<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
---------------------
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 July 17, 2000, was 31,174,877.
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Financial Information....................................... 3
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Shareholders' Deficit............ 5
Consolidated Statements of Cash Flows....................... 6
Notes to Consolidated Financial Statements.................. 7-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15-18
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 18
PART II
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 3. Defaults Upon Senior Securities............................. 21
Item 4. Submissions of Matters to a Vote of Security Holders........ 22
Item 5. Other Information........................................... 22
Item 6. Exhibits and Reports on Form 8-K............................ 22
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1.
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENTS ASSETS:
Cash...................................................... $ 739,000 $ 1,379,000
Receivables -- net........................................ 8,885,000 11,463,000
Inventories............................................... 8,226,000 8,048,000
Prepaid expenses and other current assets................. 1,402,000 1,135,000
------------ ------------
Total current assets.............................. 19,252,000 22,025,000
------------ ------------
PROPERTY AND EQUIPMENT -- net............................... 28,101,000 27,570,000
OTHER ASSETS:
Goodwill -- net........................................... 10,438,000 10,162,000
Deposits and Other -- net................................. 4,457,000 4,023,000
------------ ------------
Total assets...................................... $ 62,248,000 $ 63,780,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 14,858,000 $ 13,907,000
Accrued liabilities and customer advances................. 8,486,000 10,645,000
Current maturities of long-term debt and notes payable.... 43,231,000 44,511,000
------------ ------------
Total current liabilities......................... 66,575,000 69,063,000
------------ ------------
LONG-TERM DEBT AND NOTES PAYABLE -- net of current
maturities................................................ -- --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred stock ($.00001 par, 5,000,000 shares authorized,
132,000 and 92,000 issued and outstanding at December
31, 1999 and March 31, 2000, respectively)............. -- --
Common stock ($.00001 par, 50,000,000 shares authorized,
35,244,000 and 35,506,000 shares issued and outstanding
at December 31, 1999 and March 31, 2000,
respectively).......................................... -- --
Additional paid-in capital................................ 32,951,000 33,118,000
Accumulated deficit....................................... (37,278,000) (38,401,000)
------------ ------------
Total shareholders' deficit....................... (4,327,000) (5,283,000)
------------ ------------
Total liabilities and shareholders' deficit....... $ 62,248,000 $ 63,780,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES.................................................... $20,128,000 $13,702,000
COSTS AND EXPENSES:
Cost of Sales and Operating Expenses...................... 15,383,000 9,522,000
Selling, General and Administrative....................... 3,687,000 2,835,000
Depreciation and Amortization............................. 938,000 1,050,000
----------- -----------
20,008,000 13,407,000
----------- -----------
Operating Income............................................ 120,000 295,000
Interest Expense and Other, net............................. 1,435,000 1,299,000
----------- -----------
Loss From Continuing Operations Before Taxes................ (1,315,000) (1,004,000)
Income Tax Expense.......................................... 19,000 --
----------- -----------
Loss From Continuing Operations............................. (1,334,000) (1,004,000)
Loss From Discontinued Operations, Net of Income Taxes...... (593,000) --
----------- -----------
Net Loss.................................................... (1,927,000) (1,004,000)
Preferred Stock Accretion................................... -- 9,000
Preferred Dividend Requirements............................. 90,000 110,000
----------- -----------
Net Loss Attributable to Common Shareholders................ $(2,017,000) $(1,123,000)
=========== ===========
Basic and Diluted Loss Per Common Share..................... $ (.06) $ (.03)
=========== ===========
Weighted Average Number Of Common Shares Outstanding........ 33,084,000 35,254,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------- ------ ---------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1999......... 132,000 $-- 35,244,000 $-- $32,951,000 $(37,278,000) $(4,327,000)
Warrant discount accretion........ -- -- -- -- 9,000 (9,000) --
Preferred stock conversion to
common stock................... (40,000) -- 250,000 -- -- -- --
Preferred stock dividends......... -- -- -- -- 110,000 (110,000) --
Exercise of common stock
options........................ -- -- 12,000 -- -- -- --
Warrants issued for consulting
services....................... -- -- -- -- 48,000 -- 48,000
Net Loss.......................... -- -- -- -- -- (1,004,000) (1,004,000)
------- --- ---------- --- ----------- ------------ -----------
BALANCES, March 31, 2000............ 92,000 $-- 35,506,000 $-- $33,118,000 $(38,401,000) $(5,283,000)
======= === ========== === =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 2000
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,927,000) $ (1,004,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 938,000 1,050,000
Non-cash charges associated with warrant costs............ 74,000 --
Common stock issues in exchange for services.............. -- 48,000
Bad debt expense.......................................... 53,000 19,000
Changes in assets and liabilities, net of acquisitions:
Receivables............................................ 1,713,000 (2,597,000)
Inventories............................................ (448,000) 178,000
Prepaid expenses and other current assets.............. (802,000) 267,000
Deferred financing costs and other assets.............. (1,898,000) 434,000
Change in net assets of discontinued operations........ 3,034,000 --
Accounts payable....................................... (1,246,000) (951,000)
Accrued liabilities and customer advances.............. (940,000) 2,159,000
----------- ------------
Net cash provided by (used in) operating
Activities...................................... (1,449,000) (397,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.......................... (1,154,000) (243,000)
----------- ------------
Net cash used in investing activities............. (1,154,000) (243,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit........................... 1,550,000 13,369,000
Debt repayments........................................... (643,000) (12,089,000)
Preferred stock dividends................................. (14,000) --
Preferred stock redemption................................ (200,000) --
----------- ------------
Net cash provided by (used in) financing activities....... 693,000 1,280,000
----------- ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS................. (1,910,000) 640,000
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,930,000 739,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,020,000 $ 1,379,000
=========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 2,117,000 $ 376,000
Cash paid for taxes....................................... 85,000 326,000
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued with financings........................... -- 9,000
Preferred stock dividends accrued......................... -- 110,000
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
A. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company receives the
majority of its revenues from customers in the energy industry, which
experienced a significant downturn in the third quarter of 1998 that continued
into 1999. World-wide oil and gas prices and related activity including many
refined products hit new lows in late 1998 and early 1999, on an inflation
adjusted basis, for the past several decades, impacting the Company and its
competitors. It should further be considered that with the exception of this
latest commodity value pricing fluctuation, crude and refined products pricing
have been historically considered cyclical. Some improvements in the industry
have occurred through the first six months of 2000, however to date the
Company's well control 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 and the Company's upstream and
downstream customer bases have not to date increased project expenditure levels
to those existing in the first half of 1998. The liquidity of the Company must
be considered in light of the significant fluctuations that have been
experienced by oilfield service providers as changes in oil and gas exploration
and production activities changed customers' forecasts and budgets in response
to oil and gas prices. These fluctuations significantly impacted the Company's
cash flows as supply and demand factors impacted the number and size of projects
available.
As a result of the continued reduced levels of capital expenditures in the
industries which the Company serves and the Company's financial position, the
Company's management initiated actions in 1999 which included among others, (a)
downsizing personnel, (b) attempting to improve its working capital, (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 1999 and continuing into 2000, the results of these
efforts were not sufficient to prevent significant operating losses. For the
quarter ended March 31, 2000, the Company incurred an after-tax loss of
$1,004,000 from continuing operations.
As of March 31, 2000, and continuing to date, the Company was not in
compliance with certain provisions of the Comerica Loan Agreement. The Company
has negotiated and entered into interim forbearance agreements with Comerica
which have permitted additional time for seeking alternative financing sources.
Such forbearance agreements currently extend through July 31, 2000 and there is
no assurance such agreements can be further extended. Outstanding borrowings
under the Comerica Loan Agreement of $15,530,000 at March 31, 2000 have been
included in current maturities of long-term debt and notes payable in the
accompanying financial statements.
As of March 31, 2000, and continuing to date, the Company was not in
compliance with certain financial covenants of the Prudential Subordinated Note
and Warrant Purchase Agreement, as amended, including the Company's EBITDA to
total liabilities ratio. Such financial covenant non-compliance continues
through the date hereof. Prudential has delivered notice of acceleration to the
Company, accelerating the maturity of the Company's obligations under the
Prudential Subordinated Note and Warrant Purchase Agreement; however, as of the
date of this filing, Prudential has not taken any further steps to complete the
acceleration of the obligation. Further, quarterly interest payments due since
July 23, 1999 on the Prudential Subordinated Note have not been made by the
Company. Accordingly, the Company continues in default under the terms of the
Subordinated Note and Warrant Purchase Agreement. The Company has been engaged
in discussions with Prudential regarding the restructuring of the $30,000,000
Prudential Note and accrued interest thereon. Based on the uncertain status of
the Company's discussions with Prudential, the outstanding balance of the
Prudential Subordinated Notes of $28,046 with amortization of DBcf -- should be
$28,121,000 has been
7
<PAGE> 8
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included in current maturities on long-term debt and notes payable in the
accompanying financial statements. An additional obligation to Prudential of
$1,879,000, representing the remaining note face amount as of March 31, 2000
attributed to the warrants sold to Prudential, is included in additional paid-in
capital and would also require funding in the event the debt was extinguished,
for a total payment of $30,000,000.
The Company has continued to explore possibilities for new improved debt
financing and/or equity infusions. As discussed in Part II, Section 2, through
July 14, 2000, $6,635,000 in additional funds were raised through the purchase
by an investment group of a new participating interest in the Company's senior
secured credit facility with Comerica. The Company has received a commitment,
expiring on July 31, 2000, from a senior secured credit facility that would
replace the Comerica facility. There are substantive unresolved issues
associated with closing this facility and negotiations are ongoing with the
prospective lender. In addition, the Company has ongoing discussions regarding
the sale of certain assets and operations; however, there are no definitive
agreements in place as of this date.
The new financing obtained to date and any future additional financing will
have a significantly dilutive impact on existing common shareholders. Further,
there can be 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.
There can be no assurance that Comerica and Prudential will not seek their
remedies under their respective lending agreements with respect to the
continuing defaults under the Comerica Loan Agreement and the Prudential
Subordinated Note and Warrant Purchase 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 on the Company's assets securing
those loans. In addition to the defaults under the agreements with the parties
discussed above, the Company's deteriorating liquidity position subsequent to
December 31, 1999 has also resulted in the inability to pay certain vendors in a
timely manner. These vendors may also assert claims against the Company.
Significant uncertainties exist as to the ability of the Company to resolve its
financing issues and attain profitable operations.
The Company believes that (a) should low demand for the Company's services
persist for a prolonged period, or (b) if management's actions are not effective
in reducing the Company's operating losses and negative cash flows, these
conditions will continue to 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.
B. 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 be
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, 1999.
The results of operations for the three-month period ended March 31, 1999
and 2000 are not necessarily indicative of the results to be expected for the
full year.
8
<PAGE> 9
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of the current date, the Company has not engaged an independent public
accounting firm to perform an audit of its consolidated financial statements for
the year ended December 31, 2000. Accordingly, an interim review in accordance
with the American Institute of Certified Public Accountants (AICPA) Statement
No. 71 "Interim Financial Information"' has not been performed. The Company will
engage an independent public accounting firm to perform an interim review of its
consolidated financial statements at the earliest practicable time.
C. DISCONTINUED OPERATIONS
A decision was made in December 1999 to sell or in the alternative
discontinue the Company's materials and equipment procurement, transportation
and logistics services conducted through its subsidiary, ITS Supply Corporation
("ITS"). In connection with the December 1999 decision to sell or in the
alternative discontinue ITS's business operations, an impairment provision of
$4,382,000 was made at December 31, 1999 to write down goodwill associated with
the ITS acquisition. In April 2000, substantially all productive operations were
ceased and the majority of employees were terminated pursuant to a reduction in
workforce. As a result of ongoing operating losses, a shortage of working
capital and the absence of a currently identified viable purchaser for ITS's
operations, on May 18, 2000, ITS filed in Corpus Christi, Texas for protection
under Chapter XI of the U.S. Bankruptcy Code. ITS foreign subsidiaries operating
in Venezuela and Peru were not included in this filing. As of the filing date,
ITS had total liabilities of approximately $6,900,000. The Company has an
outstanding guaranty on ITS debt of approximately $1,500,000. This guaranty is
subordinated to any senior debt and the obligation to respond is forestalled
contractually so long as senior debt is outstanding. As a result of the
Bankruptcy filing by ITS, the Company reduced its net investment in ITS to zero
at December 31, 1999. The Company, in consultation with its counsel, believes
that it is not probable that any creditors or ITS may successfully assert and
realize judgements against the Company. Accordingly, any operating losses
incurred by ITS in excess of the Company's net investment have not been
realized.
Although the Company anticipates that ITS will develop a plan of
reorganization in connection with the bankruptcy proceeding, management of the
Company can make no assurance that the reorganization of ITS will be successful.
D. 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 any such current
proceedings will have a material adverse effect on its consolidated operations
or financial position.
As discussed in Note C, in May of 2000, the Company's subsidiary ITS Supply
Corporation ("ITS") filed in Corpus Christi, Texas, for protection under Chapter
XI of the U.S. Bankruptcy Code. The Company has an outstanding guaranty on ITS
debt of approximately $1,500,000. This guaranty is subordinated to senior debt
and the obligation to respond is forestalled contractually so long as senior
debt is outstanding. The Company, in consultation with its counsel, believes it
is not probable that any creditors of ITS may successfully assert and realize
judgements against the Company.
E. BUSINESS SEGMENT INFORMATION
Information concerning operations in different business segments at March
31, 1999 and 2000, and for the three-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. Intercompany transfers between segments were not
material. The accounting policies of the operating
9
<PAGE> 10
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 MANUFACTURING
RESPONSE AND AND
RESTORATION DISTRIBUTION CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
Three Months Ended March 31, 2000
Net Operating Revenues..................... $ 7,215,000 $ 6,487,000 $13,702,000
Operating Income (Loss).................... 353,000 (58,000) 295,000
Identifiable Operating Assets.............. 14,433,000 49,242,000 63,675,000
Capital Expenditures....................... 55,000 371,000 426,000
Depreciation and Amortization.............. 664,000 386,000 1,050,000
Interest Expense........................... 1,344,000 2,000 1,346,000
Three Months Ended March 31, 1999
Net Operating Revenues..................... $10,402,000 $ 9,726,000 $20,128,000
Operating Income (Loss).................... (388,000) 508,000 120,000
Identifiable Operating Assets.............. 31,739,000 48,497,000 80,236,000
Capital Expenditures....................... 887,000 291,000 1,178,000
Depreciation and Amortization.............. 516,000 422,000 938,000
Interest Expense........................... 1,417,000 3,000 1,420,000
</TABLE>
For the three-month periods ended March 31, 1999 and 2000, the Company's
revenues were substantially consistent with those for the year ended December
31, 1999 (domestic -- 80%, foreign -- 20%).
F. EVENTS SUBSEQUENT TO MARCH 31, 2000
The Company has undertaken financing initiatives subsequent to March 31,
2000 directed toward the obtaining of additional financing for working capital
purposes, the refinancing of the Comerica Senior Secured Loan, and negotiating a
restructuring of the Prudential Subordinated Note. In furtherance of these
steps, on April 10, 2000 the Company entered into a financial advisory agreement
with an Investment Group ("the Investment Group") to provide to the Company, for
a twelve (12) month term, financial consulting services in connection with a
proposed $8,000,000 of debt and/or equity financing. As consideration for such
services, the Investment Group will receive fees in the form of an "in-kind"
issuance of options to purchase shares of the Company's $.00001 par Value Common
Stock ("Common Stock") on a $.75 per share basis equal to 7.5% of the funds
raised; and, warrants to purchase, for a 5 year term, 1,600,000 shares of the
Company's Common Stock at $.75 per share.
On April 12, 2000, the Company entered into an agreement with the
Investment Group, as agent for a syndicate that would purchase, in the form of a
participation interest in the Tranche B Revolver, Comerica Bank Senior Secured
Credit Facility. The group receives, on the basis of 1 warrant for each $1 of
participation interest in the Tranche B Revolver, warrants to purchase the
Company's stock at the rate of $0.625 per share at any time during a five year
period after closing. This participation tranche bears interest at the rate of
prime plus 3% (currently 12%) plus an additional interest factor of 4%. Such
interest is payable, subject to availability of authorized but unissued or
committed shares, in additional shares of the Company's Common Stock on the
basis of $0.625 per share. The participation interest is convertible into a new
issue of the Company's Series B Convertible Preferred Stock ("Series B Preferred
Stock") at the election of the participation interest holder or at the Company's
request upon the satisfactory resolution of default conditions existing under
the Prudential Senior Subordinated Note. The Certificate of Designation of
Rights and Preferences of the Series B Preferred Stock that was adopted on April
28, 2000 designates this issue to consist
10
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BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 100,000 shares of $.00001 par Value per share with a face value of $100 per
share; has a dividend requirement of 10% per annum, payable semi-annually at the
election of the Company in additional shares of Series B Preferred Stock in lieu
of cash; has voting rights equivalent to 100 votes per share; and, may upon
authorization of sufficient additional common shares at the next meeting of the
Company's shareholders, be converted at the election of the Company into shares
of the Company's Common Stock on the basis of a $.75 per share conversion rate.
In the event that within 6 months after issuance of such Series B Preferred
Stock, the Company does not have available sufficient common shares necessary to
fulfill conversion requests, then the annual dividend rate shall be increased to
15% per annum.
With respect to the participation interest holders, Series B Preferred
Stock received in exchange for debt may be converted into shares of the
Company's Common Stock during the period from April 11, 2000 through December
31, 2002 at a conversion rate based on 85% of the then immediately preceding 90
day average closing traded price of the Company's Common Stock. Furthermore, the
Series B Preferred Stock issued to the participation interest holders may be
redeemed by the Company at face amount, together with accrued interest, during
the period from October 1, 2000 through December 31, 2001, if the 30 day average
closing traded price of the Company's Common Stock for any 30 day period from
October 1, 2000 through December 31, 2001 equals $2.50 per share.
The participation interest holders were also issued warrants to purchase at
any time during a three (3) year period after closing, warrants to purchase an
amount of the Company's Common Stock equivalent to 10% of the converted shares
of such Common Stock at the same conversion price as the Series B Preferred
Stock, with a floor conversion rate of $0.75 per share.
To date, approximately $6.6 million in funds from the purchase of above
participation interests have been received with approximately $1.4 million in
additional funds committed to be raised.
In order for the Company to have available shares of authorized but
unissued or committed shares of Common Stock to accommodate the conversion
features discussed above for Series B Preferred Stock for the participation
interest holders as well as Common Stock purchase warrants related to this
financing, the Company negotiated during the period from April through June,
2000 with certain of its Common Stock shareholders to contribute an aggregate of
5,288,650 shares of Common Stock to the Company in exchange for 52,888 share of
Series B Preferred Stock. Certain Directors and Officers of the Company
contributed 2,600,000 shares of Common Stock they held in exchange for receipt
of 26,000 shares of Series B Preferred Stock. In order to provide further
additional available shares of authorized but unissued or committed shares of
Common Stock, certain Officers, Directors, Employees and Consultants of the
Company holding previously granted stock options to purchase 3,007,000 shares of
Common Stock at exercise prices ranging from $.625 to $5.00 per share
voluntarily contributed such options in April 2000 to the Company in exchange
for a commitment by the Company to issue, subject to availability of authorized
but unissued or committed shares of Common Stock, replacement options that may
be exercised at $.75 per share over a 5 year term.
On May 30, 2000 the Company adopted the Certificate of Designation of
Rights and Preferences of the Series C Cumulative Convertible Preferred Stock
("Series C Preferred Stock") that designates this issue to consist of 50,000
shares of $.00001 par Value per share with a face value of $100 per share; has a
dividend requirement of 10% per annum, payable quarterly at the election of the
Company in additional shares of Series C Preferred Stock in lieu of cash; has
voting rights excluding the election of direction equivalent to 1 votes per
share of common stock into which preferred shares are convertible into; and, may
upon authorization of sufficient additional common shares at the next meeting of
the Company's shareholders, be converted at the election of the Company into
shares of the Company's Common Stock on the basis of a $.75 per share conversion
rate. After eighteen months of issuance date a holder of Series C Preferred
Stock may elect to have future dividends paid in cash. Furthermore, in the event
that within six months after issuance of such Series B Preferred Stock, the
Company does not have available sufficient common shares necessary to fulfill
conversion requests, then the annual dividend rate shall be increased to 15% per
annum. To date, 10,400 shares of
11
<PAGE> 12
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series C Preferred Stock has been issued in exchange for indebtedness owned by
the Company, including 9,750 shares issued to Larry H. Ramming, Chairman and
Chief Executive Officer of the Company, in exchange for a subordinated
promissory note and accrued interest owed to Mr. Ramming at March 31, 2000. In
addition, Mr. Ramming was issued, subject to availability of shares of Common
Stock, warrants to purchase 975,000 shares of the Company's Common Stock at $.75
per share.
On June 20, 2000 the Company adopted the Certificate of Designation of
Rights and Preferences of the Series D Cumulative Junior Preferred Stock
("Series D Preferred Stock") that designates this issue to consist of 3,500
shares of $.00001 par Value per share with a face value of $100 per share; has a
dividend requirement of 8% per annum, payable quarterly at the election of the
Company in additional shares of Series D Preferred Stock in lieu of cash; has
voting rights; and is redeemable at any time at the election of the Company in
cash or the issuance of Common Stock purchase warrants on a 2 to 1 share basis
at an exercise price of $.75 per share. 3,000 shares of Series D Preferred Stock
has been issued to the Investment Group discussed above.
HALTING OF TRADING OF THE COMPANY'S COMMON STOCK
On April 20, 2000, the Company announced that the American Stock Exchange
had halted trading in the Common Stock of the Company pending the filing of this
Annual Report on Form 10-K and the Company's Form 10-Q for the period ended
March 31, 2000. Although management of the Company believes that it has complied
with the requests of the American Stock Exchange, no assurance can be provided
that the American Stock Exchange will lift the halt on the trading of the
Company's Common Stock and will continue to list the Company on its exchange.
FINANCING ACTIVITY
As discussed in Part II, Item 2 herein, subsequent to March 31, 2000, the
Company received approximately $6.6 million in funds from the purchase of
participation interests in its senior secured credit facility with Comerica. In
connection with this financing, the Company issued 147,058 shares of common
stock and warrants to purchase an aggregate of 8,000,000 shares of common stock
of the Company to the participation interest holders and warrants to purchase an
aggregate of 3,480,000 shares of common stock to the investment group that
arranged the financing. In the aggregate, the warrants are currently exercisable
for approximately 9 million shares, with the balance exercisable at such time as
the Company has adequate shares of common stock available. The warrants have a
term of five years and can be exercised by the payment of cash in the amount of
$0.625 per share as to 8,000,000 shares and $0.75 per share as to 3,480,000
shares of common stock, or by relinquishing a number of shares subject to the
warrant with a market value equal to the aggregate exercise price of the portion
of the warrant being exercised.
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.
As discussed herein, the Company completed the acquisitions of Boots &
Coots, L.P. as of July 31, 1997; ABASCO, Inc. as of September 25, 1997; ITS
Supply Corporation as of January 2, 1998; Boots & Coots Special Services, Inc.
(formerly known as Code 3, Inc.) as of February 20, 1998; Baylor Company as of
July 23, 1998, and HAZ-TECH Environmental Services, Inc. as of November 4, 1998.
The results of operations for such acquisitions are included in the condensed
Statements of Operations set forth hereinafter from the respective dates of
acquisitions through the reporting period end. For all periods presented herein,
the operations of ITS have been reclassified as discontinued operations.
Business segment operating data from continuing operations is presented for
purposes of discussion and analysis of operating results. In prior year reports,
the risk management business unit of IWC Services, which encompasses the
WELLSURE(SM) Program, and ITS were included under a business segment, Programs
and Services. As a result of the December 1999 decision to sell or in the
alternative discontinue ITS's business operations, an assessment has been made
that the Company's risk management programs are more appropriately included with
the Company's Emergency Response and Restoration business segment. Accordingly,
business segment disclosures contained herein reflect this classification for
all periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES
Emergency Response and Restoration....................... $10,402,000 $ 7,215,000
Manufacturing and Distribution........................... 9,726,000 6,487,000
----------- -----------
$20,128,000 $13,702,000
----------- -----------
COST OF SALES AND OPERATING EXPENSES
Emergency Response and Restoration....................... $ 8,811,000 $ 5,444,000
Manufacturing and Distribution........................... 6,572,000 4,078,000
----------- -----------
$15,383,000 $ 9,522,000
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (1)
Emergency Response and Restoration....................... $ 1,463,000 $ 754,000
Manufacturing and Distribution........................... 2,224,000 2,081,000
----------- -----------
$ 3,687,000 $ 2,835,000
----------- -----------
DEPRECIATION AND AMORTIZATION
Emergency Response and Restoration....................... $ 516,000 $ 664,000
Manufacturing and Distribution........................... 422,000 386,000
----------- -----------
$ 938,000 $ 1,050,000
----------- -----------
OPERATING INCOME (LOSS)
Emergency Response and Restoration....................... $ (388,000) $ 353,000
Manufacturing and Distribution........................... 508,000 (58,000)
----------- -----------
$ 120,000 $ 295,000
----------- -----------
</TABLE>
---------------
(1) Selling, General, Administrative and Corporate expenses have been allocated
pro rata among segments using relative revenues for the basis.
13
<PAGE> 14
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 WITH THE THREE MONTHS
ENDED MARCH 31, 2000 (UNAUDITED)
REVENUES
Emergency Response and Restoration revenues were $7,215,000 for the quarter
ended March 31, 2000, compared to $10,402,000 for the quarter ended March 31,
1999, a decrease of $3,187,000 (30.6%) in the current period. The principal
component of the reduction was a $2,697,000 decrease in revenues from the
Company's Well Control operations, due primarily to the fact that the prior year
period included a large well control project in which the company acted as
general contractor. The remainder of the decrease resulted from lower revenues
from the Special Services hazardous materials operation offset by improved
results from Risk Management revenues.
Manufacturing and Distribution revenues were $6,487,000 for the three
months ended March 31, 2000, representing a decrease of $3,239,000 (33.3%)
compared to the same period of the prior year. The decrease was primarily
attributable to a significant decline in revenues from Baylor Company, which
fell by $2,722,000 when compared to the first three months of the preceding
year. Baylor's results reflect an anticipated lag in market recovery from the
depressed condition of the oil and gas industry experienced in 1999. The
remainder of the decline in Manufacturing and Distribution revenues resulted
from a decrease in international sales and a decrease in orders for fire and
protective equipment.
COST OF SALES AND OPERATING EXPENSES
Emergency Response and Restoration Cost of Sales and Operating Expenses
declined by $3,367,000 for the quarter ended March 31, 2000, a decrease of 38.2%
in comparison to the first quarter of last year. As a percentage, Cost of Sales
and Operating Expenses declined more than the corresponding segment revenues,
resulting in an improved contribution margin for Emergency Response and
Restoration; a 25% contribution margin versus a 15% contribution margin for the
quarters ended March 31, 2000 and March 31, 1999, respectively.
The decrease in Manufacturing and Distribution Cost of Sales and Operating
Expenses of $2,494,000 (37.9%) for the quarter ended March 31, 2000 is primarily
the result of lower sales and operating levels at the Baylor Company. The
percentage decline in Manufacturing and Distribution Cost of Sales and Operating
Expenses was more than the percentage decline in revenues, resulting in an
improvement in the contribution margin for the business segment. This
improvement reflects the result of 1999 initiatives targeted at reducing
operational overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses for the Emergency Response and
Restoration segment were $754,000 for the quarter ended March 31, 2000, compared
to $1,463,000 for the quarter ended March 31, 1999, a decrease of $709,000
(48.5%) from the comparable quarter of the prior year. Selling, General and
Administrative Expenses were reduced in response to 1999 cost reduction
initiatives in Boots & Coots Special Services.
The decrease in Manufacturing and Distribution Selling, General and
Administrative Expenses of $143,000 (6.4%) for the quarter ended March 31, 2000,
compared to the quarter ended March 31, 1999, is primarily the result of
management's previously referenced cost reduction initiatives at ABASCO.
DEPRECIATION AND AMORTIZATION
The increase in Emergency Response and Restoration Depreciation and
Amortization of $148,000 for the 1999 to 2000 quarter is primarily the result of
adjustments to the calculation in the current quarter required to properly state
depreciation provisions.
The decrease in Manufacturing and Distribution Depreciation and
Amortization of $36,000 for the 1999 to 2000 quarter is primarily due to a
reduction in the asset base of ABASCO.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS
The accompanying Consolidated Financial Statements have been prepared
assuming the Company will continue as a going concern. The Company receives the
majority of its revenues from customers in the energy industry, which
experienced a significant downturn in the third quarter of 1998 that continued
through March 31, 2000. Some improvements have occurred to date in 2000, however
the Company's upstream and downstream customer base have not to date increased
project expenditure levels to those existing in the first half of 1998. The
liquidity of the Company must be considered in light of the significant
fluctuations that have been experienced by oilfield service providers as changes
in oil and gas exploration and production activities changed customers'
forecasts and budgets in response to oil and gas prices. These fluctuations
significantly impacted the Company's cash flows as supply and demand factors
impacted 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
recovered beginning in the second quarter of 1999 and continue to improve, to
date the Company's well control business has 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 the oil and gas commodity price increases will be sustained or that they
will result in increased operational activity by the Company's customers. As a
result of the continued reduced levels of capital expenditures in the industries
which the Company serves and the Company's financial position, the Company's
management initiated actions in 1999 which included among others, (a) downsizing
personnel, (b) attempting to improve its working capital, (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 1999 and continuing into 2000, the results of these
efforts were not sufficient to prevent significant operating losses.
As of December 31, 1999, and continuing to date, the Company was not in
compliance with certain provisions of the Comerica Loan Agreement. The Company
has negotiated and entered into interim forbearance agreements with Comerica
which have permitted additional time for seeking alternative financing sources.
Such forbearance agreements currently extend through July 31, 2000 and there is
no assurance such agreements can be further extended. Outstanding borrowings
under the Comerica Loan Agreement of $15,530,000 at March 31, 2000 have been
included in current maturities on long-term debt and notes payable in the
accompanying financial statements.
As of March 31, 2000, and continuing to date, the Company was not in
compliance with certain financial covenants of the Prudential Subordinated Note
and Warrant Purchase Agreement including the Company's EBITDA to total
liabilities ratio. Such financial covenant non-compliance continues through the
date hereof. Further, quarterly interest payments due since July 23, 1999 on the
Prudential Subordinated Note have not been made by the Company. Accordingly, the
Company continues in default under the terms of the Subordinated Note and
Warrant Purchase Agreement. The Company has been engaged in discussions with
Prudential regarding the restructuring of its obligations. Based on the
uncertain status of the Company's discussions with Prudential, the $28,121,000
recorded liability balance of the Prudential obligation has been included in
current maturities on long-term debt and notes payable in the accompanying
financial statements. An additional obligation to Prudential of $1,879,000,
representing the remaining note face amount attributed to the warrants sold
Prudential, is included in additional paid-in capital but would also require
funding.
There can be no assurance that Comerica and Prudential will not seek their
remedies under their respective lending agreements with respect to the
continuing defaults under the Comerica Loan Agreement and the Prudential
Subordinated Note and Warrant Purchase 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 on the Company's assets securing
those loans. Significant uncertainties exist as to the ability of the Company to
resolve its financing issues and attain profitable operations.
15
<PAGE> 16
The Company has continued to explore possibilities for new equity infusions
and/or improved debt financing. During the quarter ended June 30, 2000,
$6,635,000 in additional funds were raised through the purchase by an investment
group of a new participating interest in the Company's senior secured credit
facility with Comerica. The Company has received a commitment, expiring on July
31, 2000, from a senior secured credit facility that would replace the Comerica
facility. There are substantive unresolved issues associated with closing this
facility and negotiations are ongoing with the prospective lender. In addition,
the Company has ongoing discussions regarding the sale of certain assets and
operations; however, there are no definitive agreements in place as of this
date.
The new financing obtained to date and any future additional financing will
have a significantly dilutive impact on existing common shareholders. Further,
there can be 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.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of 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.
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 March 31, 2000, 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.
16
<PAGE> 17
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in or threatened with various legal proceedings
from time to time arising in the ordinary course of business. Except as
disclosed under this item, management of the Company does not believe that any
liabilities resulting from any such current proceedings will have a material
adverse effect on its operations or financial position. The Company and a
subsidiary are named in a lawsuit filed in August of 1999 relating to the
purchase of Haz-Tech Environmental Services, Inc. ("Haz-Tech") in November of
1998. The lawsuit is styled James Stephen Gladden and Gerald Anglin v. Boots &
Coots International Well Control, Inc. and Boots & Coots Special Services, Inc.;
Cause No. 1999-39928; in the 80th Judicial District Court of Harris County,
Texas. This is a lawsuit for breach of the plaintiffs respective employment
agreements, fraud, and breach of the merger agreement pursuant to which Haz-Tech
was acquired and merged into Boots & Coots Special Services, Inc. ("Special
Services"). Plaintiffs allege that they signed six-year employment agreements
with Special Services which could be terminated only for cause, as defined in
the agreements, and that they were wrongfully terminated without cause pursuant
to a cost-reduction plan. Plaintiffs further allege that Special Services
fraudulently represented its intention to employ them for an extended period at
the time the employment agreements were executed and that the Company breached
the merger agreement by failing to use its best efforts to collect certain
scheduled accounts receivable of Haz-Tech following the acquisition, including
certain Haz-Tech invoices to Code 3, Inc. (n/k/a Boots & Coots Special Services,
Inc.) in the alleged total amount of approximately $93,000, by failing to assign
them any uncollected accounts receivable, by failing to issue additional stock
to plaintiffs pursuant to a price adjustment provision in the merger agreement,
and by failing to release certain Boots & Coots stock which was escrowed
pursuant to the merger agreement. Each plaintiff alleges damages in excess of
$600,000 in connection with their wrongful termination claims as well as
additional damages in connection with their other claims.
Although the Company disagrees with the contentions made by the plaintiffs,
management of the Company can make no assurances that it will be able to defend
the Company successfully. Additionally, in May of 2000, the Company's subsidiary
ITS Supply Corporation ("ITS") filed in Corpus Christi, Texas, for protection
under Chapter XI of the U.S. Bankruptcy Code. ITS foreign subsidiaries operating
in Venezuela and Peru were not included in this filing. At the time of the
filing, ITS had total liabilities of approximately $6,900,000. The Company has
an outstanding guaranty on ITS debt of approximately $1,500,000. This guaranty
is subordinated to senior debt and the obligation to respond is forestalled
contractually so long as senior debt is outstanding. The Company, in
consultation with its counsel, believes it is not probable that any creditors of
ITS may successfully assert and realize judgements against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has undertaken financing initiatives subsequent to December 31,
1999 directed toward the obtaining of additional financing for working capital
purposes, the refinancing of the Comerica Senior Secured Loan, and negotiating a
restructuring of the Prudential Subordinated Note and Warrant Purchase
Agreement. In furtherance of these steps, on April 10, 2000 the Company entered
into a financial advisory agreement with an investment group to provide to the
Company, for a twelve month term, financial consulting services in connection
with a proposed $8,000,000 of debt and/or equity financing. As consideration for
such services, the investment group will receive fees in the form of an
"in-kind" issuance of options to purchase shares of the Company's $.00001 par
value Common Stock ("Common Stock") on a $0.75 per share basis equal to 7.5% of
the funds raised; and, warrants to purchase, for a five year term, 1,600,000
shares of the Company's Common Stock at $0.75 per share.
On April 12, 2000, the Company entered into an agreement with this
investment group, as agent for a syndicate that would purchase, in the form of a
participation interest in the Tranche B Revolver, Comerica Bank Senior Secured
Credit Facility. The syndicate receives, on the basis of 1 warrant for each $1
of participation interest in the Tranche B Revolver, warrants to purchase the
Company's stock at the rate of $0.625 per share at any time during a five year
period after closing. This participation tranche bears interest at
17
<PAGE> 18
the rate of prime plus 3% (currently 12%) plus an additional interest factor of
4%. Such interest is payable, subject to availability of authorized but unissued
or committed shares, in additional shares of the Company's Common Stock on the
basis of $0.625 per share. The participation interest is convertible into a new
issue of the Company's Series B Convertible Preferred Stock ("Series B Preferred
Stock") at the election of the participation interest holder or at the Company's
request upon the satisfactory resolution of default conditions existing under
the Prudential Senior Subordinated Note. The Certificate of Designation of
Rights and Preferences of the Series B Preferred Stock that was adopted on April
28, 2000 designates this issue to consist of 100,000 shares of $.00001 par value
per share with a face value of $100 per share; has a dividend requirement of 10%
per annum, payable semi-annually at the election of the Company in additional
shares of Series B Preferred Stock in lieu of cash; has voting rights equivalent
to 100 votes per share; and, may upon authorization of sufficient additional
common shares at the next meeting of the Company's shareholders, be converted at
the election of the Company into shares of the Company's Common Stock on the
basis of a $0.75 per share conversion rate. In the event that within six months
after issuance of such Series B Preferred Stock, the Company does not have
available sufficient common shares necessary to fulfill conversion requests,
then the annual dividend rate shall be increased to 15% per annum.
With respect to the participation interest holders, Series B Preferred
Stock received in exchange for debt may be converted into shares of the
Company's Common Stock during the period from April 11, 2000 through December
31, 2002 at a conversion rate based on 85% of the then immediately preceding 90
day average closing traded price of the Company's Common Stock. Furthermore, the
Series B Preferred Stock issued to the participation interest holders may be
redeemed by the Company at face amount, together with accrued interest, during
the period from October 1, 2000 through December 31, 2001, if the 30 day average
closing traded price of the Company's Common Stock for any 30 day period from
October 1, 2000 through December 31, 2001 equals $2.50 per share.
The participation interest holders were also issued warrants to purchase at
any time during a five (5) year period after closing, warrants to purchase an
amount of the Company's Common Stock equivalent to 10% of the converted shares
of such Common Stock at the same conversion price as the Series B Preferred
Stock, with a floor conversion rate of $0.625 per share.
To date, approximately $6.6 million in funds from the purchase of
participation interests have been received with approximately $1.4 million in
additional funds committed to be raised.
In order for the Company to have available shares of authorized by unissued
or committed shares of Common Stock to accommodate the conversion features
discussed above for Series B Preferred Stock for the participation interest
holders as well as Common Stock purchase warrants related to this financing, the
Company negotiated during the period from April through June 2000 with certain
of its Common Stock shareholders to contribute an aggregate of 5,288,650 shares
of Common Stock to the Company in exchange for 52,888 shares of Series B
Preferred Stock. Certain Directors and Officers of the Company contributed
2,600,000 shares of Common Stock they held in exchange for receipt of 26,000
shares of Series B Preferred Stock. In order to provide further additional
available shares of authorized but unissued or committed shares of Common Stock,
certain Officers, Directors, Employees and Consultants of the Company holding
previously granted stock options to purchase 3,246,891 shares of Common Stock at
exercise prices ranging from $0.625 to $5.00 per share voluntarily contributed
such options in April 2000 to the Company in exchange for a commitment by the
Company to issue, subject to availability of authorized but unissued or
committed shares of Common Stock, replacement options that may be exercised at
$0.75 per share over a 5 year term.
On May 30, 2000 the Company adopted the Certificate of Designation of
Rights and Preferences of the Series C Cumulative Convertible Preferred Stock
("Series C Preferred Stock") that designates this issue to consist of 50,000
shares of $.00001 par Value per share with a face value of $100 per share; has a
dividend requirement of 10% per annum, payable quarterly at the election of the
Company in additional shares of Series C Preferred Stock in lieu of cash; has
voting rights excluding the election of direction equivalent to 1 votes per
share of common stock into which preferred shares are convertible into; and, may
upon authorization of sufficient additional common shares at the next meeting of
the Company's shareholders, be converted at the election of the Company into
shares of the Company's Common Stock on the basis of a $0.75
18
<PAGE> 19
per share conversion rate. After 18 months of issuance date a holder of Series C
Preferred Stock may elect to have future dividends paid in cash. Furthermore, in
the event that within six months after issuance of such Series B Preferred
Stock, the Company does not have available sufficient common shares necessary to
fulfill conversion requests, then the annual dividend rate shall be increased to
15% per annum. To date, 10,400 shares of Series C Preferred Stock have been
issued in exchange for indebtedness owed by the Company, including 9,750 shares
issued to Larry H. Ramming, Chairman and Chief Executive Officer of the Company,
in exchange for a subordinated promissory note and accrued interest owed to Mr.
Ramming at December 31, 1999. In addition, Mr. Ramming was issued, subject to
availability of shares of Common Stock, warrants to purchase 975,000 shares of
the Company's Common Stock at $0.75 per share.
On June 20, 2000 the Company adopted the Certificate of Designation of
Rights and Preferences of the Series D Cumulative Junior Preferred Stock
("Series D Preferred Stock") that designates this issue to consist of 3,500
shares of $.00001 par Value per share with a face value of $100 per share; has a
dividend requirement of 8% per annum, payable quarterly at the election of the
Company in additional shares of Series D Preferred Stock in lieu of cash; has
voting rights; and is redeemable at any time at the election of the Company in
cash or the issuance of Common Stock purchase warrants on a 2 to 1 share basis
at an exercise price of $0.75 per share 3,000 shares of Series D Preferred Stock
has been issued to the Investment Group discussed above.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Comerica Loan Agreement Default
As of December 31, 1999, and March 31, 2000, the Company was not in
compliance with certain provisions of the Comerica Loan Agreement, executed by
the Company and Comerica Bank Texas dated October 28, 1998. The Company has
negotiated and entered into interim forbearance agreements with Comerica which
have permitted additional time for seeking alternative financing sources. Such
forbearance agreements currently extend through July 31, 2000, and there is no
assurance such agreements can be further extended. Outstanding borrowings under
the Comerica Loan Agreement of $15,530,000 at March 31, 2000 have been
classified as a current liability in the accompanying financial statements.
Prudential Subordinated Note Default
As December 31, 1999, and March 31, 2000, the Company was not in compliance
with certain financial covenants of the Prudential Subordinated Note and Warrant
Purchase Agreement, as amended executed originally by the Company and the
Prudential Insurance Company of America on July 23, 1998, respecting the
Company's EBITDA to total liabilities ratio. Such financial covenant
non-compliance continues through the date hereof. Prudential has delivered a
notice of acceleration to the Company, accelerating the maturity of the
Company's obligations under the Prudential Subordinated Note and Warrant
Purchase Agreement; however, as of the date of this filing, the Company is not
aware of any other action taken by Prudential to collect such obligations.
Further, quarterly interest payments due since the quarter ended July 23, 1999,
on the Prudential Subordinated Note have not been made by the Company.
Accordingly, the Company continues in default under the terms of the
Subordinated Note and Warrant Purchase Agreement. The Company has been engaged
in discussions with Prudential regarding modification of certain financial
covenants and deferral of the unpaid quarterly interest payments and other
proposals designed to resolve the subordinated debt and related interest
obligations. No resolution has yet been reached. Based on the status of the
Company's discussions with Prudential, the outstanding balance of the Prudential
Subordinated Notes has been classified as a current liability in the
accompanying 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 defaults under the Comerica Loan
Agreement and the Prudential Subordinated Note and Warrant Purchase 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 on the Company's assets securing those loans. Although the
accompanying financial statements have been prepared on the basis of a going
concern, significant uncertainties exist as to the ability of the Company to
resolve its financing issues and attain profitable operations.
19
<PAGE> 20
ITS Bankruptcy Proceedings
As a result of ongoing operating losses, a shortage of working capital and
the absence of a currently identified viable purchaser for ITS' operations, on
May 18, 2000, ITS filed in Corpus Christi, Texas, for protection under Chapter
XI of the U.S. Bankruptcy Code. ITS foreign subsidiaries operating in Venezuela
and Peru were not included in this filing. As of the filing date, ITS had total
liabilities of approximately $6,900,000. The Company has an outstanding guaranty
on ITS debt of approximately $1,500,000. This guaranty is subordinated to any
senior debt and the obligation to respond is forestalled contractually so long
as senior debt is outstanding. The Company continues its current negotiations
and discussions with parties indicating interest in potential purchases of
certain of its assets though no certainty of sale can be defined at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<C> <S>
3.01 -- Amended and Restated Certificate of Incorporation(1)
3.02 -- Amendment to Certificate of Incorporation(1)
3.03 -- Amended Bylaws(1)
4.01 -- Specimen Certificate for the Registrant's Common Stock(1)
4.02 -- Form of 12% Senior Subordinated Notes due December 31,
2000(1)
4.03 -- Form of Noteholders' Warrants to Purchase $3,000,000 of
Common Stock(1)
4.04 -- Form of Employees Options to Purchase 690,000 shares of
Common Stock(1)
4.05 -- Form of Contractual Options to Purchase 1,265,000 shares
of Common Stock(1)
4.06 -- Certificate of Designation of 10% Junior Redeemable
Convertible Preferred Stock(3)
4.07 -- Certificate of Designation of Series A Cumulative Senior
Preferred Stock(8)
4.08 -- Certificate of Designation of Series B Convertible
Preferred Stock(8)
4.09 -- Certificate of Designation of Series C Cumulative
Convertible Junior Preferred Stock(8)
4.10 -- Certificate of Designation of Series D Cumulative Junior
Preferred Stock(8)
10.01 -- Alliance Agreement between IWC Services, Inc. and
Halliburton Energy Services, a division of Halliburton
Company(1)
10.02 -- Executive Employment Agreement of Larry H. Ramming(1)
10.03 -- Executive Employment Agreement of Raymond Henry(1)
10.04 -- Executive Employment Agreement of Brian Krause(1)
10.05 -- Executive Employment Agreement of Richard Hatteberg(1)
10.06 -- Executive Employment Agreement of Danny Clayton(1)
10.07 -- Security Agreement and Financing Statement with Main
Street/Geneva(2)
10.08 -- First Amendment to Security Agreement (assigned to
Prudential)(2)
10.09 -- Stock Pledge Agreement with Main Street/Geneva (assigned
to Prudential)(2)
10.10 -- First Amendment to Stock Pledge Agreement (assigned to
Prudential)(2)
</TABLE>
20
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<CAPTION>
EXHIBIT
NO. DOCUMENT
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10.11 -- Form of Warrant issued to Main Street/Geneva(2)
10.12 -- Form of Registration Rights Agreement with Main
Street/Geneva(2)
10.13 -- Form of First Amendment to Registration Rights
Agreement(2)
10.14 -- 1997 Incentive Stock Plan(2)
10.15 -- Outside Directors' Option Plan(2)
10.16 -- Executive Compensation Plan(2)
10.17 -- Halliburton Center Sublease(2)
10.18 -- Camac Plaza Sublease(2)
10.19 -- Senior Loan Agreement dated July 6, 1998, between Boots &
Coots International Well Control, Inc., and Prudential
Securities Credit Corporation(4)
10.20 -- First Amendment to Senior Loan Agreement (Bridge
Facility) dated July 23, 1998, between Boots & Coots
International Well Control, Inc., and The Prudential
Insurance Company of America(4)
10.21 -- Subordinated Note and Warrant Purchase Agreement dated
July 23, 1998, between Boots & Coots International Well
Control, Inc., and The Prudential Insurance Company of
America(4)
10.22 -- Registration Rights Agreement dated July 23, 1998,
between Boots & Coots International Well Control, Inc.,
and The Prudential Insurance Company of America(4)
10.23 -- Participation Rights Agreement dated July 23, 1998, by
and among Boots & Coots International Well Control, Inc.
The Prudential Insurance Company of America and certain
stockholders of Boots & Coots International Well Control,
Inc.(4)
10.24 -- Common Stock Purchase Warrant dated July 23, 1998(4)
10.25 -- Loan Agreement dated October 28, 1998, between Boots &
Coots International Well Control, Inc. and Comerica
Bank -- Texas(5)
10.26 -- Security Agreement dated October 28, 1998, between Boots
& Coots International Well Control, Inc. and Comerica
Bank -- Texas(5)
10.27 -- Amendment No. 1 to Subordinated Note and Warrant Purchase
Agreement between Boots & Coots International Well
Control, Inc., and The Prudential Insurance Company of
America(5)
10.28 -- Executive Employment Agreement of H. B. Payne, Jr.(6)
10.29 -- Executive Employment Agreement of Jerry Winchester(6)
10.30 -- Executive Employment Agreement of Dewitt Edwards(6)
10.31 -- Office Lease(6)
10.33 -- Executive Employment Agreement of Larry H. Ramming(7)
10.34 -- Executive Employment Agreement of Thomas L. Easley(7)
10.35 -- Forbearance Agreement dated December 21, 1999, between
Boots & Coots International Well Control, Inc. and
Comerica Bank -- Texas(8)
10.36 -- Second Amendment to Forbearance and Extension Agreement
dated April 21, 2000, between Boots & Coots International
Well Control, Inc. and Comerica Bank -- Texas(8)
10.37 -- First Amendment to Forbearance and Extension Agreement
dated June 15, 2000, between Boots & Coots International
Well Control, Inc. and Comerica Bank -- Texas(8)
10.38 -- Third Amendment to Loan Agreement dated April 21, 2000,
between Boots & Coots International Well Control, Inc.
and Comerica Bank -- Texas(8)
10.39 -- Fourth Amendment to Loan Agreement dated May 31, 2000,
between Boots & Coots International Well Control, Inc.
and Comerica Bank -- Texas(8)
</TABLE>
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NO. DOCUMENT
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10.40 -- Fifth Amendment to Loan Agreement dated May 31, 2000,
between Boots & Coots International Well Control, Inc.
and Comerica Bank -- Texas(8)
10.41 -- Sixth Amendment to Loan Agreement dated June 15, 2000,
between Boots & Coots International Well Control, Inc.
and Comerica Bank -- Texas(8)
10.42 -- Preferred Stock and Warrant Purchase Agreement, dated
April 15, 1999, between Boots & Coots International Well
Control, Inc. and Halliburton Energy Services, Inc.(8)
10.43 -- Letter of Engagement, dated April 10, 2000, between Boots
& Coots International Well Control, Inc. and Maroon Bells
Capital, Inc.(8)
10.44 -- Warrant to Purchase Common Stock, dated March 20, 2000,
between Boots & Coots International Well Control, Inc.
and the Donald and Shelley Moorehead Charitable Trust.(8)
10.45 -- Settlement Agreement, dated March 20, 2000, between Boots
& Coots International Well Control, Inc. and the Donald
and Shelley Moorehead Charitable Trust.(8)
27.01 -- Financial Data Schedule*
</TABLE>
* Filed herewith.
---------------
(1) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 13, 1997.
(2) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-KSB for the six-month transition period ended
December 31, 1997 filed with the Commission on March 31, 1998.
(3) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-QSB for the quarter ended March 31, 1998,
filed with the Commission on May 19, 1998.
(4) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 8-K filed with the Commission on August 7, 1998.
(5) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Form 10-Q filed with the Commission on November 16, 1998.
(6) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-K for the year ended December 31, 1998, filed
with the Commission on April 15, 1999.
(7) Incorporated herein by reference to the corresponding exhibit in the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1999, filed
with the Commission on August 12, 1999.
(8) Incorporated herein by reference to the corresponding exhibit in the
registrant's report on Form 10-K for the year ended December 31, 1999, filed
with the Commission on July 17, 2000.
(b) Reports on Form 8-K.
The Company reported on Form 8-K filed May 30, 2000, that its
subsidiary, ITS Supply Corporation ("ITS") had filed in Corpus Christi,
Texas, for protection under Chapter XI of the U.S. Bankruptcy Code. A
decision was made in December 1999 to sell or in the alternative
discontinue the Company's materials and equipment procurement and logistics
services conducted through ITS. In April 2000, substantially all
prospective operations were ceased and the majority of the employees were
terminated pursuant to a reduction in workforce. As a result of ongoing
operating losses, a shortage of working capital and the absence of a viable
purchaser for ITS' operations, on May 18, 2000, ITS filed for protection
under Chapter XI of the U.S. Bankruptcy Code.
22
<PAGE> 23
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/ LARRY H. RAMMING
----------------------------------
Larry H. Ramming
Chief Executive Officer
(Principal Financial and
Accounting Officer)
Date: July 17, 2000
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
*27.01 -- Financial Data Schedule
</TABLE>
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* Filed herewith.
