unless
otherwise indicated herein, Tenant shall, at its own expense and
at all times, maintain the Premises in good and safe condition
and shall surrender the same, at termination hereof, in as good
condition as received, normal wear and tear excepted. Tenant, at
Tenant's expense, shall be responsible for all repairs required,
excepting the electrical wiring, plumbing and HVAC installations
and any other system or equipment upon the Premises, roof,
exterior walls, structural foundations, parking areas and other
Common Areas, which shall be repaired by Landlord and included in
Operating Expenses.
12.2 Limits an Alteration: Tenant may not make any structural
improvement or alteration to the Premises without the prior
written consent of Landlord. Tenant may not make an nonstructural
improvement or alteration of the Premises costing in excess of
$5,000 without the prior written consent of the Landlord. Prior
to the commencement of any repair, improvement, or alteration,
Tenant shall give Landlord at least 2 days written notice in
order that Landlord may post appropriate notices to avoid any
liability for liens. All alterations will be made by a licensed
contractor consented to by Landlord and performed in a good and
workmanlike manner as well as in accordance with all applicable
governmental codes, ordinances, rules, regulations and laws. All
materials shall be of a quality comparable to or better than
those in the Premises and shall be in accordance with plans and
specifications approved by Landlord.
12.3 Liens: Tenant will pay all costs of construction done by it or
caused to be done by it on the Premises as permitted by this
Lease, Tenant will keep the Project free and clear of all
construction, mechanic's, materialman's, laborer's and supplier's
liens, resulting from construction done by or for Tenant. The
interest of Landlord in the Premises and the Project shall not be
subject to liens for improvements made by Tenant. Any lien filed
by any contractor, materialman, laborer or supplier performing
work for Tenant shall attach only to Tenant's interest in the
Premises. Tenant agrees to indemnify, defend and hold harmless
Landlord from and against any and all costs and liabilities and
any and all mechanic's, materialman's or laborer's liens arising
out of or pertaining to any improvements or construction done by
Tenant. All persons and entities
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<PAGE> 13
contracting or otherwise dealing with Tenant relative to the
Premises or the Project are hereby placed on notice of the
provisions of this Paragraph 12.3, and Tenant shall further
notify in writing such persons or entities of the provisions of
this Paragraph 12.3 prior to commencement of any Tenant work in
the Premises. If any construction, mechanic's, materialman's or
laborer's lien is ever claimed, fixed or asserted against the
Premises or any other portion of the Project in connection with
any such Tenant work, Tenant shall, within 10 days after receipt
by Tenant of notice of such lien, discharge same as a lien either
by payment or by posting of any bond as permitted by law. If
Tenant shall fail to discharge any such lien, whether valid or
not, within 10 days after receipt of notice from Landlord,
Landlord shall have the right, but not the obligation, to
discharge such lien on behalf of Tenant and all costs and
expenses incurred by Landlord associated with the discharge of
the lien, including without limitation, attorneys' fees, shall
constitute additional rent hereunder and shall be immediately due
and payable by Tenant.
12.4 Surrender of Premises: On the last day of the term hereof or on
any sooner termination, Tenant shall surrender the Premises to
Landlord in the same condition as when received, ordinary wear
and tear excepted, clear and free of debris. Tenant shall repair
any damage to the Premises occasioned by the installation or
removal of Tenant's trade fixtures, furnishings and equipment.
13. ENTRY AND INSPECTION: Tenant shall permit Landlord or Landlord's agents
to enter upon the Premises at reasonable times and upon reasonable
notice for the purpose of inspecting the same, performing any services
required of Landlord hereunder and showing the Premises to potential and
existing mortgagees and purchasers and prospective tenants of other
space in the Project. The foregoing notwithstanding, Landlord is not
required to give notice to Tenant if Landlord must enter the Premises
because of an emergency. Upon reasonable notice to Tenant, Tenant will
permit Landlord at any time within 180 days prior to the expiration of
this Lease, to permit potential tenants to inspect the Premises.
14. INDEMNIFICATION OF LANDLORD: Subject to Paragraph 17.6 below, Tenant
will indemnify, defend (by counsel reasonably acceptable to Landlord),
protect and hold Landlord and Landlord's agents, employees, officers,
directors, partners and shareholders harmless from and against any and
all claims, demands, losses, damages, costs and expenses (including
attorney's fees) or death of or injury to any person or damage to any
property whatsoever arising out of or relating to Tenant's breach or
default under this Lease, including, but not limited to Tenant's breach
of Paragraph 22 below or Tenant's use or occupancy of the Premises or
caused by Tenant or its agents, contractors, employees, licensees,
guests or invitees. Landlord shall not be liable to Tenant for any
damage by or from any act or negligence of any co-tenant or other
occupant of the Project or by any owner or occupant of adjoining or
contiguous property. Tenant agrees to pay for all damage to the Project
as well as all damage to tenants or occupants thereof caused by misuse
or neglect of said Premises, its apparatus or appurtenances or the
Common Areas, by Tenant or Tenant's employees, contractors, licensees,
guests, agents and invitees.
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<PAGE> 14
15. POSSESSION: If Landlord is unable to deliver possession of the Premises
on the estimated Commencement Date hereof, Landlord shall not be liable
for any damage caused thereby, nor shall this Lease be void or voidable,
but Tenant shall not be liable for any rent until possession is
delivered, at which time the term shall commence and the Expiration Date
shall be extended so as to give effect to the full stated term. Tenant
may terminate this Lease if possession is not delivered within 120 days
of the estimated Commencement Date.
16. LANDLORD'S INSURANCE: Landlord shall obtain and maintain throughout the
term of this Lease the following policies of insurance:
16.1 Casualty. Fire and extended coverage insurance on the Building
(excluding non-Building standard leasehold improvements) and on
all Building standard improvements; and
16.2 General Liability. Comprehensive general and contractual liability
insurance against claims for personal injury, death and property
damage occurring in or about the Building.
Said insurance shall be maintained with an insurance company authorized
to do business in Texas, in amounts desired by Landlord and at the
expense of Landlord (but with the same to be included in the operating
expenses of the Building as described in Paragraph 2.3) and payments for
losses thereunder shall be made solely to Landlord. If the annual
premiums to be paid by Landlord for casualty insurance shall exceed the
standard rates because of Tenant's operations within or contents of the
Premises or because the improvements to the Premises are above Building
standard, Tenant shall promptly pay the excess amount of the premium
upon request by Landlord (and if necessary, Landlord may allocate the
insurance costs of the Building to give effect to this sentence).
Alternatively, Landlord may meet its insurance coverage hereunder
through self-insurance coverage provided that the coverage thereunder is
substantially similar to the coverage which would otherwise have been
provided by a third party insurance carrier in order to comply with this
Paragraph 16. In the event Landlord elects to self-insure, Landlord
shall have the right to assess and include within Operating Expenses the
amount of the premium which would have been payable had Landlord
purchased such insurance.
17. TENANT'S INSURANCE: At all times during the term of this Lease, Tenant
shall, at its sole expense, procure and maintain the following types of
insurance coverage:
17.1 General Liability: Commercial general liability insurance against
any and all damages and liability, including attorneys' fees on
account or arising out of injuries to or the death of any person
or damage to property, however occasioned, in, on or about the
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<PAGE> 15
Premises in amounts not less than $1,000,000.00 for injury or
death of one or more persons in a single accident and $500,000.00
for damage to property;
17.2 Personal Property: Insurance adequate in amount to cover damage to
or replacement of, as necessary, the Premises including, without
limitation, leasehold improvements, trade fixtures, furnishings,
equipment, goods and inventory;
17.3 Employers Liability/Workers Compensation: Employer's liability
insurance and worker's compensation insurance providing statutory
state benefits for all persons employed by Tenant in connection
with the Premises as required by applicable law; and
17.4 Other Insurance: Such other insurance in such amounts as may be
required by Landlord against other insurable hazards as at the
time are commonly insured against in case of prudent owners of
comparable office projects in the area (Galleria/West Loop Area)
in which the Project is located.
17.5 Form of Insurance/Companies: All such insurance shall be in a form
satisfactory to Landlord and carried with companies reasonably
acceptable to Landlord that are licensed or authorized to do
business in the State of Texas, are in good standing with the
Department of Insurance in the State of Texas is located and have
a rating issued by an organization regularly engaged in rating
insurance companies (including specifically A.M. Best & Company)
of not less than one rating below the top rating. Tenant shall
provide Landlord with a Certificate of Insurance showing Landlord
and Landlord's managing agent as an additional insured. The
Certificate shall provide for a 10 day written notice to Landlord
in the event of cancellation or material change of coverage. Not
later than 30 days prior to the expiration of any coverage,
renewals of or replacements for such contracts of insurance shall
be delivered to Landlord, together with proof of payment of the
associated premiums. In the event Tenant shall fail to procure any
contract of insurance required under the terms hereof or any
renewal of or replacement for any contract of insurance that is
expiring or has been canceled, Landlord may, but shall not be
obligated to, procure such insurance on behalf of Tenant and the
cost thereof shall be payable to Landlord as additional rent
within 10 days following written demand therefor.
17.6 Waiver of Recovery and Subrogation: Notwithstanding anything in
this Lease or any insurance policy to be obtained under this Lease
to the contrary, Landlord and Tenant hereby waive any and all
rights of recover, claims, actions and causes of action against
each other, their respective agents, servants, employees,
officers, directors, shareholders, partners, architects,
contractors, subcontractors, attorneys, customers and invitees and
their respective insurance carriers for all liability for personal
injury or death and for all loss or damage that may occur to the
Premises, the Project, the contents of the Project and the
Premises, or any
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<PAGE> 16
personal property of such party therein by reason of fire, the
elements or any other cause which is insured against under the
terms of the liability, fire, extended coverage and other
insurance policies required to be obtained pursuant to this Lease
(or would have been insured under the terms of any such policy if
all insurance policies required to be obtained by the parties
hereto were in fact obtained), regardless of cause or origin of
such loss or damage, including, without limitation, SOLE, JOINT,
OR CONCURRENT NEGLIGENCE, SOLE, JOINT OR CONCURRENT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF EITHER OR BOTH OF THE PARTIES
HERETO AND THEIR RESPECTIVE AGENTS, SERVANTS, EMPLOYEES, OFFICERS,
DIRECTORS, SHAREHOLDERS, PARTNERS, ARCHITECTS, CONTRACTORS,
SUBCONTRACTORS, ATTORNEYS, CUSTOMERS AND INVITEES; provided,
however, the waiver set forth in this Paragraph 17.6 shall not
apply to any deductibles on insurance policies carried by Landlord
or to any coinsurance penalty which Landlord might sustain. Each
party waives and covenants that no insurer shall hold (and hereby
waives on behalf of each such insurer) any right of subrogation
against such other party. The parties shall cause their respective
insurers to waive any right of subrogation in accordance with this
Paragraph 17.6.
18. UTILITIES AND SERVICES: Landlord shall use all reasonable efforts to
furnish (as part of Operating Expenses) heating, ventilation, air
conditioning, janitorial service, elevator service, hot and cold water
for reasonable and normal drinking and lavatory use, replacement light
bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures and sufficient electricity to operate (i) typewriters,
calculating machines, photocopying machines and other machines of
similar low electrical consumption (120/208 volts); provided, however,
total rated power consumption by said machines of low electrical
consumption shall not exceed one and one-half (1 1/2) watts per square
foot of Net Rentable Area in the Premises; and (ii) equipment of high
electrical consumption (277/480 volts); provided, however, total rated
power consumption by said equipment of high electrical consumption shall
not exceed three and one-half (3 1/2) watts per square foot of Net
Rentable Area in the Premises. Tenant shall pay to Landlord, monthly as
billed, such charges as may be separately metered or as Landlord's
engineer shall reasonably compute for any electrical service usage in
excess of that stated above. If Tenant's use of the Premises requires
separate metering and/or air conditioning in excess of Building
standard, the same shall be purchased and installed at Tenant's expense
and Tenant shall pay all operating costs relating thereto. In addition
to the above described services, Landlord shall provide equipment and
personnel to limit access to the Building after normal business hours;
provided, however, Landlord shall have no responsibility to prevent, and
shall not be liable to Tenant for, and shall be indemnified by Tenant
against, liability or loss to Tenant, its agents, contractors,
employees, licensees, guests and visitors arising out of losses due to
theft, burglary, or damage or injury to persons or property caused by
persons gaining access to the Building or the Premises, and Tenant
hereby releases Landlord from all liability relating thereto. Said
services and utilities shall be provided during normal business hours of
the Building which are currently Monday through Friday from 8:00 a.m. to
6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m., excluding the normal
business holidays of New
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Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Landlord, from time to time during the term of this
Lease, shall have the right to designate additional holidays, provided
that such additional holidays are commonly recognized by other office
buildings in the Galleria/Post Oak area of Houston, Texas. Utilities and
services required at other times shall be subject to a charge of $35.00
per hour or fraction thereof. Landlord shall not be liable for failure
to furnish any of the utilities described in this Paragraph 18 and
Tenant shall have no right to abatement of rental hereunder or to
termination of this Lease with respect to any such interruption nor
shall such failure constitute an eviction, nor shall Landlord be liable
under any circumstances for loss of or injury to property, however
occurring through or in connection with or incidental to the furnishing
of any of the services enumerated above.
19. CONDEMNATION: If 25% or more of the land area of the Project shall be
taken or condemned for public use or acquired under threat of
condemnation, Landlord may elect to terminate this Lease effective on
the date of taking; otherwise this Lease will remain in full force and
effect. If there is a taking of all of the Premises or a part thereof so
that the remaining part of the Premises is not suited for Tenant's
continued use, either party may elect to terminate this Lease effective
on the date of taking. If there is a taking of a portion of the Premises
and a part remains which is suitable for Tenant's use, this Lease shall,
as to the part taken, terminate as of the date the condemnor acquires
possession, and thereafter Tenant shall be required to pay such
proportion of the rent for the remaining term as the value of the
Premises remaining bears to the total value of the Premises at the date
of condemnation. The election to terminate this Lease as provided herein
must be exercised, if at all, within 60 days after the nature and extent
of the taking is determined, otherwise, this Lease will remain in full
force and effect. All sums which may be payable on account of any
condemnation shall belong solely to the Landlord, and Tenant shall not
be entitled to any part thereof, provided however, that Tenant shall be
entitled to retain any amount awarded to it for its trade fixtures or
moving expenses.
20. TRADE FIXTURES: Any and all improvements made to the Premises during the
term hereof shall unless Landlord requests that removal, belong to the
Landlord without compensation, allowance or credit to Tenant, except
movable trade fixtures of the Tenant which can be removed without
defacing the Premises or the Project.
21. DESTRUCTION OF PREMISES:
21.1 Partial Destruction: In the event of a partial destruction of the
Premises during the term hereof, from any cause covered by
insurance, Landlord must repair the same to the extent such
repairs can be made with the insurance proceeds made available to
Landlord and within 60 days under then existing governmental laws
and regulations. Such partial destruction shall not terminate this
Lease and Tenant shall be entitled to a proportionate reduction of
rent while such repairs are being made, based upon the extent to
which the making of such repairs shall interfere with the business
of Tenant
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<PAGE> 18
on the Premises. If such repairs cannot be made within said 60 day
period, Landlord, at his option, may make the repairs within a
reasonable time. If Landlord elects to make said repairs, this
Lease will continue in effect and the rent will be proportionately
abated as stated above. If the repairs cannot be made within 60
days with the available insurance proceeds and Landlord elects not
to make said repairs, this Least may be terminated at the option
of either party.
21.2 Material/Total Destruction: If the Building in which the Premises
are situated or the Project sustains damage of more than 1/3 of
the replacement cost thereof, Landlord may elect to terminate this
Lease whether the Premises are injured or not. A total destruction
of the Building in which the Premises are situated or the Project
shall terminate this Lease.
22. HAZARDOUS SUBSTANCES:
22.1 Definitions: For the purposes of this Agreement, the following
terms have the following meanings:
(a) "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the
environment including, without limitation CERCLA (Comprehensive
Environmental Response, Compensation and Liability Act of 1980),
RCRA (Resources Conservation and Recovery Act of 1976) and SARA
(Superfund Amendments and Reauthorization Act of 1986).
(b) "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being
"toxic" or "hazardous" or a "pollutant" or which is or becomes
similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum
products.
22.2 Tenant's Responsibilities: At its own expense, Tenant will
procure, maintain in effect and comply with all conditions of any
and all permits, licenses and other governmental and regulatory
approvals required for Tenant's use of the Premises. Tenant will
not cause or permit any Hazardous Substance to be brought upon,
kept or used in or about the Project by Tenant, its agents,
employees, contractors, licensees, guests or invitees without the
prior written consent of Landlord. Tenant will cause any and all
Hazardous Substances brought upon the Premises by Tenant to be
removed from the Premises and transported solely by duly licensed
haulers to duly licensed facilities for final disposal of such
materials and wastes. Tenant will, in all respects, handle, treat,
deal with and manage any and all Hazardous Substances in, on,
under or about the Premises in total conformity with all
applicable Environmental Laws and prudent industry practices
regarding management of such Hazardous Substances. Upon expiration
or earlier termination of the term of the Lease, Tenant will cause
all Hazardous Substances placed on, under or about the Premises by
Tenant or at Tenant's direction to be
-19-
<PAGE> 19
removed and transported for use, storage or disposal in accordance
and compliance with all applicable Environmental Laws. Tenant will
not take any remedial action in response to the presence of any
Hazardous Substances in or about the Premises or the Project, nor
enter into any settlement agreement, consent decree or other
compromise in respect to any claims relating to any Hazardous
Substances in any way connected with the Promises without first
notifying Landlord of Tenant's intention to do so and affording
Landlord ample opportunity to appear, intervene or otherwise
appropriately assert and protect Landlord's interests with respect
thereto.
22.3 Indemnification: If the Premises or the Project become
contaminated in any manner for which Tenant is liable or otherwise
become affected by any release or discharge of a Hazardous
Substance, Tenant shall immediately notify Landlord of the release
or discharge of the Hazardous Substance, and Tenant shall
indemnify, defend (by counsel reasonably acceptable to Landlord)
and hold harmless Landlord and Landlord's agents, employees,
officers, directors, partners and shareholders from and against
any and all claims, damages, fines, judgments, penalties, costs,
liabilities or losses (including, without limitation, a decrease
in value of the Project or the Premises, damages caused by loss or
restriction of rentable or usable space, or any damages caused by
adverse impact on marketing of the space, and any and all sums
paid for settlement of claims, attorneys' fees, consultant fees
and expert fees) arising during or after the term of this Lease
and arising as a result of such contamination, release or
discharge. This indemnification includes, without limitation, any
and all costs incurred because of any investigation of the site or
any cleanup, removal or restoration mandated by federal, state or
local agency or political subdivision.
23. EVENTS OF DEFAULT: If one or more of the following events ("Event of
Default") occurs, such occurrence constitutes a breach of this Lease by
Tenant:
23.1 Abandonment/Vacation: Tenant abandons or vacates the Premises
without giving Landlord ten (10) days prior written notice or
removes furniture, fixtures or personal property except in the
normal course of business; or
23.2 Rent: Tenant fails to pay any monthly Base Rent or Operating
Expenses Rent, if applicable, as and when the same becomes due and
payable, and such failure continues for more than 10 days; or
23.3 Other Sum: Tenant fails to pay any other sum or charge payable by
tenant hereunder as and when the same becomes due and payable, and
such failure continues for more than 30 days after Landlord gives
written notice thereof to Tenant; or
23.4 Other Provisions: Tenant fails to perform or observe any other
agreement, covenant, condition or provision of this Lease to be
performed or observed by Tenant as and when performance or
observance is due, and such failure continues for more than
-20-
<PAGE> 20
30 days after Landlord gives written notice thereof to Tenant, or
if the default cannot be cured within said 30 day period and Tenant
fails promptly to commence with due diligence and dispatch the
curing of such default or, having so commenced, thereafter fails to
prosecute or complete with due diligence and dispatch the curing of
such default within 60 days; or
23.5 Insolvency: Tenant (a) files or consents by answer or otherwise to
the filing against it of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or liquidation or
to take advantage of any bankruptcy or insolvency law of any
jurisdiction; (b) makes an assignment for the benefit of its
creditors; (c) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or
of any substantial part of its property; or (d) takes action for
the purpose of any of the foregoing; or
23.6 Receiver: A court or governmental authority of competent
jurisdiction, without consent by Tenant, enters an order appointing
a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial power of its
property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of Tenant, or if any such
petition is filed against Tenant and such petition is not dismissed
within 60 days; or
23.7 Attachments: This Lease or any estate of Tenant hereunder is levied
upon under any attachment or execution and such attachment or
execution is not vacated within 60 days.
23.8 Assignment/Sublease: Tenant assigns this Lease or subleases all or
any portion of the Premises without Landlord's Prior written
consent.
23.9 Failure to Perform: Except for failure covered in subsection 23.2
and 23.3 above, Any failure by Tenant to observe and perform any
provision of this Lease to be observed or performed by Tenant where
such failure continues for thirty (30) days after written notice to
Tenant, provided that if such failure cannot be cured within said
thirty (30) day period, Tenant shall not be in default hereunder so
long as Tenant commences curative action within such thirty (30)
day period, diligently and continuously pursues the curative action
and fully and completely cures the failure within sixty (60) days
after such written notice to Tenant.
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<PAGE> 21
24. REMEDIES OF LANDLORD ON DEFAULT:
24.1 Remedies: Upon any Event of Default, Landlord may exercise any one
or more of the following described remedies, in addition to all
other rights and remedies provided at law or in equity:
(a) Terminate this Lease by written notice to Tenant and forthwith
repossess the Premises and be entitled to recover forthwith as
damages a sum of money equal to the total of (i) the cost of
recovering the Premises (including attorneys' fees and costs of
suit), (ii) the cost of removing and storing any personal property,
(iii) the unpaid rent earned at the time of termination, plus
interest thereon at the rate described in Paragraph 5.2, (iv) the
present value (discounted at the rate of eight percent (8%) per
annum) of the balance of the rent for the remainder of the lease
term less the present value (discounted at the same rate) of the
fair market rental value of the Premises for said period, taking
into account the period of time the Premises will remain vacant
until a new tenant is obtained, and the cost to prepare the
Premises for occupancy and the other costs (such as leasing
commissions and attorneys' fees) to be incurred by Landlord in
connection therewith, and (v) any other sum of money and damages
owed by Tenant to Landlord under this Lease.
(b) Elect to receive liquidated damages in an amount equal to the
monthly Base Rent and monthly Operating Expenses Rent payable
hereunder for the month during which this Lease is terminated times
12, which amount shall be in lieu of the payment of damages
Landlord may suffer by reason of such termination, but which shall
not be in lieu of or reduce in any way any amount due from Tenant
(including accrued rent) or damages incurred by Landlord due to
breach by Tenant of any covenant or other obligation herein
(whether or not liquidated) which accrued prior to the termination
of this Lease. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in any
proceedings to enforce Landlord's rights hereunder, including
without limitation, any proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, proceedings equal to the
maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater, equal to, or less
than the amount of the loss or damages referred to above.
(c) Terminate Tenant's right of possession (but not this Lease) and
may repossess the Premises by forcible entry and detainer suit or
otherwise, without thereby releasing Tenant from any liability
hereunder and without demand or notice of any kind to Tenant and
without terminating this Lease. Landlord shall use reasonable
efforts under the circumstances to relet the Premises on such terms
and conditions as Landlord in its sole discretion may determine
(including a term different than the term of this Lease, rental
concessions, alterations and repair of the Premises); provided,
however,
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<PAGE> 22
Landlord hereby reserves the right (i) to lease any other
comparable space available in the Building or in any adjacent
building owned by Landlord prior to offering the Premises for
lease, and (ii) to refuse to lease the Premises to any potential
tenant which does not meet Landlord's standards and criteria for
leasing other comparable space in the Building. Landlord shall not
be liable, nor shall Tenant's obligations hereunder be diminished
because of, Landlord's failure or refusal to relet the Premises or
collect rent due in respect of such reletting. For the purpose of
such reletting Landlord shall have the right to decorate or to make
any repairs, changes, alterations or additions in or to Premises as
may be reasonably necessary or desirable. In the event that (i)
Landlord shall fail or refuse to relet the Premises, or (ii) the
Premises are relet and a sufficient sum shall not be realized from
such reletting (after first deducting therefrom, for retention by
Landlord, the unpaid rent due hereunder earned but unpaid at the
time of reletting plus interest thereon at the rate specified in
Paragraph 5.2, the cost of recovering possession (including
attorneys' fees and costs of suit), all of the costs and expenses
of such decorations, repairs, changes, alterations and additions,
the expense of such reletting and the cost of collection of the
rent accruing therefrom) to satisfy the rent, then Tenant shall
pay to Landlord as damages a sum equal to the amount of such
deficiency. Any such payments due Landlord shall be made upon
demand therefor from time to time and Tenant agrees that Landlord
may file suit to recover any sums falling due under the terms of
this Paragraph 24.1(c) from time to time. No delivery to or
recovery by Landlord of any portion due Landlord hereunder shall be
any defense in any action to recover any amount not theretofore
reduced to judgement in favor of Landlord, nor shall such reletting
be construed as an election on the part of Landlord to terminate
this Lease unless a written notice of such intention be given to
Tenant by Landlord. Notwithstanding any such termination of
Tenant's right of possession of the Premises, Landlord may at any
time thereafter elect to terminate this Lease. In any proceedings
to enforce this Lease under this Paragraph 24.1(c), Landlord
shall be presumed to have used its reasonable efforts to relet the
Premises, and Tenant shall bear the burden of proof to establish
that such reasonable efforts were not used.
(d) Alter any and all locks and other security devices at the
Premises, and if it does so Landlord shall not be required to
provide a new key or other access right to Tenant unless Tenant has
cured all Events of Default; provided, however, that in any such
instance, during Landlord's normal business hours and at the
convenience of Landlord, and upon the written request of Tenant
accompanied by such written waivers and releases as Landlord may
require, Landlord will escort Tenant or its authorized personnel to
the Premises to retrieve any personal belongings or other property
of Tenant not subject to the Landlord's lien or security interest
described in Paragraph 25, The provisions of this Paragraph 24.1(d)
are intended to override and control any conflicting provisions of
the Texas Property Code.
In the event that Landlord shall have taken possession of the
Premises pursuant to the authority herein granted, then Landlord
shall have the right to keep in place and
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<PAGE> 23
use all of the furniture, fixtures and equipment at the Premises,
including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession
thereof by any lessor thereof or third party having a lien thereon.
Landlord shall also have the right to remove from the Premises
(without the necessity of obtaining a distress warrant, writ of
sequestration or other legal process and without being liable for
prosecution or any claim for damages therefor) all or any portion
of such furniture, fixtures, equipment and other property located
thereon and place same in storage at any place within the county in
which the Premises are located; and in such event, Tenant shall be
liable to Landlord for costs incurred by Landlord in connection
with such removal and storage and shall indemnify and hold Landlord
harmless from all loss, damage, cost, expense and liability in
connection with such removal and storage. Landlord shall also have
the right to relinquish possession of all or any portion of such
furniture, fixtures, equipment and other property to any person
("Claimant") claiming to be entitled to possession thereof who
presents to Landlord a copy of any instrument represented to
Landlord by Claimant to have been executed by Tenant (or any
predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures,
equipment or other property, without the necessity on the part of
Landlord to inquire into the authenticity of said instrument and
without the necessity of Landlord's making any nature of
investigation or inquiry as to the validity of the factual or legal
basis upon which Claimant purports to act; and Tenant agrees to
indemnify and hold harmless from all costs, expense, loss, damage
and liability incident to Landlord's relinquishment of possession
of all or any portion of such furniture, fixtures, equipment or
other to Claimant.
24.2 Non-Waiver. No action by the Landlord shall be deemed to imply or
constitute a waiver by Landlord of any of Landlord's rights under
this Lease unless such waiver is in writing and signed by Landlord
and acknowledges that such action taken by Landlord is an express
waiver of Landlord's rights. Furthermore, any such writing shall
not be deemed to be a continuing waiver of Landlord's rights and
shall be expressly limited to actions recited in any such waiver.
Landlord shall have the right to declare any default under the
Lease not waived in writing at any time and take such action as
might be lawful or authorized.
25. SECURITY DEPOSIT: The Security Deposit set forth in Paragraph 1.7, if any,
shall secure the performance of the Tenant's obligations hereunder.
Landlord may, but shall not be obligated to apply all or portions of the
Security Deposit on account of Tenant's obligations thereunder. In the
event that Landlord applies all or a portion of the Security Deposit to
tenant's obligations hereunder, Tenant shall be obligated, within 10
business days of receipt of notice from Landlord, to deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to the
full amount stated in Paragraph 1.7 above. Failure to deposit such cash
shall be a default under the terms of this Lease, Provided Tenant is not in
default, any balance remaining upon termination shall be returned to
Tenant. Tenant shall not have the right to
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<PAGE> 24
apply the Security Deposit in payment of the last month's rent. No interest
shall be paid by Landlord on the Security Deposit. In the event of a sale
of the Project, Landlord shall have the right to transfer the Security
Deposit to the purchaser, upon such transfer Landlord shall have no further
liability with respect thereto, and Tenant agrees to look solely to such
purchaser for the return of the Security Deposit. Landlord shall not be
required to keep the Security Deposit in a segregated account, and the
Security Deposit may be commingled with other funds of Landlord.
Notwithstanding the foregoing, the Security Deposit shall be returned to
the Tenant at the end of the 38th month so long as Tenant is not in default
and no event of default has existed.
26. LIEN FOR RENT: In addition to and independent of any lien in favor of
Landlord arising by operation of law, Tenant hereby grants to Landlord a
security interest to secure payment of all Base Rent and other sums of
money becoming due hereunder from Tenant, and to secure payment of any
damages or loss which Landlord may suffer by reason of the breach by Tenant
of any covenant, agreement or condition contained herein, upon all goods,
wares, equipment, fixtures, furnishings, inventory, improvements and other
personal property that is not encumbered of Tenant presently or which
hereafter may be situated in or on the Premises, and all proceeds
therefrom, and such property shall not be removed therefrom without the
consent of Landlord until any and all other sums of money then due to
Landlord hereunder, first shall have been paid and discharged, and all
covenants, agreements and conditions hereof have been fully complied with
and performed by Tenant. At any time and from time to time, Tenant agrees
to execute any UCC-1 Financing Statement (but not more than twice per
annum) or such other documents or instruments as Landlord may request to
perfect or confirm the security interest created by this Paragraph 26.
Upon any failure by Tenant to do so, Landlord may execute same for and on
behalf of Tenant as Tenant's attorney in fact. All exemption laws are
hereby waived by Tenant to the extent permitted by law. This lien and
security interest may be foreclosed with or without court proceedings, by
public or private sale, with or without notice (to the extent permitted by
law), and Landlord shall have the right to become purchaser upon being the
highest bidder at such sale. Landlord, as secured party, shall be entitled
to all the rights and remedies afforded a secured party under the Uniform
Commercial Code, which rights and remedies shall be in addition to and
cumulative of the Landlord's liens and rights provided by law or by the
terms and provisions of this Lease.
27. LIMITATION ON LANDLORDS PERSONAL LIABILITY: Tenant specifically agrees to
look solely to Landlord's interest in the Project for the recovery of any
judgment from Landlord, it being agreed that Landlord (and any officers,
shareholders, directors, partners or employees of Landlord) shall never be
personally liable for any such judgment,
28. ATTORNEY'S FEES: In the event Tenant defaults in the performance of any of
the terms, covenants, agreements or conditions contained in this Lease and
Landlord places the enforcement of this Lease or the collection of any rent
due or to become due hereunder or recovery of the possession of the
Premises in the hands of an attorney, Tenant agrees to pay Landlord
reasonable attorneys' fees and costs. If there is any legal action or
proceeding
-25-
<PAGE> 25
between Landlord and Tenant to enforce any provision of this Lease or to
protect or establish any right or remedy of either Landlord or Tenant
hereunder, the unsuccessful party to such action or proceeding will pay to
the prevailing party all costs and expenses, including reasonable
attorneys' fees (including allocated costs of Landlord's in-house attorney)
incurred by such prevailing party in such action or proceeding and in any
appearance in connection therewith, and if such prevailing party recovers a
judgment in any such action, proceeding or appeal, such costs, expenses and
attorney's fees will be determined by the court handling the proceeding and
will be included in and as a part of such judgment.
29. SEVERABILITY: If any clause or provisions of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the term
hereof, then it is the intention of the parties hereto that the remainder
of this Lease shall not be affected thereby, and it is also the intention
of both parties that in lieu of each clause or provision that is illegal,
invalid or unenforceable, there shall be added as a part of this Lease, a
clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid
and enforceable.
30. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and be (i) personally delivered (including by
means of professional messenger service), (ii) sent by overnight courier,
with request for next Business Day delivery, or (iii) sent by registered or
certified mail, postage prepaid, return receipt requested, to the addresses
set forth in Paragraph 1.14. All notices sent by mail will be deemed
received 2 days after the date of mailing.
31. HOLDING OVER: Any holding over after the expiration or termination of this
Lease shall create a tenancy at sufferance relationship and Tenant shall be
required to pay a rental of 150% of the rent for the month of the Lease
preceding the month in which the expiration or termination occurred, and
otherwise in accordance with the terms hereof, as applicable. In the event
Tenant shall be or become a holdover tenant, Tenant shall also indemnify
Landlord against all claims for damages against Landlord as a result of
Tenant's possession of the Premises, including, without limitation, claims
for damages by any tenant to whom Landlord may have leased the Premises, or
any portion thereof, for a term commencing after the expiration or
termination of this Lease.
32. TIME: Time is of the essence of this Lease.
33. HEIRS, ASSIGNS, SUCCESSORS: This Lease is binding upon and inures to the
benefit of the assigns and successors in interest of Landlord and is
binding upon and inures to the benefit of Tenant and Tenant's heirs and
successors and, to the extent assignment may be approved by Landlord
hereunder, Tenant's assigns.
34. SUBORDINATION: This Lease is and shall always be subject and subordinate to
the lien of any mortgage, deed of trust, ground lease and/or security
agreement which are now or shall at
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<PAGE> 26
any future time be placed upon the Project, the Premises or Landlord's
rights hereunder, and to any renewals, extensions, modifications or
consolidations thereof. This clause shall be self-operative and no further
instrument of subordination need be required by any holder of any such
mortgage, deed of trust, ground lease and/or security agreement. In
confirmation of such subordination, however, Tenant, at Landlord's request,
shall execute promptly any appropriate certificate or instrument that
Landlord may reasonably request. This Lease is further subject to and
subordinate to all matters of record in Harris County, Texas.
35. ESTOPPEL CERTIFICATE; FINANCIAL STATEMENTS:
35.1 Content: Tenant shall at any time, but not more than three (3) times per
annum, upon not less than 10 days' prior written notice from Landlord
execute, acknowledge and deliver to Landlord a statement in writing:
(a) certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect), the amount
of any security deposit, and the date to which the rent and other charges
are paid in advance, if any; and
(b) acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults if
any are claimed. Any such statement may be conclusively relied upon by a
prospective purchaser or encumbrancer to the Premises.
35.2 Failure to Deliver: At Landlord's option, Tenant's failure to deliver such
statement within such time shall be a material breach of this Lease or
shall be conclusive upon Tenant:
(a) that this Lease is in full force and effect, without modification
except as may be represented by Landlord;
(b) that there are no uncured defaults in Landlord's performance; and
(c) that not more than one month's rent has been paid in advance or such
failure may be considered by Lessor as a default by Tenant under this
Lease.
35.3 Financial Statements: Within 60 days after the end of each calendar year
during the term of this Lease and after the end of the term of this Lease
and if at any time Landlord desires to finance, refinance, or sell the
Premises, or any part thereof, Tenant hereby agrees to deliver to Landlord
and any lender or purchaser designated by Landlord, such financial
statements of Tenant, including, without limitation, income statement and
balance sheet, as may be reasonably required by such lender, purchaser or
Landlord, Such statements shall include the past 3 years' financial
statements of
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<PAGE> 27
Tenant. All such financial statements shall be received by Landlord
and such lender or purchaser in confidence and shall be used only
for the purposes herein set forth.
36. AUTHORIZATION: If Tenant executes this Lease as a corporation or
partnership, then Tenant and the person(s) executing this Lease on behalf
of Tenant, represent and warrant that such entity is duly qualified to do
business in the State of Texas and that the individuals executing this
Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on Tenant's behalf.
37. JOINT AND SEVERAL LIABILITY: In the event that more than one person or
entity executes the Lease as Tenant, all such persons and entities shall be
jointly and severally liable for all of Tenant's obligations hereunder.
38. FORCE MAJEURE: Landlord shall be excused for the period of any delay in the
performance of any obligations hereunder when prevented from doing so by
cause or causes beyond Landlord's absolute control which shall include,
without limitation, all labor disputes, civil commotion, civil disorder,
riot, civil disturbance, war, war-like operations, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations,
orders, moratoriums or controls, fire or other casualty, inability to
obtain any material, services or financing or Acts of God.
39. RECORDING: Tenant shall not record this Lease, or any memorandum or short
form thereof, without the written consent and joinder of Landlord, which
may be unreasonably withheld.
40. ENTIRE AGREEMENT: The foregoing, along with the schedules attached hereto,
constitute the entire agreement between the parties and may be modified
only by a writing signed by both parties.
41. GOVERNING LAW: This Lease shall be construed in accordance with the laws of
the State of Texas.
42. ACKNOWLEDGMENT OF NON-APPLICABILITY OF DTPA: It is the understanding and
intention of the parties that Tenant's rights and remedies with respect to
the transactions provided for and contemplated in this Lease (collectively,
this "Transaction") and with respect to all acts or practices of Landlord,
past, present or future, in connection with this Transaction, are and shall
be governed by legal principles other than the Texas Deceptive Trade
Practices - Consumer Protection Act (the "DTPA"). Accordingly, Tenant
hereby (a) agrees that under Section 17.49(f) of the DTPA this Transaction
is not governed by the DTPA and (b) certifies, represents and warrants to
Landlord that (i) Tenant has been represented by legal counsel in
connection with this Transaction who has not been directly or indirectly
identified, suggested or selected by the Landlord and Tenant has conferred
with Tenant's counsel concerning all elements of this Lease (including,
without limitation, this Paragraph 42) and this Transaction and (ii) the
Premises will not be occupied by Tenant as Tenant's family residence.
Tenant's
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<PAGE> 28
legal counsel has also signed this Lease to confirm (i) that he has acted
as Tenant's counsel in the negotiation, preparation and entry by Tenant of
this Lease and in arriving at the legal conclusion that the DTPA is
inapplicable to this Transaction and (ii) that he has not been directly or
indirectly identified, suggested or selected by the Landlord in connection
with this Transaction. Tenant expressly recognizes that the total
consideration as agreed to by Landlord has been predicated upon the
inapplicability of the DTPA to this Transaction and that Landlord, in
determining to proceed with the entering into of this Lease, has expressly
relied on the inapplicability of the DTPA to this Transaction.
43. WAIVER OF THE RIGHT TO TRIAL BY JURY: LANDLORD AND TENANT HEREBY KNOWINGLY
AND INTENTIONALLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING THAT LANDLORD OR TENANT MAY HEREINAFTER INSTITUTE AGAINST EACH
OTHER WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATED TO THIS LEASE OR
THE PREMISES.
44. REVIEW: Prior to its execution of this Lease, Tenant has had this Lease
reviewed by an attorney on behalf of Tenant, or has had the opportunity to
do so, and the parties hereto agree that based on the foregoing, this
Lease shall not be construed in favor of one party over the other based on
the drafting of this Lease.
-29-
<PAGE> 29
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year first above written.
"LANDLORD"
HOUSTON POST OAK ASSOCIATES, LTD., a
Texas limited partnership
By: Songy Partners Limited, a Florida
limited partnership, its General
Partner
By: SPL Florida, Inc., d/b/a SPL
Florida Post Oak, Inc., a
Florida Corporation, its
General Partner
By: /s/ DAVID B. SONGY
--------------------------
David B. Songy
President
"TENANT"
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC., A DELAWARE CORPORATION
By: /s/ L.H. RAMMING
-------------------------------------
Name: L.H. RAMMING
-----------------------------------
Title: CHAIRMAN
----------------------------------
-30-
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES
Subsidiaries of Boots & Coots International Well Control, Inc.
- --------------------------------------------------------------
IWC Services, Inc. Texas
Boots & Coots Special Services, Inc. Texas
Elmagco, Inc. Delaware
Subsidiaries of IWC Services, Inc.
- ----------------------------------
Hell Fighters, Inc. Texas
Boots & Coots Overseas, Ltd. British Virgin Islands
International Well Control Services, Ltd. Cayman Islands
ABASCO, Inc. Texas
IWC Engineering, Inc. Texas
ITS Supply Corporation Delaware
Subsidiary of Boots & Coots Overseas, Ltd.
- ------------------------------------------
Boots & Coots/IWC de Venezuela, S.A. Venezuela
Subsidiaries of ITS Supply Corporation
- --------------------------------------
International Tool & Supply de Venezuela, S.A. Venezuela
International Tool & Supply - Peru Peru
International Tool & Supply - UK United Kingdom
Subsidiaries of Elmagco, Inc.
- -----------------------------
Baylor Company Texas
Baylor Controls, Inc. Texas
Baylor Electronics, Inc. Texas
Baylor Company, Limited United Kingdom
Schottel, Inc. [Elmagco, Inc. owns 50% interest] Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,213,000
<SECURITIES> 0
<RECEIVABLES> 24,721,000
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0
0
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</TABLE>
