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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
---------------------
COMMISSION FILE NUMBER 1-13817
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 11-2908692
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 POST OAK BOULEVARD, SUITE 800
HOUSTON, TEXAS
77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(713) 621-7911
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, par value $.00001
per share, outstanding at August 12, 1999, was 34,577,017.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Financial Information....................................... 3
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Shareholders' Equity............. 5
Consolidated Statements of Cash Flows....................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 16
PART II
Item 2. Recent Sales of Unregistered Securities.....................
Item 3. Defaults Upon Senior Securities.............................
Item 6. Exhibits and Reports on Form 8-K............................ 16
</TABLE>
2
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENTS ASSETS:
Cash...................................................... $ 4,213,000 $ 938,000
Receivables -- net........................................ 24,721,000 19,859,000
Inventories............................................... 14,819,000 16,238,000
Prepaid expenses and other current assets................. 987,000 1,500,000
----------- -----------
Total current assets................................. 44,740,000 38,535,000
----------- -----------
PROPERTY AND EQUIPMENT -- net............................... 28,114,000 30,439,000
OTHER ASSETS:
Deferred financing costs and other assets -- net.......... 5,637,000 6,208,000
Goodwill -- net........................................... 19,094,000 18,876,000
----------- -----------
Total assets......................................... $97,585,000 $94,058,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $14,014,000 $18,996,000
Accrued liabilities and customer advances................. 8,329,000 6,605,000
Long-term debt and notes payable -- current portion....... 4,584,000 19,515,000
----------- -----------
Total current liabilities............................ 26,927,000 45,116,000
----------- -----------
DEFERRED INCOME TAXES AND OTHER............................. 1,346,000 1,409,000
LONG-TERM DEBT AND NOTES PAYABLE -- net of current
portion................................................... 49,076,000 27,962,000
COMMITMENTS AND CONTINGENCIES...............................
SHAREHOLDERS' EQUITY:
Preferred stock ($.00001 par, 5,000,000 shares authorized,
140,000 and 172,000 issued and outstanding at December
31, 1998 and June 30, 1999, respectively).............. -- --
Common stock ($.00001 par, 50,000,000 shares authorized,
33,044,000 and 34,577,000 shares issued and outstanding
at December 31, 1998 and June 30, 1999,
respectively).......................................... -- --
Additional paid-in capital................................ 25,154,000 32,108,000
Accumulated deficit....................................... (4,918,000) (12,537,000)
----------- -----------
Total shareholders' equity........................... 20,236,000 19,571,000
----------- -----------
Total liabilities and shareholders' equity........... $97,585,000 $94,058,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES.......................................... $18,565,000 $20,711,000 $30,524,000 $43,000,000
COSTS AND EXPENSES:
Cost of Sales and Operating Expenses............ 13,487,000 18,242,000 21,582,000 35,492,000
Selling, General and Administrative............. 3,665,000 5,165,000 6,237,000 9,662,000
Depreciation and Amortization................... 448,000 1,037,000 759,000 2,049,000
----------- ----------- ----------- -----------
17,600,000 24,444,000 28,578,000 47,203,000
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)........................... 965,000 (3,733,000) 1,946,000 (4,203,000)
OTHER EXPENSES-NET, PRIMARILY INTEREST............ 651,000 1,573,000 1,218,000 3,011,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................. 314,000 (5,306,000) 728,000 (7,214,000)
INCOME TAX EXPENSE (BENEFIT)...................... 16,000 25,000 274,000 44,000
----------- ----------- ----------- -----------
NET INCOME (LOSS)................................. 298,000 (5,331,000) 454,000 (7,258,000)
PREFERRED STOCK ACCRETION AND DIVIDEND
REQUIREMENTS.................................... 248,000 333,000 248,000 423,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS............................. $ 50,000 $(5,664,000) $ 206,000 (7,681,000)
----------- ----------- ----------- -----------
BASIC EARNINGS (LOSS) PER COMMON SHARE............ $ .00 $ (0.16) $ .01 $ (0.23)
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE.......... $ .00 $ (0.16) $ .01 $ (0.23)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING -- BASIC............................ 30,773,000 34,569,000 30,490,000 33,867,000
=========== =========== =========== ===========
-- DILUTED.................. 33,609,000 34,569,000 33,326,000 33,867,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<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, December 31, 1998............ 140,000 $ -- 33,044,000 $ -- $25,154,000 $ (4,918,000) $20,236,000
Preferred stock accretion, dividends,
and warrant discount accretion..... -- -- -- -- 137,000 (151,000) (14,000)
Preferred stock conversion to common
stock.............................. (10,000) -- 121,000 -- -- -- --
Preferred stock redemption........... (8,000) -- -- -- (200,000) -- (200,000)
Preferred stock issued in private
placement, net of offering cost.... 50,000 -- -- -- 4,838,000 -- 4,838,000
Common stock issued upon exercise of
options............................ -- -- 12,000 -- 5,000 -- 5,000
Common stock issued in connection
with equity offering, net of
offering cost...................... -- -- 1,400,000 -- 1,964,000 -- 1,964,000
Warrant discount accretion in
connection with common stock
issuance........................... 210,000 (210,000)
Net loss............................. -- -- -- -- -- (7,258,000) (7,258,000)
------- ------- ---------- ------- ----------- ------------ -----------
BALANCES, June 30, 1999................ 172,000 $ -- 34,577,000 $ -- $32,108,000 $(12,537,000) $19,571,000
======= ======= ========== ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 454,000 $(7,258,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 759,000 2,049,000
Non-cash charges associated with warrant costs......... 516,000 149,000
Bad debt expense....................................... 134,000 379,000
Changes in assets and liabilities, net of acquisitions:
Receivables.......................................... (12,826,000) 4,483,000
Inventories.......................................... (4,106,000) (1,419,000)
Prepaid expenses and other current assets............ (1,401,000) (513,000)
Deferred financing costs and other assets, net....... (3,925,000) (889,000)
Accounts payable..................................... 10,910,000 5,002,000
Accrued liabilities and customer advances............ 3,886,000 (1,725,000)
------------ -----------
Net cash provided by (used in) operating
activities...................................... (5,599,000) 258,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired........... (7,226,000) --
Property and equipment additions.......................... (560,000) (3,776,000)
------------ -----------
Net cash used in investing activities............. (7,786,000) (3,776,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock options exercised............................ 114,000 5,000
Proceeds from issuance of debt and warrants............... 8,250,000 1,964,000
Proceeds from issuance of preferred stock................. 4,678,000 4,838,000
Borrowings under line of credit........................... -- 10,093,000
Debt repayments........................................... (1,067,000) (16,443,000)
Preferred stock dividends................................. (14,000)
Preferred stock redemption................................ -- (200,000)
------------ -----------
Net cash provided by financing activities................. 11,975,000 243,000
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,410,000) (3,275,000)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,718,000 4,213,000
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 308,000 $ 938,000
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 88,000 $ 3,443,000
============ ===========
Cash paid for income taxes................................ $ -- $ --
============ ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisition of business........... 2,282,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
6
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Boots &
Coots International Well Control, Inc. (the "Company") have been prepared in
accordance with Generally Accepted Accounting Principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and notes required by Generally
Accepted Accounting Principles for complete financial statements. The
accompanying consolidated financial statements include all adjustments,
including normal recurring accruals, which, in the opinion of management, are
necessary in order to make the consolidated financial statements not misleading.
The accompanying consolidated financial statements should be read in
conjunction with the Audited Consolidated Financial Statements and the notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
The results of operations for the three and six month periods ended June
30, 1998 and 1999 are not necessarily indicative of the results to be expected
for the respective full year.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company receives a majority of its
revenues from customers in the energy industry, which experienced a significant
downturn in 1998, which continued through the first half of 1999. In the three
months and six months ended June 30, 1999, the Company incurred after-tax losses
of $5.3 million and $7.3 million, respectively. In addition, the Company grew
significantly through acquisition in 1998; a significant portion of the
consideration paid by the Company for these acquisitions was in the form of cash
and debt. As of June 30, 1999, the Company was not in compliance with certain
provisions of the Comerica Loan Agreement (defined below) and that event of
non-compliance exists as of August 16, 1999. The Company is in negotiations with
Comerica to modify the Comerica Loan Agreement to allow for the Company to
comply with its covenants through its maturity, May 2000. As of June 30, 1999,
the Company was not in compliance with certain financial covenants of the
Prudential Subordinated Note and Warrant Purchase Agreement (defined below)
respecting the Company's EBITDA to total liabilities ratio. In addition, in July
1999, the Company did not make an interest payment required to be made pursuant
to the terms of the Subordinated Note and Warrant Purchase Agreement; however,
the Company made a payment to Prudential on August 13, 1999 in the amount which
was required to be paid in July 1999. This non-payment in July 1999 constituted
an event of default under the terms of the Subordinated Note and Warrant
Purchase Agreement. The Company is actively working with Prudential and
management believes that Prudential will not seek its remedies under the
Subordinated Note and Warrant Purchase Agreement related to the non-payment
default. Based on the Company's discussions with Prudential, the outstanding
balance of the Prudential Subordinated Notes has been shown as a non-current
liability in the accompany financial statements. There can be no assurance that
Comerica and Prudential will not seek their remedies under their respective
lending agreements with respect to the continuing default under the Comerica
Loan Agreement and the event of non-payment default under the Prudential Loan
Agreement. These remedies include, among others, an acceleration of the
contractual maturity of the outstanding balances of those loans, and in the
event the Company is unable to repay the then outstanding balances, the possible
foreclosure of the Company's assets securing those loans.
As a result of the continued weakness in the industries which the Company
serves and the Company's financial position, the Company's management has taken
actions in 1999 which include among others, (a) downsizing personnel, (b)
attempting to improve its working capital, including reducing its inventory
levels, (c) closing and/or consolidating certain of its field offices, (d)
consolidating certain administrative functions, and (e) evaluating certain
business lines to ensure that the Company's resources are deployed in the more
profitable operations. The Company's initial efforts to rationalize its
operations commenced in the first
7
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter of 1999. Through the second quarter of 1999, the results of these
efforts were not sufficient to prevent operating losses. In addition, the
Company is exploring opportunities for new equity infusions and/or improved debt
financing. However, should any new financing be obtained, it could have a
significantly dilutive impact on existing common shareholders. There is no
assurance that the Company will be able to obtain new capital, and if new
capital is obtained, that it will be on terms favorable to the Company.
The Company believes that (a) should a prolonged weakness in the oil and
gas industry persist, or (b) if management's actions are not effective in
reducing the Company's operating losses and negative cash flows, these
conditions will have a material adverse effect on the Company's financial
position and results of operations and its ability to continue as a going
concern. The Company's consolidated financial statements should be read in
consideration of the foregoing.
See Note B for further discussion.
NOTE B -- BUSINESS ACQUISITIONS
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 procurement,
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). This transaction was accounted for as a
purchase and the acquired assets and liabilities were valued at fair market
value resulting in goodwill of $4,551,000 which is amortized over 40 years.
On February 20, 1998, the Company completed the acquisition of all of the
stock of Code 3, Inc. ("Code 3"). Consideration for the acquisition of Code 3
(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 were valued at fair market value on a
preliminary basis resulting in goodwill of $4,064,000 which is amortized over 40
years.
On July 23, 1998, the Company completed the acquisition of all of the 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 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 were valued at fair market value on a preliminary basis resulting in
goodwill of $7,336,000 which is 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
8
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 were valued on a preliminary
basis at fair market value resulting in goodwill of $1,413,000 which is
amortized over 40 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. Upon acquisition, the Company records its preliminary purchase
price allocation based on available information. If additional facts become
available, the Company's finalizes its allocation within one year from the date
of acquisition.
The operations of the acquired entities are included in the Company's
consolidated operations from their respective acquisition dates. For the three
and six month periods ended June 30, 1998, revenues, net income (loss) available
to common shareholders, and net earnings (loss) per share on an unaudited pro
forma basis, assuming that the ITS, B & C Special Services, Baylor and HAZ-TECH
acquisitions occurred on January 1, 1998 would be as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues........................................... $31,521,000 $56,247,000
Net Income Available to Common Shareholders........ (101,000) 576,000
Basic Earnings Per Common Share.................... $ .00 .02
Diluted Earnings Per Common Share.................. $ .00 .02
</TABLE>
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. The Company was not in compliance with one financial covenant and
obtained a waiver from the lender at December 31, 1998. As described in Note A,
the Company was not in compliance at June 30, 1999 with certain of its financial
covenants and the Company failed to make a required payment timely (in July
1999) and is, therefore, not in compliance with the terms of the agreement.
Based on its discussions with Prudential, management believes Prudential will
not seek its remedies under the loan agreement.
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 "Comerica 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. As described in Note A,
the Company was not in compliance with the Comerica Loan Agreement as of June
30, 1999.
The loan agreement relating to the Comerica Loan Agreement imposes certain
restrictions on the Company's activities, including a prohibition, unless
permitted, 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 on the Company or its subsidiaries
9
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Comerica Loan
Agreement. The Comerica Loan Agreement and the Subordinated Note and Warrant
Purchase Agreement each require that the Company meet certain minimum financial
tests. Such restrictions would 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.
Effective April 15, 1999, the Comerica Loan Agreement was amended to waive
non-compliance with certain 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 was adjusted
to a base rate approximating prime plus 1%, and the maturity date was modified
to May 31, 2000. The outstanding loan balance of 17,100,000 is classified with
current liabilities in the accompanying consolidated balance sheet due to
scheduled maturity within the upcoming 12 month operating cycle.
The Company receives the majority of its revenues from customers in the
energy industry. The liquidity of the Company must 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 the first
quarter of 1999, world-wide oil and gas prices and related activity hit new
lows, on an inflation adjusted basis, for the past several decades, impacting
the Company and its competitors. Although oil and gas prices have recovered
somewhat during the second quarter of 1999, the Company's well control and
outsource purchasing businesses have not yet benefited to a meaningful degree
from price improvements due to the lag time in exploration and production
companies restoring capital and operating budgets that have been materially
curtailed since the third quarter of 1998. Furthermore, there is no assurance
that oil and gas commodity price increases will be sustained or that they will
result in increased operational activity by the Company's customers.
The Company has grown rapidly since 1997, primarily through acquisitions in
1998. Many of the acquisitions were made through debt financing; total secured
and subordinated debt increased to $47.5 million and interest cost increased to
$1.7 million for the quarter ended June 30, 1999. 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 not in compliance with certain of its loan covenants with its two
major lenders. Management arranged waivers of past violations and modifications
of existing loan covenants that the Company then believed would allow it to be
in compliance with its loan agreements for 1999. Management's actions during the
first quarter of 1999 included downsizing personnel and operations to meet
market demand and reduce the negative cash flows caused in 1998 by acquisitions
made to exploit new market opportunities. Management believe the steps 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.
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 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 $4.00 per share. Also in
10
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In April and May 1999, two unaffiliated institutional investor groups
purchased direct from certain holders of the Company's 10% Junior Redeemable
Preferred Stock, 70,000 shares with a face amount of $1,750,000, plus accrued
payment-in-kind dividends thereon. The Company entered into an agreement with
the two investor groups for the preferred shares to cancel further dividend
requirements and be converted into shares of the Company's $.00001 par value
Common Stock 90 days after closing. The two investor groups received warrants to
purchase, for a five year period, 181,432 shares of the Company's $.00001 par
value Common Stock at $5.00 per share.
In May 1999, the Company completed the sale of $2,100,000 of Common Stock
in private placements. In connection with these private placement transactions,
warrants were issued to purchase 420,000 shares of the Company's $.00001 par
value Common Stock for a five year period at $5.00 per share and 700,000 shares
of the Company's $.00001 Common Stock for a four year period at $4.00 per share.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes a prolonged
weakness in the Company's customer industries will have a material adverse
effect on the Company's financial position and results of operations and its
ability to continue as a going concern.
NOTE C -- COMMITMENTS AND CONTINGENCIES
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 such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
NOTE D -- BUSINESS SEGMENT INFORMATION
Information concerning operations in different business segments at June
30, 1998 and 1999, and for the six-month periods 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. Inter-segment transfers 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, 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 PROGRAMS MANUFACTURING
RESPONSE AND AND AND
RESTORATION SERVICES DISTRIBUTION CONSOLIDATED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1999
Net Operating Revenues......... $15,407,000 $ 6,687,000 $20,906,000 $43,000,000
Operating Income (Loss)........ (3,218,000) (1,573,000) 588,000 (4,203,000)
Identifiable Operating
Assets...................... 34,638,000 13,994,000 45,426,000 94,058,000
Equity Income.................. -- -- 19,000 19,000
Capital Expenditures........... 2,823,000 178,000 775,000 3,776,000
Depreciation and
Amortization................ 1,045,000 181,000 823,000 2,049,000
Interest Expense............... 3,011,000 78,000 5,000 3,094,000
</TABLE>
11
<PAGE> 12
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EMERGENCY PROGRAMS MANUFACTURING
RESPONSE AND AND AND
RESTORATION SERVICES DISTRIBUTION CONSOLIDATED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1998
Net Operating Revenues......... $13,264,000 $15,392,000 $ 1,868,000 $30,524,000
Operating Income (Loss)........ 1,698,000 250,000 (2,000) 1,946,000
Identifiable Operating
Assets...................... 25,188,000 20,049,000 2,571,000 47,808,000
Capital Expenditures........... 1,131,000 151,000 40,000 1,322,000
Interest Expense............... 1,067,000 -- -- 1,067,000
Depreciation and
Amortization................ 518,000 187,000 54,000 759,000
</TABLE>
For the three and six month periods ended June 30, 1998 and 1999, the
Company's revenues were substantially consistent with those for the year ended
December 31, 1998 (domestic -- 47%, foreign -- 53%).
None of the Company's customers at December 31, 1998 and June 30, 1999
accounted for greater than ten percent of outstanding accounts receivable. The
Company believes that future accounts receivable will 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.
12
<PAGE> 13
ITEM 2. 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 filed herewith and those
previously filed with the Commission.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company receives a majority of its
revenues from customers in the energy industry, which experienced a significant
downturn in 1998, which continued through the first half of 1999. In the three
months and six months ended June 30, 1999, the Company incurred after-tax losses
of $5.3 million and $7.3 million, respectively. In addition, the Company grew
significantly through acquisition in 1998; a significant portion of the
consideration paid by the Company for these acquisitions was in the form of cash
and debt. As of June 30, 1999, the Company was not in compliance with certain
provisions of the Comerica Loan Agreement and that event of non-compliance
exists as of August 16, 1999. The Company is in negotiations with Comerica to
modify the Comerica Loan Agreement to allow for the Company to comply with its
covenants through its maturity, May 2000. As of June 30, 1999, the Company was
not in compliance with certain financial covenants of the Subordinated Note and
Warrant Purchase Agreement respecting the Company's EBITDA to total liabilities
ratio. In addition, in July 1999, the Company did not make an interest payment
required to be made pursuant to the terms of the Subordinated Note and Warrant
Purchase Agreement; however, the Company made a payment to Prudential on August
13, 1999 in the amount which was required to be paid in July 1999. This
non-payment in July 1999 constituted an event of default under the terms of the
Subordinated Note and Warrant Purchase Agreement. The Company is actively
working with Prudential and management believes that Prudential will not seek
its remedies under the Subordinated Note and Warrant Purchase Agreement related
to the non-payment default. Based on the Company's discussions with Prudential,
the outstanding balance of the Prudential Subordinated Notes has been shown as a
non-current liability in the accompany financial statements. There can be no
assurance that Comerica and Prudential will not seek their remedies under their
respective lending agreements with respect to the continuing default under the
Comerica Loan Agreement and the event of non-payment default under the
Prudential Loan Agreement. These remedies include, among others, an acceleration
of the contractual maturity of the outstanding balances of those loans, and in
the event the Company is unable to repay the then outstanding balances, the
possible foreclosure of the Company's assets securing those loans.
As a result of the continued weakness in the industries which the Company
serves and the Company's financial position, the Company's management has taken
actions in 1999 which include among others, (a) downsizing personnel, (b)
attempting to improve its working capital, including reducing its inventory
levels, (c) closing and/or consolidating certain of its field offices, (d)
consolidating certain administrative functions, and (e) evaluating certain
business lines to ensure that the Company's resources are deployed in the more
profitable operations. The Company's initial efforts to rationalize its
operations commenced in the first quarter of 1999. Through the second quarter of
1999, the results of these efforts were not sufficient. In addition, the Company
is exploring opportunities for new equity infusions and/or improved debt
financing. However, should any new financing be obtained, it could have a
significantly dilutive impact on existing common shareholders. There is no
assurance that the Company will be able to obtain new capital, and if new
capital is obtained, that it will be on terms favorable to the Company.
The Company believes that (a) should a prolonged weakness in the oil and
gas industry persist, or (b) if management's actions are not effective in
reducing the Company's operating losses and negative cash flows, these
conditions will have a material adverse effect on the Company's financial
position and results of operations and its ability to continue as a going
concern. The Company's consolidated financial statements should be read and its
financial condition should be evaluated in consideration of the foregoing.
13
<PAGE> 14
As discussed herein, the Company completed the acquisitions of 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 accompanying
consolidated statement of operations and the condensed Business Segment
operating data set forth hereinafter from their respective dates of
acquisitions.
Business segment operating data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Emergency Response and
Restoration................. $ 8,068,000 $ 5,141,000 $13,264,000 $15,407,000
Programs and Services.......... 9,361,000 4,390,000 15,392,000 6,687,000
Manufacturing and
Distribution................ 1,136,000 11,180,000 1,868,000 20,906,000
----------- ----------- ----------- -----------
$18,565,000 $20,711,000 $30,524,000 $43,000,000
=========== =========== =========== ===========
COST OF SALES AND OPERATING EXPENSES
Emergency Response and
Restoration................. $ 4,818,000 $ 5,842,000 $ 7,710,000 $14,670,000
Programs and Services.......... 7,925,000 3,968,000 12,681,000 5,857,000
Manufacturing and
Distribution................ 744,000 8,432,000 1,191,000 14,965,000
----------- ----------- ----------- -----------
$13,487,000 $18,242,000 $21,582,000 $35,492,000
=========== =========== =========== ===========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Emergency Response and
Restoration................. $ 1,910,000 $ 1,559,000 $ 3,338,000 $ 2,910,000
Programs and Services.......... 1,360,000 1,258,000 2,274,000 2,222,000
Manufacturing and
Distribution................ 395,000 2,348,000 625,000 4,530,000
----------- ----------- ----------- -----------
$ 3,665,000 $ 5,165,000 $ 6,237,000 $ 9,662,000
=========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION
Emergency Response and
Restoration................. $ 314,000 $ 529,000 $ 518,000 $ 1,045,000
Programs and Services.......... 104,000 107,000 187,000 181,000
Manufacturing and
Distribution................ 30,000 401,000 54,000 823,000
----------- ----------- ----------- -----------
$ 448,000 $ 1,037,000 $ 759,000 $ 2,049,000
=========== =========== =========== ===========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING INCOME (LOSS)
Emergency Response and
Restoration................. $ 1,026,000 $(2,789,000) $ 1,698,000 $(3,218,000)
Programs and Services.......... (28,000) (943,000) 250,000 (1,573,000)
Manufacturing and
Distribution................ (33,000) (1,000) (2,000) 588,000
----------- ----------- ----------- -----------
$ 965,000 $(3,733,000) $ 1,946,000 $(4,203,000)
=========== =========== =========== ===========
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 WITH THE THREE MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
REVENUES
The net decrease in Emergency Response and Restoration Revenues of
$2,927,000 from the 1998 to 1999 quarter resulted from lower revenues in Well
Control operations ($991,000) and in Special Services hazardous material
operations ($1,936,000). The frequency and magnitude of oil and gas well blow
out events, particularly during May and June 1999, were unusually low and is
attributed to both timing coincidence and continuing curtailed drilling and
workover operations by the exploration and production oil and gas industry
sector. The Special Services operating unit also experienced a significantly
lower activity in average emergency response out calls during all of the second
quarter of 1999 (approximately $900,000) with the second quarter of 1998 also
including a large ship fire project ($1,036,000) The lower revenues had a
significant adverse impact on operating margins for the second quarter 1999
since emergency response and restoration projects typically have larger margins.
The net decrease in Programs and Services Revenues of $4,971,000 from the
1998 to 1999 quarter is primarily ($6,215,000) the result of continuation since
September 1998 of lower international customer outsource purchasing orders and
substantially reduced sales of oil well artificial lift systems in South
America. These reductions in customer activity resulted from sharply curtailed
industry activities continuing for the first half of 1999 due to low oil and gas
prices. The net decrease was offset by $1,244,000 in revenues during May and
June 1999 from two WELLSURE(SM) events where the Company served as lead
contractor on the projects.
The net increase in Manufacturing and Distribution Revenues of $10,044,000
from the 1998 to 1999 quarter is primarily the result of the acquisition of
Baylor Company on July 23, 1998 ($9,040,000) and increased sales by ABASCO
during the second quarter of 1999 of industrial fire fighting equipment, foam
and spill cleanup equipment and supplies.
COST OF SALES AND OPERATING EXPENSES
The net increase in Emergency Response and Restoration Cost of Sales and
Operating Expenses of $1,024,000 for the 1998 to 1999 quarter is primarily the
result of increased operating costs in the Special Services operating unit. This
increase was due to a net increase in the number of field office locations,
including related start-up costs, in the 1999 quarter compared to 1998 together
with above average third-party subcontractor costs incurred during the second
quarter of 1999 on certain lower margin petro-chemical and refinery maintenance
contracts.
The net decrease in Programs and Services Cost of Sales and Operating
Expenses of $3,957,000 from the 1998 to 1999 quarter is primarily ($5,294,000)
the result of substantially lower international customer outsource purchasing
orders and reduced sales of oil well artificial lift systems in South America.
These reductions in customer activity result from sharply curtailed activities
continuing for the first half of 1999 due to low oil and gas prices. Also
included in the 1999 quarter are costs related to the Company's proprietary risk
management program WELLSURE(SM).
15
<PAGE> 16
The net increase in Manufacturing and Distribution Cost of Sales and
Operating Expenses of $7,688,000 from the 1998 to 1999 quarter is primarily the
result of the acquisition of Baylor Company on July 23, 1998 ($6,556,000) and
costs associated with increased ABASCO operating unit sales in the second
quarter 1999 ($1,132,000).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The net decrease in Emergency Response and Restoration Selling, General and
Administrative Expenses of $351,000 from the 1998 to 1999 quarter primarily
results from the allocation to additional business units in 1999 of an increased
overhead base for additional corporate investments in personnel, systems and
infrastructure necessary to support the expanded scope of operations and new
marketing and advertising programs to increase market share.
The net decrease in Programs and Services, Selling, General and
Administrative Expenses from the 1998 to 1999 second quarter is primarily due to
overhead cuts initiated during the first quarter of 1999 in the Outsource
Purchasing and Logistics operating unit offset by 308,000 in incremental direct
marketing costs for the Company's WELLSURE(SM) and HAZSURE(SM) proprietary Risk
Management Programs. The net increase in Manufacturing and Distribution Selling,
General and Administrative Expenses of $1,953,000 from the 1998 to 1999 quarter
is primarily the result of the acquisition of Baylor Company on July 23, 1998
($1,610,000 of direct Selling, General and Administrative Expenses).
DEPRECIATION AND AMORTIZATION
The net increase in Emergency Response and Restoration Depreciation and
Amortization of $215,000 from the 1998 to 1999 second quarter is the result of
an increased asset base.
Depreciation and Amortization in Programs and Services is comparable
between the 1998 and 1999 quarters.
The net increase in Manufacturing and Distribution Depreciation and
Amortization of $371,000 from the 1998 to 1999 quarter is primarily due to the
acquisition of Baylor Company on July 23, 1998.
OTHER
Other expense (primarily interest expense) of $651,000 for the three months
ended June 30, 1998 increased to $1,573,000 for the three months ended June 30,
1999. The increase is primarily interest expense on increased debt levels
incurred for business acquisitions during 1998.
Income taxes for the three months ended June 30, 1998 and 1999 represents
foreign taxes payable on international operations.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 WITH THE SIX MONTHS ENDED JUNE
30, 1999 (UNAUDITED)
REVENUES
The net increase in Emergency Response and Restoration revenues of
$2,143,000 from the 1998 to 1999 six month periods resulted from higher revenues
in Well Control operations ($3,291,000) for the first six months of 1999
compared to 1998 offset by lower revenues in Special Services hazardous
materials operations ($1,148,000) in the 1999 period. Although Well Control
revenues were lower in the 1999 second quarter compared to 1998 as discussed
above, first quarter 1999 revenues exceeded 1998 by $4,282,000, primarily the
result of a well control project in which the Company served as the lead
contractor with a larger revenue base for rebilled subcontractor costs.
There is a period effect in 1999 of $788,000 in revenues of Special
Services which was acquired February 20, 1998. However, this effect was more
than offset by a net decrease in revenues for the second quarter 1999 compared
to the 1998 period ($1,936,000) due to substantially lower activity in emergency
response out calls in 1999 ($900,000) and the effect of a large ship fire
project ($1,036,000) in 1998.
16
<PAGE> 17
The net decrease in Programs and Services Revenues of $8,765,000 from 1998
compared to 1999 is primarily ($10,085,000) the result of continued reductions
since September 1998 in outsource purchasing orders and substantially reduced
sales of oil well artificial lift systems in South America. These reductions in
customer activity are the result of sharply curtailed industry activities
continuing for the first half of 1999 due to low oil and gas prices. Partially
offsetting the above decrease is $1,244,000 in revenues during 1999 from the
Company's proprietary Risk Management Program -- WELLSURE(SM). A significant
part of these revenues resulted from two WELLSURE(SM) events during May and June
1999 where the Company served as lead contractor on the projects.
The net increase in Manufacturing and Distribution Revenues of $19,038,000
from 1998 compared to 1999 is primarily the result of the acquisition of Baylor
Company on July 23, 1998 ($17,901,000) and increased sales by ABASCO during the
1999 period ($1,137,000) resulting from second quarter 1999 sales of industrial
fire fighting equipment, foam and spill clean-up equipment and supplies.
COST OF SALES AND OPERATING EXPENSES
The net increase in Emergency Response and Restoration Cost of Sales and
Operating Expenses of $6,960,000 from 1998 to 1999 is the result of increased
operating costs of Well Control Operations ($5,074,000) and the Special Services
Hazardous Material unit acquired February 20, 1998 ($1,886,000). Of this
increase in Well Control operating expenses, approximately $4,900,000 is
attributable to third party subcontractor costs associated with a well control
project during the first quarter of 1999 in which the Company served as lead
contractor. The increase in Special Services Costs is due to a net increase in
the number of field office locations in 1999 compared to 1998 together with
above average third party subcontractor costs incurred during the second quarter
of 1999 on certain lower margin petro-chemical and refinery maintenance
contracts.
The net decrease in Programs and Services Cost of Sales and Operating
Expenses of $6,824,000 from 1998 to 1999 is primarily the result of
substantially lower international customer outsource purchasing orders and
reduced sales of oil well artificial lift systems in South America ($8,208,000)
offset by direct costs associated with the two WELLSURE(SM) events discussed
above.
The net increase in Manufacturing and Distribution Cost of Sales and
Operating Expenses of $13,774,000 from 1998 to 1999 is primarily the result of
the acquisition of the Baylor Company on July 23, 1998 ($12,500,000) with the
balance representing additional costs of sales associated with increased second
quarter 1999 ABASCO sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The net decrease in Emergency Response and Restoration Selling, General and
Administrative Expenses of $428,000,000 from 1998 to 1999 primarily results from
the allocation to additional business units in 1999 of an increased overhead
base for additional corporate investments in personnel, systems and
infrastructure necessary to support the expanded scope of operations and new
marketing and advertising programs to increase market share.
The net change in Programs and Services, Selling, General and
Administrative Expenses from 1998 to 1999 is primarily due to reduced activities
and related costs associated with outsource purchasing offset by $350,000 of
development and marketing costs associated with Company's WELLSURE(SM) and
HAZSURE(SM) Proprietary Risk Management Programs.
The net increase in Manufacturing and Distribution Selling, General and
Administrative Expenses of $3,904,000 from the 1998 to 1999 period is primarily
the result of the acquisition of Baylor Company on July 23, 1998.
17
<PAGE> 18
DEPRECIATION AND AMORTIZATION
The net increase in Emergency Response and Restoration Depreciation and
Amortization of $527,000 from 1998 to 1999 is the result of the acquisition of
Boots & Coots Special Services acquired on February 20, 1998 ($260,000) with the
balance of the increase ($267,000) primarily the result of an increased asset
base.
Depreciation and Amortization in Programs and Services was comparable
between 1998 and 1999.
The net increase in Manufacturing and Distribution Depreciation and
Amortization of $769,000 from 1998 to 1999 is primarily due to the acquisition
of Baylor Company on July 23, 1998.
OTHER
Other expense (primarily interest expense) of $1,218,000 for the six months
ended June 30, 1998 increased to $3,011,000 for the six months ended June 30,
1999. The increase primarily is due to interest expense on increased debt levels
incurred for business acquisitions.
Income taxes for the six months ended June 30, 1998 and 1999 represents
foreign taxes payable on international operations.
LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS/ABILITY TO CONTINUE AS A
GOING CONCERN
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: (a) equity
capital contributed by its officers, directors and principal stockholders; (b)
proceeds from the sale in July 1997 of $3,000,000 of 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; (c) $6,238,000 in net
proceeds from the September 1997 private placement, of January 1998 7,475,000
shares of common stock (the "September Private Placement"); (d) $4,500,000 in
net proceeds from the private placement in January 1998, of 10% Senior Secured
Notes due May 2, 1998 (the "Senior Notes"); (e) $2,250,000 in net proceeds from
the March 1998 private placement, of additional Senior Notes due June 15, 1998
("Additional Senior Notes"); (f) 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 (g) 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. As discussed in Note A to the Company's consolidated financial
statements, the Company was not in compliance with certain of its financial
covenants as of June 30, 1999 and the Company (in July 1999) failed to make a
required payment timely and is, therefore, not in compliance with the terms of
the Agreement. Based on management's discussions with Prudential, management
believes Prudential will not seek its remedies under the agreement and
therefore, the debt has been classified as non-currrent.
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 "Comerica 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
18
<PAGE> 19
capital. As described in Note A to the Company's consolidated financial
statements, the Company was not in compliance with the Comerica Loan Agreement
as of June 30, 1999, and that event of default continues as of August 16, 1999.
The loan agreement relating to the Comerica Loan Agreement imposes certain
restrictions on the Company's activities, including a prohibition, unless
permitted, 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 on 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. In July 1999, the Company did not make an interest
payment required to be made pursuant to the terms of the Subordinated Note and
Warrant Purchase Agreement; however, the Company made a payment to Prudential on
August 13, 1999 in the amount which was required to be paid in July 1999. The
Company is actively working with Prudential and believes that Prudential will
not seek its remedies under the Subordinated Note and Warrant Purchase Agreement
related to the non-payment default. Based on the Company's discussions with
Prudential, the Prudential has been shown as a non-current liability in the
accompanying financial statements.
Effective April 15, 1999, the Comerica Loan Agreement was amended to: (a)
waiver certain events of non-compliance then existing; (b) to modify certain
financial covenants, prospectively, (c) reduce Comerica's commitment to
$20,000,000, (d) adjust the interest rate to a base rate approximating prime
plus 1%, and the maturity date to May 31, 2000. The outstanding loan balance as
of June 30, 1999 of $17,100,000 is classified as current in the accompanying
consolidated balance sheet. As a result of losses for the quarter ended June 30,
1999, the Company is currently non-compliant with certain financial covenants of
the Comerica Loan Agreement. The Company is negotiating with Comerica to obtain
waivers and modifications of financial ratios for quarterly periods through the
term of this Agreement.
The Company receives the majority of its revenues from customers in the
energy industry. The liquidity of the Company must 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 the first
quarter of 1999, world-wide oil and gas prices and related activity hit new
lows, on an inflation adjusted basis, for the past several decades, impacting
the Company and its competitors. Although oil and gas prices have recovered
somewhat during the second quarter of 1999. However, the Company's well control
and outsource purchasing operating units have not benefited significantly from
this partial recovery. The Company believes that this resulted from its
customers not restoring capital and operating budgets as quickly as oil and gas
prices have recovered. There is no assurance that such increases will be
sustained or that they will result in increased operational activity by the
Company's customers.
The Company has grown rapidly since 1997, primarily through acquisitions in
1998. Many of the acquisitions were made through debt financing; total secured
and subordinated debt has increased from $1.7 million to $47.5 million and
interest expense has increased to $3.1 million for the six months ended June 30,
1999. 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 arranged waivers of past violations and
modifications of existing loan covenants the Company then believed would allow
it to be in compliance with its loan agreements for 1999.
19
<PAGE> 20
Management's actions in 1999 included downsizing personnel and operations
to meet market demand and reduce of the cash drain caused by acquisitions.
Management's efforts to accomplish these objectives commenced in the first
quarter of 1999 and did not result in substantial cost reductions or profit
improvements in the second quarter of 1999. As mentioned, the level of
acquisitions will continue to 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. A significant equity infusion could have a
substantially dilutive impact on existing shareholders.
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 from 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 $4.00 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.
On May 12, 1999, the Company completed the sale of $2,100,000 of Common
Stock to certain institutional investors. In connection with this private
placement, warrants were issued to (a) purchase 420,000 shares of Common Stock
for a five-year period at $5.00 per share and (b) 700,000 shares of Common Stock
for a four year period at $4.00 per share.
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes a prolonged
weakness in the industries served by the Company will have a material adverse
effect on the Company's financial position and results of operations and its
ability to continue as a going concern.
ITEM 3. 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.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q 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-K, 10-Q and 8-K, and its Annual Report to
Stockholders.
20
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 2. RECENT SALE OF UNREGISTERED SECURITIES.
On May 12, 1999, the Company completed the sale of 1,400,000 shares of
$2,100,000 of Common Stock to certain institutional investors. In connection
with this private placement, warrants were issued to purchase 420,000 shares of
the Company's common stock for a five year period at $5.00 per share, and
700,000 shares of the Company's common stock for a four year period at $4.00 per
share. The Company relied on the exemption contained in Section 4(2) of the
Securities Act of 1933, as amended, in connection with such sale.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As a result of losses for the quarter ended June 30, 1999, the Company is
not in compliance with certain loan covenants contained in a loan agreement
between the Company and Comerica Bank Texas ("Comerica"). See "Liquidity and
Capital Resources/Industry Conditions/Ability to Continue as a Going Concern."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.33 -- Executive Employment Agreement of Larry H. Ramming
*10.34 -- Executive Employment Agreement of Thomas L. Easley
*27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
(b) Reports on Form 8-K.
None
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By: /s/ THOMAS L. EASLEY
------------------------------------
Thomas L. Easley
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: August 16, 1999
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.33 -- Executive Employment Agreement of Larry H. Ramming
*10.34 -- Executive Employment Agreement of Thomas L. Easley
*27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made and entered into between
Boots & Coots International Well Control, Inc., a Delaware corporation, having
a place of business at 777 Post Oak Boulevard, Suite 800, Houston, Texas, 77056
(the "Company") and L. H. Ramming, an individual resident of Houston, Texas
(the "Executive").
WHEREAS, the Company is a global-response well control service company
that specializes in oil field emergencies, including blowouts and well fires;
and
WHEREAS, the Company is desirous of making appropriate long-term
arrangements for the management of its business affairs; and
WHEREAS, the Company is desirous of retaining the Executive to serve
as its Chairman of the Board and Chief Executive Officer on the conditions set
forth herein for the entire term of this Agreement, and
WHEREAS, in such capacity, the Executive will have access to all of
the business methods and confidential information relating to the Company and
its business activities including, but not limited to, its operational and
financial matters, its contemplated acquisition and business development plans,
its personnel training and development programs and its industry relationships.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. EXECUTIVE REPRESENTATIONS AND WARRANTIES. The Executive represents
and warrants to the Company that he is free to accept employment hereunder and
that he has no prior or other obligations or commitments of any kind to anyone
that would in any way hinder or interfere with his acceptance of, or the full,
uninhibited and faithful performance of this Agreement, or the exercise of his
best efforts as an executive officer of the Company.
2. EMPLOYMENT AND DUTIES. The Company shall employ the Executive as
its Chief Executive Officer, or in such other comparable executive capacity as
the Board of Directors of the Company shall specify from time to time, and the
Executive shall be employed by and will work for the Company at Company's
executive offices in Houston, Texas. As Chief Executive Officer, the Executive
shall report directly to the Board of Directors, and be responsible for the
entire management activities of the Company. The duties of the Executive shall
include, but not be limited to, directing day to day operations, business
planning, development and implementation of appropriate policies, practices,
and procedures. The Executive's responsibilities shall include all of the
duties and responsibilities of the Chief Executive Officer as described in the
By-laws of the Company, as the same may be amended from time to time. In
addition, the Executive shall, from time to time, perform such other functions
and duties in connection with the business of the Company as the Board of
Directors may entrust or delegate to him.
<PAGE> 2
3. CONDUCT OF EXECUTIVE. During the entire Term of this Agreement, the
Executive shall devote his full business time, effort, skill and attention to
the affairs of the Company and its subsidiaries, will use his best efforts to
promote the interests of the Company, and will discharge his responsibilities in
a diligent and faithful manner, consistent with sound business practices. During
the entire Term of this Agreement, the Executive shall agree to serve as a
member of the Company's Board of Directors if elected to such position by the
shareholders of the Company. In furtherance of the foregoing:
(a) The Executive represents that his employment by the Company will
not conflict with any obligations which he has to any other person,
firm or entity. The Executive specifically represents that he has
not brought to the Company (during the period before the signing of
this Agreement) and he will not bring to the Company any materials
or documents of a former or present employer, or any confidential
information or property of any other person, firm or entity.
(b) The Executive shall not, without disclosure to and approval of the
Board of Directors of the Company, directly or indirectly, assist
or have an active interest in (whether as a principal, stockholder,
lender, employee, officer, director, partner, venturer, consultant
or otherwise) in any person, firm, partnership, association,
corporation or business organization, entity or enterprise that
competes with or is engaged in a business which is substantially
similar to the business of the Company except that ownership of not
more than 5% of the outstanding securities of any class of any
publicly-held corporation shall not be deemed a violation of this
sub-paragraph 3(b).
(c) The Executive shall promptly disclose to the directors of the
Company, in accordance with the Company's policies, full
information concerning any interests, direct or indirect, he holds
(whether as a principal, stockholder, lender, Executive, director,
officer, partner, venturer, consultant or otherwise) in any
business which, as reasonably known to the Executive purchases or
provides services or products to, the Company or any of its
subsidiaries, provided that the Executive need not disclose any
such interest resulting from ownership of not more than 5% of the
outstanding securities of any class of any publicly-held
corporation.
(d) The Executive shall not disclose to any person or entity (other
than to the Company's Board of Directors or to others as required,
in his judgment, in the due performance of his duties under this
Agreement) any confidential or secret information with respect to
the business or affairs of the Company, or any of its subsidiaries
or affiliates.
Nothing in this Agreement shall be deemed to preclude the Executive
from participating in other business opportunities if and to the extent that (i)
such business opportunities are not directly competitive with or similar to the
business of the Company, (ii) the Executive's activities with respect to such
opportunities do not have a material adverse effect on the performance of the
Executive's duties hereunder, and (iii) the Executive's activities with respect
to such opportunity have been fully disclosed in writing to the Company's Board
of Directors.
<PAGE> 3
4. CONDITIONS OF EMPLOYMENT.
(a) Term of Employment. Unless terminated earlier in accordance with
the provisions of this Agreement, the Executive will be employed by
the Company for a period commencing on April 1, 1999 and
terminating on March 31, 2004 (the "Term"). Thereafter, this
Agreement shall be renewable on such reasonable terms and for such
periods as may be negotiated between the Executive and the Company.
(b) Place of Employment. The Executive shall occupy offices at the
Company's headquarters in Houston, Texas, which will be maintained
for his use by the Company at the Company's expense. The Executive
shall not be required during the Term of this Agreement to relocate
from Houston, Texas to any other business location maintained by
the Company although the Executive expressly agrees that regular
travel shall be necessary as part of his duties.
(c) Ownership of Company Records and Reports. The Executive shall not,
except in the performance of his duties hereunder, at any time or
in any manner make or cause to be made any copies, pictures,
duplicates, facsimiles, or other reproductions or recordings or any
abstracts or summaries of any reports, studies, memoranda,
correspondence, manuals, records, plans or other written or
otherwise recorded materials of any kind whatever belonging to or
in the possession of the Company, or of any subsidiary or affiliate
of the Company, including but not limited to materials describing
or in any way relating to the Company's business activities
including, but not limited to, its proprietary techniques and
technologies, its operational and financial matters, its
contemplated acquisition and development plans, its personnel
training and development programs and its industry relationships.
The Executive shall have no right, title or interest in any such
material, and the Executive agrees that, except in the performance
of his duties hereunder, he will not, without the prior written
consent of the Company remove any such material from any premises
of the Company, or any subsidiary or affiliate of the Company, and
immediately upon the termination of his employment for any reason
whatsoever Executive shall return to the Company all such material
in his possession.
(d) Company's Trade Secrets. Without the prior written consent of the
Company, the Executive shall not at any time (whether during or
after his employment with the Company) use for his own benefit or
purposes or for the benefit or purposes of any other person, firm,
partnership, association, corporation or business organization,
entity or enterprise, or disclose in any manner to any person,
firm, partnership association, corporation or business
organization, entity or enterprise, except in the performance of
his duties hereunder, any trade secrets, or any information data,
know-how or knowledge constituting trade secrets belonging to, or
relating to the affairs of the Company, or any subsidiary, former
subsidiary, or affiliate of the Company.
(e) Inventions, Copyrights. Trademarks. The Executive shall promptly
disclose to the Company (and to no one else) all improvements,
discoveries, ideas and inventions that may be of significance to
the Company, or any subsidiary or affiliate of the Company, made or
conceived alone or in conjunction with others (whether or not
patentable, whether or not made or conceived at the request of or
upon the suggestion of the Company or any subsidiary or affiliate
of the Company during or out of his
<PAGE> 4
usual hours of work or in or about the premises of the Company or
elsewhere) while in the employ of the Company or of any subsidiary
or affiliate of the Company, or made or conceived within one year
after the termination of his employment by the Company or of any
subsidiary or affiliate of the Company if resulting from, suggested
by or relating to such employment. All such improvements,
discoveries, ideas and inventions shall be the sole and exclusive
property of the Company and are hereby assigned to the Company. At
the request of the Company and at its cost, the Executive shall
assist the Company, or any person or persons from time to time
designated by it, to obtain the copyright, trademark and/or grant
of patents in the United States and/or in such other country or
countries as may be designated by the Company, covering such
improvements, discoveries, ideas and inventions and shall in
connection therewith and in connection with the defense of any
patents execute such applications, statements or other documents,
furnish such information and data and take all such other action
(including, but not limited to, the giving of testimony) as the
Company may from time to time reasonably request.
(f) Continuation of Employment After Initial Term. A continuation of
Executive's employment with the Company after the initial Term
hereof shall be deemed to be an extension of this Agreement on a
month-to-month basis, subject to termination by either party on
thirty (30) days advance written notice, except that no bonus shall
be paid during said continued period unless agreed upon in writing
between the parties.
5. COMPENSATION. The Company shall compensate the Executive for all
services to be rendered by him during the Term as follows:
(a) The Executive shall receive a Salary of $300,000 per year during
the period commencing on April 1, 1999 and terminating on March 31,
2004. The Executive's Salary shall be reviewed on an annual basis
and the amount of such Salary shall be subject to renegotiation on
the basis of the performance of the Executive and the performance
of the Company.
(b) The Executive shall participate in the Company's Executive Bonus
Pool and any other additional executive compensation plans adopted
by the shareholders of the Company; provided, however, that the
discretionary authority to determine the level of the Executive's
participation therein and the terms and conditions of such
participation shall remain vested in the Company's board of
directors, or a compensation committee appointed by the board of
directors, and the board of directors or the compensation
committee, as the case may be, shall have the authority to adjust
such participation upward or downward from time to time in its sole
discretion.
(c) The Executive shall participate in the Company's standard employee
benefit programs, including but not limited to the Company's
medical/hospitalization insurance and group life insurance, as in
effect from time to time. Further, Executive shall be entitled to a
company paid policy of life insurance, payable to his designated
beneficiary, in an amount of not less than $1,500,000.
<PAGE> 5
(d) The Executive shall receive an automobile allowance of $1,500 per
month from which the Executive shall be required to provide a
suitable automobile and all ordinary and necessary fuel,
maintenance and insurance, provided, however, that the Company
will pay any extraordinary operating expenses for business use of
the automobile.
(e) During the Term of this Agreement, the Company will reimburse the
Executive for all reasonable business expenses incurred by him on
behalf of the Company in the performance of his duties hereunder
upon presentation of vouchers, receipts or other evidence of such
expenses in accordance with the policies of the Company.
(f) The Executive shall be entitled to reimbursement for the costs
associated with membership in one golf country club, including
monthly dues and expenses associated with business entertainment
at such club.
Notwithstanding any other provision of this Agreement, it is
agreed that the Executive shall be entitled to receive such
incentive bonuses, stock options and other benefits as may be
granted by the board of directors from time to time.
6. RESTRICTED STOCK OPTION. Simultaneously with the execution of this
Agreement, the Executive shall be entitled to receive and the Company shall
issue to the Executive an Option to purchase shares of the Company's authorized
and previously unissued $0.00001 par value common stock (the "Option Shares"),
as set forth on the attached Schedule "A", which shall, upon issuance, be
subject to all of the following terms and conditions:
(a) The Option Shares are issued to the Executive for the sole purpose
of providing the Executive with a tangible incentive to put forth
maximum efforts for the success of the Company and its business in
the future. Therefore, in the event that the Executive's
employment with the Company is terminated for any reason prior to
any anniversary of the date of this Agreement, then all Option
Shares that have not previously vested in the Executive pursuant
to sub-paragraphs (b) through (d) hereof shall be immediately
forfeit without further action by the Company or the Executive.
(b) Absolute and unrestricted ownership of the Option Shares shall
vest in the Executive over the 5 year period commencing on the
date of this Agreement, at the rate of twenty percent (20%) of the
Option Shares per year. The foregoing vesting shall not occur
until an anniversary date of this Agreement, provided, however,
consideration shall be given to partial periods in the event that
the Executive's employment with the Company is terminated for any
reason, other than for cause, prior to any anniversary of the date
of this Agreement.
(c) Notwithstanding the provisions of subparagraphs (a) and (b)
absolute and unrestricted ownership of all unvested Option Shares
shall vest in the Executive immediately prior to the consummation
of (i) any merger, consolidation or similar business combination
transaction where the Company is not the surviving entity, (ii)
any sale of all or substantially all of the Company's assets where
the proceeds are intended for distribution to the stockholders, or
(iii) any other transaction or series of transactions
<PAGE> 6
whereby any person, entity or group acting in concert acquires
direct or indirect ownership of more than 10% of the Company's
outstanding voting securities.
7. TERMINATION OF EMPLOYMENT.
(a) This Agreement and the compensation payable to Executive hereunder
shall terminate and cease to accrue forthwith upon Executive's
death.
(b) The Executive's employment under the terms of this Agreement may
be terminated, at the option of the Company by notice to the
Executive, (i) for any reason, or for no reason, at the end of the
initial Term of this Agreement, (ii) as a result of disability of
the Executive as provided in subparagraph (c) below, or (iii) for
cause as defined in subparagraph (d) below.
(c) As used herein, "disability" shall mean such physical or mental
disability or incapacity of the Executive which, in the good faith
determination of the Board of Directors of the Company, has
prevented the Executive from performing substantially all of the
duties hereunder during any period of six (6) consecutive months.
Subject only to existing Federal, State or local law, if the
Executive suffers a disability, the Company shall have the right
to terminate this Employment Agreement by giving notice at any
time after the expiration of such three-month period and this
Employment Agreement shall terminate upon the Company giving such
notice. Such termination shall not, however, affect any rights of
the Executive under the Company's Executive benefit plans as
constituted on the date of such termination.
(d) As used herein, "cause" shall mean (i) any material failure by
Executive to observe or perform his Agreements herein contained,
(ii) any fraudulent or dishonest conduct in the performance of the
Executive's duties and functions, (iii) any gross negligence or
willful breach of the Executive's obligations under this
Agreement, or (iv) any intentional disregard of the policies and
instructions established by the Board of Directors of the Company.
(e) Upon termination of this Agreement by the Company for cause prior
to the end of the initial term, except for termination based upon
an intentional act on the part of Executive including, by way of
example, the refusal to perform work when the Executive is
physically and mentally able to do so or engaging in competition
with the Company, the Executive shall receive as a complete and
total settlement of all of claims of every type and nature against
the Company, its officers and Executives, immediately upon
termination a lump sum payment equal to 24 month's base annual
salary (said sum shall hereinafter be referred to as "Liquidated
Damages"). If Executive is terminated by reason of an intentional
act on his behalf, Executive shall be due no compensation other
than accrued base salary owing up to the time of termination.
8. SPECIFIC PERFORMANCE. If any portion of this Agreement is found by
a court of competent jurisdiction to be too broad to permit enforcement of such
restriction to its full extent, then such restriction shall be enforced to the
maximum extent permitted by law, and the
<PAGE> 7
Executive hereby consents and agrees that such scope may be judicially modified
accordingly in any proceeding brought to enforce such restriction. All
provisions of this Agreement are severable, and the unenforceability or
invalidity of any single provision hereof shall not affect any remaining
provision. The Executive acknowledges and agrees that the Company's remedy at
law for any breach of any of his obligations hereunder would be inadequate, and
agrees and consents that temporary and permanent injunctive relief may be
granted in any proceeding that may be brought to enforce any provision of this
Agreement without the necessity of proof of actual damage and without any bond
or other security being required. Such remedies shall not be exclusive and shall
be in addition to any other remedy which the Company may have.
9. MISCELLANEOUS.
(a) The failure of a party to insist on any occasion upon strict
adherence to any Term of this Agreement shall not be considered to
be a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that Term or any other Term of this
Agreement. Any waiver must be in writing.
(b) All notices and other communications under this Agreement shall be
in writing and shall be delivered personally or mailed by
registered mail, return receipt requested, and shall be deemed
given when so delivered or mailed, to a party at such address as a
party may, from time to time, designate in writing to the other
party.
(c) Notwithstanding the termination of the Executive's employment
hereunder, the provisions of Paragraphs 6 and 9 shall survive such
termination.
(d) This Agreement shall be assigned to and inure to the benefit of,
and be binding upon, any successor to substantially all of the
assets and business of the Company as a going concern, whether by
merger, consolidation, liquidation or sale of substantially all of
the assets of the Company or otherwise.
(e) This Agreement constitutes the entire Agreement between the parties
regarding the above matters, and each party acknowledges that there
are no other written or verbal Agreements or understandings
relating to such subject matter between the Executive and the
Company or between the Executive and any other individuals or
entities other than those set forth herein. No amendment to this
Agreement shall be effective unless it is in writing and signed by
both the parties hereto.
(f) This Agreement shall be construed according to the laws of the
State of Texas pertaining to Agreements formed and to be performed
wholly within the State of Texas. In the event action be brought to
enforce any provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees as fixed by the
court. The Executive represents and warrants that he has reviewed
this Agreement in detail with his legal and other advisors, as he
considers appropriate, and that he fully understands the
consequences to him of its provisions. The Executive is relying on
his own judgment and the judgment of his advisors with respect to
this Agreement and he understands that the Company is making no
representations to him concerning taxes or any other matters
respecting this Agreement.
<PAGE> 8
(g) Any dispute between the parties to this Agreement shall be
determined and settled by binding arbitration in Houston, Texas
under the rules of the American Arbitration Association. Judgment
on any award rendered by the arbitrators may be entered in any
court having jurisdiction over the party adversely by such award.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original for all purposes hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands on this
1st day of April, 1999.
BOOTS & COOTS INTERNATIONAL. L. H. RAMMING
WELL CONTROL, INC
By: /s/ [ILLEGIBLE] /s/ L. H. RAMMING
------------------------------------ -------------------------------
For the Board of Directors
<PAGE> 9
SCHEDULE A TO
EXECUTIVE EMPLOYMENT AGREEMENT
LARRY H. RAMMING
Restricted Stock Option:
# SHARES EXERCISE PRICE
-------- --------------
750,000 $1.55
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made and entered into between
Boots & Coots International Well Control, Inc., a Delaware corporation, having a
place of business at 777 Post Oak Boulevard, Suite 800, Houston, Texas, 77056
(the "Company") and Thomas L. Easley, an individual resident of Houston, Texas
(the "Executive").
WHEREAS, the Company is a global-response well control service company
that specializes in oil field emergencies, including blowouts and well fires;
and
WHEREAS, the Company is desirous of making appropriate long-term
arrangements for the management of its business affairs; and
WHEREAS, the Company is desirous of retaining the Executive to serve as
its Chief Financial Officer on the conditions set forth herein for the entire
term of this Agreement, and
WHEREAS, in such capacity, the Executive will have access to all of the
business methods and confidential information relating to the Company and its
business activities including, but not limited to, its operational and financial
matters, its contemplated acquisition and business development plans, its
personnel training and development programs and its industry relationships.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. EXECUTIVE REPRESENTATIONS AND WARRANTIES. The Executive represents
and warrants to the Company that he is free to accept employment hereunder and
that he has no prior or other obligations or commitments of any kind to anyone
that would in any way hinder or interfere with his acceptance of, or the full,
uninhibited and faithful performance of this Agreement, or the exercise of his
best efforts as an executive officer of the Company.
2. EMPLOYMENT AND DUTIES. The Company shall employ the Executive as
its Chief Financial Officer, or in such other comparable executive capacity as
the Board of Directors of the Company shall specify from time to time, and the
Executive shall be employed by and will work for the Company at Company's
executive offices in Houston, Texas. As head of the Finance and Accounting
Department, the Executive shall report directly to the Chief Executive Officer.
And be responsible for the entire financial management activities of the
Company. The duties of the Executive shall include, but not be limited to,
business planning, financial planning, financial analysis, the development and
implementation of appropriate financial and accounting standards, policies,
practices, procedures, cost control programs and financial controls, the
development and maintenance of appropriate management information systems, the
preparation and distribution of internal and external financial reports, the
preparation and filing of domestic and international statutory reports and tax
returns, and the supervision of all external financial reporting functions. The
Executive's responsibilities shall include all of the duties and
responsibilities of the Chief Financial Officer as described in the By-laws of
the Company, as the same may be amended from time to time. In addition, the
Executive shall, from time to time, perform such other
<PAGE> 2
functions and duties in connection with the business of the Company as the
Board of Directors may entrust or delegate to him.
3. CONDUCT OF EXECUTIVE. During the entire Term of this Agreement, the
Executive shall devote his full business time, effort, skill and attention to
the affairs of the Company and its subsidiaries, will use his best efforts to
promote the interests of the Company, and will discharge his responsibilities
in a diligent and faithful manner, consistent with sound business practices.
During the entire Term of this Agreement, the Executive shall agree to serve as
a member of the Company's Board of Directors if elected to such position by the
shareholders of the Company. In furtherance of the foregoing:
(a) The Executive represents that his employment by the Company will
not conflict with any obligations which he has to any other
person, firm or entity. The Executive specifically represents that
he has not brought to the Company (during the period before the
signing of this Agreement) and he will not bring to the Company
any materials or documents of a former or present employer, or any
confidential information or property of any other person, firm or
entity.
(b) The Executive shall not, without disclosure to and approval of the
Board of Directors of the Company, directly or indirectly, assist
or have an active interest in (whether as a principal,
stockholder, lender, employee, officer, director, partner,
venturer, consultant or otherwise) in any person, firm,
partnership, association, corporation or business organization,
entity or enterprise that competes with or is engaged in a
business which is substantially similar to the business of the
Company except that ownership of not more than 5% of the
outstanding securities of any class of any publicly-held
corporation shall not be deemed a violation of this sub-paragraph
3(b).
(c) The Executive shall promptly disclose to the directors of the
Company, in accordance with the Company's policies, full
information concerning any interests, direct or indirect, he holds
(whether as a principal, stockholder, lender, Executive, director,
officer, partner, venturer, consultant or otherwise) in any
business which, as reasonably known to the Executive purchases or
provides services or products to, the Company or any of its
subsidiaries, provided that the Executive need not disclose any
such interest resulting from ownership of not more than 5% of the
outstanding securities of any class of any publicly-held
corporation.
(d) The Executive shall not disclose to any person or entity (other
than to the Company's Board of Directors or to others as required,
in his judgment, in the due performance of his duties under this
Agreement) any confidential or secret information with respect to
the business or affairs of the Company, or any of its subsidiaries
or affiliates.
Nothing in this Agreement shall be deemed to preclude the Executive
from participating in other business opportunities if and to the extent that
(i) such business opportunities are not directly competitive with or similar to
the business of the Company, (ii) the Executive's activities with respect to
such opportunities do not have a material adverse effect on the performance of
the Executive's duties hereunder, and (iii) the Executive's activities with
respect to such opportunity have been fully disclosed in writing to the
Company's Board of Directors.
<PAGE> 3
4. CONDITIONS OF EMPLOYMENT.
(a) Term of Employment. Unless terminated earlier in accordance with
the provisions of this Agreement, the Executive will be employed
by the Company for a period commencing on April 1, 1999 and
terminating on March 31, 2004 (the "Term"). Thereafter, this
Agreement shall be renewable on such reasonable terms and for such
periods as may be negotiated between the Executive and the
Company.
(b) Place of Employment. The Executive shall occupy offices at the
Company's headquarters in Houston, Texas, which will be maintained
for his use by the Company at the Company's expense. The Executive
shall not be required during the Term of this Agreement to
relocate from Houston, Texas to any other business location
maintained by the Company although the Executive expressly agrees
that regular travel shall be necessary as part of his duties.
(c) Ownership of Company Records and Reports. The Executive shall not,
except in the performance of his duties hereunder, at any time or
in any manner make or cause to be made any copies, pictures,
duplicates, facsimiles, or other reproductions or recordings or
any abstracts or summaries of any reports, studies, memoranda,
correspondence, manuals, records, plans or other written or
otherwise recorded materials of any kind whatever belonging to or
in the possession of the Company, or of any subsidiary or
affiliate of the Company, including but not limited to materials
describing or in any way relating to the Company's business
activities including, but not limited to, its proprietary
techniques and technologies, its operational and financial
matters, its contemplated acquisition and development plans, its
personnel training and development programs and its industry
relationships. The Executive shall have no right, title or
interest in any such material, and the Executive agrees that,
except in the performance of his duties hereunder, he will not,
without the prior written consent of the Company remove any such
material from any premises of the Company, or any subsidiary or
affiliate of the Company, and immediately upon the termination of
his employment for any reason whatsoever Executive shall return to
the Company all such material in his possession.
(d) Company's Trade Secrets. Without the prior written consent of the
Company, the Executive shall not at any time (whether during or
after his employment with the Company) use for his own benefit or
purposes or for the benefit or purposes of any other person, firm,
partnership, association, corporation or business organization,
entity or enterprise, or disclose in any manner to any person,
firm, partnership association, corporation or business
organization, entity or enterprise, except in the performance of
his duties hereunder, any trade secrets, or any information data,
knowhow or knowledge constituting trade secrets belonging to, or
relating to the affairs of the Company, or any subsidiary, former
subsidiary, or affiliate of the Company.
(e) Inventions, Copyrights, Trademarks. The Executive shall promptly
disclose to the Company (and to no one else) all improvements,
discoveries, ideas and inventions that may be of significance to
the Company, or any subsidiary or affiliate of the
<PAGE> 4
Company, made or conceived alone or in conjunction with others
(whether or not patentable, whether or not made or conceived at
the request of or upon the suggestion of the Company or any
subsidiary or affiliate of the Company during or out of his usual
hours of work or in or about the premises of the Company or
elsewhere) while in the employ of the Company or of any subsidiary
or affiliate of the Company, or made or conceived within one year
after the termination of his employment by the Company or of any
subsidiary or affiliate of the Company if resulting from,
suggested by or relating to such employment. All such
improvements, discoveries, ideas and inventions shall be the sole
and exclusive property of the Company and are hereby assigned to
the Company. At the request of the Company and at its cost, the
Executive shall assist the Company, or any person or persons from
time to time designated by it, to obtain the copyright, trademark
and/or grant of patents in the United States and/or in such other
country or countries as may be designated by the Company, covering
such improvements, discoveries, ideas and inventions and shall in
connection therewith and in connection with the defense of any
patents execute such applications, statements or other documents,
furnish such information and data and take all such other action
(including, but not limited to, the giving of testimony) as the
Company may from time to time reasonably request.
(f) Continuation of Employment After Initial Term. A continuation of
Executive's employment with the Company after the initial Term
hereof shall be deemed to be an extension of this Agreement on a
month-to-month basis, subject to termination by either party on
thirty (30) days advance written notice, except that no bonus
shall be paid during said continued period unless agreed upon in
writing between the parties.
5. COMPENSATION. The Company shall compensate the Executive for all
services to be rendered by him during the Term as follows:
(a) The Executive shall receive a Salary of $225,000 per year during
the period commencing on April 1, 1999 and terminating on March
31, 2004. The Executive's Salary shall be reviewed on an annual
basis and the amount of such Salary shall be subject to
renegotiation on the basis of the performance of the Executive and
the performance of the Company.
(b) The Executive shall participate in the Company's Executive Bonus
Pool and any other additional executive compensation plans adopted
by the shareholders of the Company; provided, however, that the
discretionary authority to determine the level of the Executive's
participation therein and the terms and conditions of such
participation shall remain vested in the Company's board of
directors, or a compensation committee appointed by the board of
directors, and the board of directors or the compensation
committee, as the case may be, shall have the authority to adjust
such participation upward or downward from time to time in its
sole discretion.
(c) The Executive shall participate in the Company's standard employee
benefit programs, including but not limited to the Company's
medical/hospitalization insurance and group life insurance, as in
effect from time to time. Further, Executive
<PAGE> 5
shall be entitled to a company paid policy of life insurance,
payable to his designated beneficiary, in an amount of not less
than $750,000.
(d) The Executive shall receive an automobile allowance of $1,500 per
month from which the Executive shall be required to provide a
suitable automobile and all ordinary and necessary fuel,
maintenance and insurance, provided, however, that the Company
will pay any extraordinary operating expenses for business use of
the automobile.
(e) During the Term of this Agreement, the Company will reimburse the
Executive for all reasonable business expenses incurred by him on
behalf of the Company in the performance of his duties hereunder
upon presentation of vouchers, receipts or other evidence of such
expenses in accordance with the policies of the Company.
(f) The Executive shall be entitled to reimbursement for the costs
associated with membership in one golf country club, including
monthly dues and expenses associated with business entertainment
at such club.
Notwithstanding any other provision of this Agreement, it is
agreed that the Executive shall be entitled to receive such
incentive bonuses, stock options and other benefits as may be
granted by the board of directors from time to time.
6. RESTRICTED STOCK OPTION. Simultaneously with the execution of this
Agreement, the Executive shall be entitled to receive and the Company shall
issue to the Executive an Option to purchase shares of the Company's authorized
and previously unissued $0.00001 par value common stock (the "Option Shares"),
as set forth on the attached Schedule "A", which shall, upon issuance, be
subject to all of the following terms and conditions:
(a) The Option Shares are issued to the Executive for the sole purpose
of providing the Executive with a tangible incentive to put forth
maximum efforts for the success of the Company and its business in
the future. Therefore, in the event that the Executive's
employment with the Company is terminated for any reason prior to
any anniversary of the date of this Agreement, then all Option
Shares that have not previously vested in the Executive pursuant
to sub-paragraphs (b) through (d) hereof shall be immediately
forfeit without further action by the Company or the Executive.
(b) Absolute and unrestricted ownership of the Option Shares shall
vest in the Executive over the 5 year period commencing on the
date of this Agreement, at the rate of twenty percent (20%) of the
Option Shares per year. The foregoing vesting shall not occur
until an anniversary date of this Agreement, provided, however,
consideration shall be given to partial periods in the event that
the Executive's employment with the Company is terminated for any
reason, other than for cause, prior to any anniversary of the date
of this Agreement.
(c) Notwithstanding the provisions of subparagraphs (a) and (b)
absolute and unrestricted ownership of all unvested Option Shares
shall vest in the Executive immediately prior to the consummation
of (i) any merger, consolidation or similar business combination
<PAGE> 6
transaction where the Company is not the surviving entity, (ii) any
sale of all or substantially all of the Company's assets where the
proceeds are intended for distribution to the stockholders, or
(iii) any other transaction or series of transactions whereby any
person, entity or group acting in concert acquires direct or
indirect ownership of more than 10% of the Company's outstanding
voting securities.
7. TERMINATION OF EMPLOYMENT.
(a) This Agreement and the compensation payable to Executive hereunder
shall terminate and cease to accrue forthwith upon Executive's
death.
(b) The Executive's employment under the terms of this Agreement may
be terminated, at the option of the Company by notice to the
Executive, (i) for any reason, or for no reason, at the end of the
initial Term of this Agreement, (ii) as a result of disability of
the Executive as provided in subparagraph (c) below, or (iii) for
cause as defined in subparagraph (d) below.
(c) As used herein, "disability" shall mean such physical or mental
disability or incapacity of the Executive which, in the good faith
determination of the Board of Directors of the Company, has
prevented the Executive from performing substantially all of the
duties hereunder during any period of six (6) consecutive months.
Subject only to existing Federal, State or local law, if the
Executive suffers a disability, the Company shall have the right
to terminate this Employment Agreement by giving notice at any
time after the expiration of such three-month period and this
Employment Agreement shall terminate upon the Company giving such
notice. Such termination shall not, however, affect any rights of
the Executive under the Company's Executive benefit plans as
constituted on the date of such termination.
(d) As used herein, "cause" shall mean (i) any material failure by
Executive to observe or perform his Agreements herein contained,
(ii) any fraudulent or dishonest conduct in the performance of the
Executive's duties and functions, (iii) any gross negligence or
willful breach of the Executive's obligations under this
Agreement, or (iv) any intentional disregard of the policies and
instructions established by the Board of Directors of the Company.
(e) Upon termination of this Agreement by the Company for cause prior
to the end of the initial term, except for termination based upon
an intentional act on the part of Executive including, by way of
example, the refusal to perform work when the Executive is
physically and mentally able to do so or engaging in competition
with the Company, the Executive shall receive as a complete and
total settlement of all of claims of every type and nature against
the Company, its officers and Executives, immediately upon
termination a lump sum payment equal to 24 month's base annual
salary (said sum shall hereinafter be referred to as "Liquidated
Damages"). If Executive is terminated by reason of an intentional
act on his behalf, Executive shall be due no compensation other
than accrued base salary owing up to the time of termination.
<PAGE> 7
8. SPECIFIC PERFORMANCE. If any portion of this Agreement is found by
a court of competent jurisdiction to be too broad to permit enforcement of such
restriction to its full extent, then such restriction shall be enforced to the
maximum extent permitted by law, and the Executive hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restriction. All provisions of this Agreement are
severable, and the unenforceability or invalidity of any single provision
hereof shall not affect any remaining provision. The Executive acknowledges and
agrees that the Company's remedy at law for any breach of any of his
obligations hereunder would be inadequate, and agrees and consents that
temporary and permanent injunctive relief may be granted in any proceeding that
may be brought to enforce any provision of this Agreement without the necessity
of proof of actual damage and without any bond or other security being
required. Such remedies shall not be exclusive and shall be in addition to any
other remedy which the Company may have.
9. MISCELLANEOUS.
(a) The failure of a party to insist on any occasion upon strict
adherence to any Term of this Agreement shall not be considered to
be a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that Term or any other Term of
this Agreement. Any waiver must be in writing.
(b) All notices and other communications under this Agreement shall be
in writing and shall be delivered personally or mailed by
registered mail, return receipt requested, and shall be deemed
given when so delivered or mailed, to a party at such address as a
party may, from time to time, designate in writing to the other
party.
(c) Notwithstanding the termination of the Executive's employment
hereunder, the provisions of Paragraphs 6 and 9 shall survive such
termination.
(d) This Agreement shall be assigned to and inure to the benefit of,
and be binding upon, any successor to substantially all of the
assets and business of the Company as a going concern, whether by
merger, consolidation, liquidation or sale of substantially all of
the assets of the Company or otherwise.
(e) This Agreement constitutes the entire Agreement between the
parties regarding the above matters, and each party acknowledges
that there are no other written or verbal Agreements or
understandings relating to such subject matter between the
Executive and the Company or between the Executive and any other
individuals or entities other than those set forth herein. No
amendment to this Agreement shall be effective unless it is in
writing and signed by both the parties hereto.
(f) This Agreement shall be construed according to the laws of the
State of Texas pertaining to Agreements formed and to be performed
wholly within the State of Texas. In the event action be brought
to enforce any provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees as fixed by the
court. The Executive represents and warrants that he has reviewed
this Agreement in detail with his legal and other advisors, as he
considers appropriate, and that he fully understands the
consequences to him of its provisions. The Executive is relying on
<PAGE> 8
his own judgment and the judgment of his advisors with respect to
this Agreement and he understands that the Company is making no
representations to him concerning taxes or any other matters
respecting this Agreement.
(g) Any dispute between the parties to this Agreement shall be
determined and settled by binding arbitration in Houston, Texas
under the rules of the American Arbitration Association. Judgment
on any award rendered by the arbitrators may be entered in any
court having jurisdiction over the party adversely by such award.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original for all purposes hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands on this
1st day of April, 1999.
BOOTS & COOTS INTERNATIONAL. THOMAS L. EASLEY
WELL CONTROL, INC
By: /s/ L. H. RAMMING /s/ THOMAS L. EASLEY
--------------------------------------- ------------------------------
L. H. Ramming, Chief Executive Officer
Approved by Compensation Committee of the Board of Directors
/s/ [ILLEGIBLE]
- ------------------------------------------
Signature
<PAGE> 9
SCHEDULE A TO
EXECUTIVE EMPLOYMENT AGREEMENT
THOMAS L. EASLEY
Restricted Stock Option:
# SHARES EXERCISE PRICE
-------- --------------
500,000 $1.55
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<CASH> 938,000
<SECURITIES> 0
<RECEIVABLES> 20,727,000
<ALLOWANCES> 1,180,000
<INVENTORY> 16,238,000
<CURRENT-ASSETS> 38,535,000
<PP&E> 34,567,000
<DEPRECIATION> 4,128,000
<TOTAL-ASSETS> 94,058,000
<CURRENT-LIABILITIES> 45,116,000
<BONDS> 0
0
0
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<OTHER-SE> 19,571,000
<TOTAL-LIABILITY-AND-EQUITY> 94,058,000
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<INTEREST-EXPENSE> 3,094,000
<INCOME-PRETAX> (7,214,000)
<INCOME-TAX> 44,000
<INCOME-CONTINUING> (7,258,000)
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<NET-INCOME> (7,258,000)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
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