SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Mark One:
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 31,
1996; or
|_| Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
__________ to __________.
COMMISSION FILE NO. 0-18754
BLACK WARRIOR WIRELINE CORP.
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(Name of Small Business Issuer in its Charter)
DELAWARE 11-2904094
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3748 HIGHWAY #45 NORTH, COLUMBUS, MISSISSIPPI 39701
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(Address of Principal Executive Offices) (Zip Code)
(601) 329-1047
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
(Title of Each Class)
COMMON STOCK, PAR VALUE, $.0005 PER SHARE
Check whether the Issue (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety (90) days.
|X| Yes |_| No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB. |_|
State Issuer's revenues for its most recent fiscal year: $7,582,021
State the aggregate market value of the voting stock held by
non-affiliates as of February 28, 1997:
COMMON STOCK, PAR VALUE $.0005 PER SHARE, $4,247,730
(Non-affiliates have been determined on the basis of holdings set forth
under Item 11 of this Annual Report on Form 10-KSB.)
Indicate the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
Class: COMMON STOCK, PAR VALUE $.0005 PER SHARE
Outstanding at March 25, 1997: 2,185,216 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on Form
10-KSB
Transitional Small Business Issuer Format: |_| Yes |X| No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Black Warrior Wireline Corp. (the "Company") is an oil and gas service
company currently providing various services to oil and gas well operators
primarily in the Black Warrior Basin in Alabama and Mississippi, the Permian
Basin in Texas and New Mexico, the Powder River and Green River Basins in
Wyoming and Montana, and the Williston Basin in North Dakota. The Company's
principal sources of revenue include (a) providing electric wireline logging and
directional drilling services, (b) providing completion and workover services
and (c) sales, rentals and service of wireline and completion tools and
equipment. At March 31, 1997, the Company owned 27 operational motor vehicle
mounted wireline units, of which five are equipped with a state-of-the-art
computer system, six are DRS computer equipped (an earlier generation computer
system) and 16 are analog equipped. Also as of March 31, 1997, it owned seven
workover rigs.
Since 1995, the Company has undertaken a realignment of its activities
to provide services where it believes it maintains or will have a competitive
advantage. As a result of this realignment, the Company, in addition to
providing wireline, tool and workover services in the Black Warrior Basin of
Alabama and Mississippi, also provides services in the Permian Basin in
northwest Texas and New Mexico and, with the recent acquisition of DynaJet,
Inc., it has expanded into the Rocky Mountain region. The oil and gas industry
has experienced a significant increase in drilling and workover activity which
has stimulated this realignment of the Company's activities. This increase is
the result of the combination of improved oil and gas prices and advances in
technology. The technological advances in 3-D seismic and directional drilling
in particular have had an impact. The Company continues to seek to expand the
services it provides in other areas.
The Company also continues to explore new markets and services which it
believes will be beneficial. The Company is actively seeking to expand its
directional drilling services by providing downhole steering tools in addition
to hoisting services. Directional drilling entails entering a producing zone
horizontally, using specialized drilling equipment, which expands the area of
interface of hydrocarbons and thereby greatly enhancing recoverability. This
area of business is intended to enable the Company to enlarge its customer base
by providing steering services to other drilling contractors which do not have
"in house" steering tools. Another area which the Company intends to expand is
tubing conveyed perforating. The Company is providing this service in Alabama
and Mississippi and plans to expand this service throughout its operational
areas.
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In February 1996, the Company established a capability to assemble and
install wireline service equipment on motor vehicles. Initially this capability
was established to provide equipment to fulfill the Company's requirements and
is currently intended to be utilized to make available such equipment for sale
to others in the industry. The Company is equipping these vehicles with a
state-of-the-art computer system. Revenues from this business area to date have
not been material.
On November 19, 1996, pursuant to an agreement entered into on that
date, the Company acquired all of the issued and outstanding capital stock of
DynaJet, Inc., a Wyoming corporation ("DynaJet"). DynaJet has been engaged in
the wireline and oil and gas well services business in the Gillette, Wyoming
area, for more than eighteen years. Its service area includes the states of
Wyoming, South Dakota, Montana and New Mexico. The capital stock was acquired
for an aggregate purchase price of approximately $758,000. DynaJet's operating
assets consisted of eight wireline trucks and related equipment, two 80-foot
mast trucks, three pickup trucks, a utility van and assorted other trailers,
tools and equipment. DynaJet's assets also include two parcels of real estate
located in Gillette, Wyoming aggregating approximately 7-1/2 acres presently
used for offices, a workshop and storage which are intended to be sold by the
Company.
On January 27, 1997, the Company entered into a letter of intent to
acquire the outstanding stock of Production Well Services Co., Inc. ("PWS"),
which provides wireline services in southern Mississippi in the Mississippi Salt
Dome Basin. The letter of intent, which is subject to, among other conditions,
the completion of a due diligence review by the Company and the preparation and
execution of a definitive acquisition agreement, provides for a cash purchase
price of $540,000 plus the issuance of an option to purchase 100,000 shares of
Common Stock. The letter of intent further provides that PWS' indebtedness at
the closing of the transaction will not exceed $112,500. The letter of intent
provides the transaction is to be completed on or before May 28,1997.
In addition, the Company entered into a letter of intent on March 26,
1997 to acquire all of the outstanding stock of Petro-Log, Inc. ("Petro-Log"),
which provides wireline services in the states of Wyoming, Montana, and South
Dakota. The letter of intent, which is subject to completion of a due diligence
review by the Company and the preparation and execution of a definitive
agreement, among other conditions, provides for a cash purchase price of
$2,350,000, including related expenses.. Excluded from the acquisition are the
cash and receivables and real estate of Petro-Log. The letter of intent also
excludes Petro-Log's payables from the transaction and provides that Petro-Log
will have no other liabilities at the closing of the transaction. Petro-Log's
assets include 17 wireline trucks, one offshore wireline skid, grease injection,
mast, and crane trucks, tool trucks, trailers and forklifts, pressure control
equipment, logging equipment
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and tools and other equipment. The letter of intent provides that the
transaction is to be completed on or before June 1, 1997.
Both of the foregoing transactions are subject to the availability of
financing for the cash portion of the purchase price which financing is not
currently available to the Company. See "Acquisition Financing".
The Company abandoned its efforts to establish a base of operations in
the Middle East in the first half of 1995 and its operations are currently
conducted exclusively in the continental United States.
The Company was incorporated under the laws of the State of Delaware in
1987 under the name Teletek, Ltd. and, after completing an initial public
offering of securities, on June 22, 1989, Teletek, Ltd. merged with Black
Warrior Wireline Corp. ("Black Warrior Alabama") and concurrently changed its
name to Black Warrior Wireline Corp. Black Warrior Alabama and its predecessors
were engaged primarily in providing electric wireline and other oil and gas
support services since 1984.
ACQUISITION STRATEGY
In addition to the DynaJet acquisition and the proposed PWS and
Petro-Log acquisitions described above, the Company is seeking to expand its
wireline and other oil and gas service areas by completing strategic
acquisitions of other companies engaged in such activities. Currently several
such acquisitions are being explored and negotiations with respect to such
transactions are ongoing; however, the Company has no definitive agreements to
acquire any additional wireline companies. There can be no assurance that the
Company will be able to acquire additional wireline companies or that any such
acquisitions will be beneficial to the Company. The process of integrating
acquired properties, including the proposed acquisitions described above, into
the Company's operations may result in unforeseen difficulties and may require a
disproportionate amount of management's attention and the Company's resources.
In connection with acquisitions, the Company could become subject to significant
contingent liabilities arising from the activities of the acquired companies to
the extent the Company assumes, or an acquired entity becomes liable for,
unknown or contingent liabilities or in the event that such liabilities are
imposed on the Company under theories of successor liability.
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ACQUISITION FINANCING
The Company intends to fund its acquisition activities, including the
PWS and Petro-Log acquisitions, using cash flow from its current operations as
well as the possible proceeds from secured lending from banks or other
institutional lenders and the private or public sale of debt and equity
securities. The Company is currently seeking to raise additional capital to fund
its proposed PWS and Petro-Log acquisitions as well as its other proposed
acquisition activities,but it has not yet obtained such financing or entered
into any definitive arrangements with respect thereto. Any such capital that is
raised will be on terms yet to be negotiated and may be on terms that dilute the
interests of current stockholders of the Company. Loans may be collateralized by
all or a substantial portion of the Company's assets. There can be no assurance
that the Company will raise additional capital when it is required to complete
any proposed acquisitions or that the Company will have or be able to raise
sufficient capital to fund its acquisition strategy.
RECENT DEBT RESTRUCTURING
In November 1995, the Company executed Reorganization Agreements with
the holders of an aggregate of $1,922,130 principal amount of outstanding
debentures and indebtedness pursuant to which the debentures and indebtedness
were agreed to be exchanged for an aggregate of 961,065 shares of the Company's
Common Stock. In addition, pursuant to such agreements, Common Stock Purchase
Warrants of the Company were to be exchanged with the debentureholders for two
new classes of Common Stock Purchase Warrants. Each class of new warrants was to
represent the right to purchase an aggregate of 183,750 shares of Common Stock.
The Class A warrants were to be exercisable at $3.00 per share for a period of
four (4) years and the Class B warrants were to be exercisable at prices
increasing in annual increments over the first three (3) years after issuance
from $3.00 per share to $5.00 per share and were to expire five (5) years after
issuance. Through December 31, 1995, an aggregate of $1,353,380 principal amount
of debentures and indebtedness was exchanged for 648,151 shares of Common Stock
and the remaining $568,750 of debentures to be exchanged pursuant to the
agreements executed in November 1995 was subject to the fulfillment of certain
closing conditions. Issuance of the warrants was not completed in 1995. In
September and October 1996, the holders of an additional $800,000 principal
amount of Debentures executed Reorganization Agreements and the Reorganization
Agreements entered into in November 1995 were amended so as to provide that in
lieu of the issuance of the Class A warrants, an aggregate of 101,250 shares of
Common Stock would be issued and the exercise price of the Class B warrants
would be reduced to $2.00 per share throughout the five-year term of such
warrants. During 1996, $1,368,750 principal amount of indebtedness was exchanged
for an aggregate of 712,914 shares of Common Stock
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and an aggregate of 303,750 Class B warrants were issued. In addition, an
aggregate of 101,250 shares of Common Stock were issued in exchange for the
Company's obligation to issue the Class A warrants. Pursuant to all such
agreements, an aggregate of $2,071,357 of accrued interest and penalties were
waived by the debenture holders.
In connection with the foregoing restructuring, the Company effected a
1-for-200 reverse stock split on October 30, 1995.
GLOSSARY OF INDUSTRY TERMS
The following are definitions of certain technical terms used in this
Annual Report relating to the Company's business:
"CASING" Steel pipe lowered into the drilled hole (borehole) to prevent
"caving in" and to provide isolation of zones and permit production of
hydrocarbons
"CASED HOLE" The drilled hole after casing has been lowered and
cemented in place.
"DOWNHOLE" Any part of the borehole below the ground surface.
"JUNK BASKET" A mechanical device lowered into the borehole with
wireline to remove extraneous or unwanted debris. A guage ring is run
simultaneously to check conformity of hole size.
"CEMENT BOND LOG" A cement quality and bonding evaluation performed
with sonic transmitters and receivers lowered into the borehole with wireline.
This survey is recorded by surface computers.
"LOGS" (a) Open Hole: The measurement of properties of formations to
determine hydrocarbon bearing characteristics. Open hole logs are mainly
radioactive (porosity) and electric (resistivity).
(b) Cased Hole: The measurement of gamma ray (different
formations have different levels), casing collars (joints in casing) for
correlation to open hole depths, and cement quality and bonding. Porosity logs
can be run in cased holes with Compensation Neutron Tools.
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"RIGS" (a) A drilling rig is one which drills the borehole. This rig
normally is used for setting the casing in the borehole.
(b) A completion or workover rig is used to position tubing,
pumps and other production equipment in the cased hole. As the name plies, this
is used for subsequent "workover" or remedial service.
"WINCH UNIT" A powerful machine with one or more drums on which to coil
a cable or chain for hauling or hoisting.
"WORKOVER" Operations pertaining to work on wells previously placed in
production but needing additional work in order to restore or increase
production.
ELECTRIC WIRELINE AND DIRECTIONAL DRILLING SERVICES
The Company's electric wireline logging service and directional
drilling activities contributed revenues of $5,584,754 (approximately 74% of net
revenues) in 1996, $4,625,744 (approximately 74% of net revenues) in 1995,
$4,275,433 (approximately 70% of net revenues) in 1994.
Electric wireline logging services are used to evaluate downhole
conditions at various stages of the process of drilling and completing oil and
gas wells as well as at various times thereafter until the well is depleted and
abandoned. Such services are provided using a truck-mounted wireline unit
equipped with an armored cable that is lowered by winch into an existing well.
The cable, which contains one or more electrical conductors, lowers instruments
and tools into the existing well to perform a variety of services and tests. The
wireline unit's truck-mounted instrument cab contains both computerized and
electronic equipment to supply power to the downhole instruments, to receive and
record data from those instruments in order to produce the "logs" which define
specific characteristics of each formation and to display the data received from
downhole. The Company's wireline units are equipped with state-of-the-art
computerized systems, DRS computerized systems (which is an earlier generation
computerized system) or analog equipment.
Open hole wireline services are performed after the drilling of the
well but prior to its completion. Cased hole wireline services are performed
during and after the completion of the well, as well as from time to time
thereafter during the life of the well. The Company's services primarily relate
to providing cased hole wireline services. Cased hole services include
radioactive and acoustic logging used to evaluate downhole conditions such as
lithology, porosity,
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production patterns and the cement bonding effectiveness between the casing and
the formation. Other cased hole services include perforating, which opens up the
casing to allow production from the formation(s), and free-point and back-off,
which locates and frees pipe that has become lodged in the well. Cased hole
services are used in the initial completion of the well and in virtually all
subsequent workover and stimulation projects throughout the life of the well.
The Company performs these services on a contract basis at the well site for
operators and producers of the wells primarily on a bid basis at prices related
to Company standard prices
The Company's cased hole wireline services include the following, some
or all of which may be performed on an existing well from time to time:
(1) Cement Bond Logs
(2) Gamma Ray Logs
(3) Neutron or Compensated Neutron Logs
(4) Casing Collar Logs
(5) Free-Point, Back-Off Services
(6) Perforating
(7) Plug and Packer Setting
(8) Acid Spotting (with Bailer)
(9) Sand Dumping (with Bailer)
(10) Junk Catcher with Gauge Ring
(11) Steering Tool Services
(12) Casing Inspection Services
(13) Segmented Cement Bond Logs
(14) Correlating Tubing Conveyed Perforating
These services are routinely provided to the Company's customers and
are subject to the customers' time schedule, weather conditions, availability of
Company personnel and complexity of the drilling. These procedures generally
take approximately one to one-and-one-half days to perform.
The Company currently owns 27 wireline units. Of these, five are
state-of-the-art computer equipped, six are DRS computer equipped (an earlier
generation computer system) and 16 are analog equipped. The Company anticipates
placing two more state-of-the-art computer equipped units into service in the
first half of 1997. In October the Company used $310,000 of the proceeds from
the private placement to order the latest generation of cement bond and casing
inspection tools which it anticipates will be delivered in the first quarter of
1997. The
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Company's state-of-the-art computer systems will enable the Company to take full
advantage of the capabilities of these tools.
The Company also owns seven truck-mounted cranes which are primarily
used for completion and remedial services where a workover or completion rig is
not required. Charges for these cranes are on a per diem basis.
Directional drilling entails entering a producing zone horizontally,
using specialized drilling equipment, which expands the area of interface of
hydrocarbons and thereby greatly enhancing recoverability. This area of business
is intended to enable the Company to enlarge is customer base by providing
steering services to other drilling contractors which do not have "in house"
steering tools.
COMPLETION AND WORKOVER SERVICES
The Company provides completion and workover services to oil and gas
companies in the Black Warrior Basin. These activities contributed revenues of
$1,709,265 (approximately 22% of net revenues) in 1996, $1,324,095
(approximately 21% of net revenues) in 1995, and $1,464,815 (approximately 24%
of net revenues) in 1994. These services are performed primarily on an hourly
basis.
Workover services include those operations performed on wells when
originally completed and on wells previously placed in production and requiring
additional work to restore or increase production. A completion or workover rig
is used to position tubing, pumps and other production equipment in a cased
hole. The unit is used for the initial completion of the well and subsequent
workover and remedial service. A completion or workover rig is generally a four
to six axle truck-mounted hoist unit with a 60 to 90 foot derrick capable of
lowering and hoisting up to 300,000 pound loads. The Company expects its
workover equipment to be fully utilized by existing customers in 1997 and is
exploring opportunities to expand this source of revenue.
TOOLS AND EQUIPMENT
The Company's third current source of revenue involves the sale, rental
and service of tools and equipment used in the oil field services industry.
These activities contributed revenues of $288,003 (approximately 4% of net
revenues) in 1996, $229,379 (approximately 4% of net revenues) in 1995, and
$333,952 (approximately 6% of net revenues) in 1994. The division
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began when the Company became the Black Warrior Basin distributor for Arrow Oil
Tools. The primary products sold or rented by the Company include Arrow tools
and packers. Other items sold or rented include high pressure valves, tubing and
tubing equipment and wireline set tools.
The tool and equipment division activities are incidental to the
wireline and workover services provided by the Company. Tool and equipment
inventory is replenished on an as-needed basis. Most of the Company's inventory
is purchased from a variety of manufacturers, and some used tools and equipment
are purchased at auction. The Company attempts to maintain in its inventory the
brands which are popular among operators in the geographic areas it serves. The
Company's customers include, among others, Taurus Exploration, Inc., Chevron
USA, Amoco Production Co., and Kukui Operating Co.
The Company also conducts extensive tool and equipment inspection,
maintenance and testing services. Rubber goods, gaskets, seats and seals are
disassembled, cleaned, inspected, replaced if necessary, reassembled and tested.
Packers and tubing rented by the Company are reconditioned and returned to the
Company's rental inventory.
PRINCIPAL CUSTOMERS AND MARKETING
During the years ended December 31, 1996 and December 31, 1995, three
customers accounted for a total of approximately 63.8% and 61.6%, respectively,
of the Company's net revenues. During the year ended December 31, 1994, two
customers accounted for approximately 41.1% of the Company's net revenues. The
Company serviced an average of 80 customers per year during the three years
ended December 31, 1996. The Company's principal customers and the percentage of
the Company's net revenues received from each of such customers during the three
years ended December 31, 1996 are as follows:
1996 1995 1994
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Taurus Exploration, Inc. 25.3% 31.1% 30.3%
Parker and Parsley Development Company 23.7% 12.5% 10.8%
Phoenix Drilling Services 14.8% 18.0% *
--------- ---------- ---------
TOTALS 63.8% 61.6% 41.1%
========= ========== =========
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* Less than 10%
The Company does not have any long-term agreements with any of such
customers and services are provided pursuant to short-term agreements negotiated
by the Company with the customer. The Company expects that its three principal
customers will each continue to provide
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in excess of 10% of the Company's net revenues during the year ended December
31, 1997. Although the Company has had a long-term relationship with Taurus
Exploration, Inc. and believes that it maintains satisfactory relationships with
each of these three customers, the loss of any of these customers could have a
material effect on the Company's revenues.
The Company's services are marketed principally by its executive
officers and the Company relies on its reputation in the industry to create
customer awareness of its services. Generally, the Company experiences lower
revenues during the first calendar quarter of each year than it experiences in
other quarters due to adverse weather affecting working conditions.
SERVICES TO CONVENTIONAL AND NON-CONVENTIONAL FUEL SECTOR
The Company provides its electric wireline and workover services to
both the conventional and non-conventional fuel sectors. The non-conventional
fuel sector is generally considered to include hydrocarbon production from coal
bed methane gas wells with the conventional fuel sector generally considered to
be all other oil and gas production. The Company is seeking to increase the
focus of its activities on providing services to operators of conventional fuel
wells and has implemented a marketing strategy to increase its revenues from
this source in certain key market areas including, among others, the Permian
Basin in Texas and New Mexico. With the completion of the acquisition of DynaJet
in November 1996, the Company is expanding its conventional services into the
states of Wyoming, South Dakota, Montana and New Mexico and will continue to
seek other opportunities for expansion in other areas.
The Company's revenues from the non-conventional fuel sector, which are
primarily derived from activities in the Black Warrior Basin in Alabama and
Mississippi, increased in activity in 1989, 1990, and most of 1991 due to
government incentives in the form of tax credits associated with the production
of coal bed methane gas. Although these tax incentives have expired for the
drilling and initial completion of wells, the incentives continue for remedial
services (on wells completed prior to the expiration date) until the year 2011.
Since the curtailment of these incentives, activity in this area has declined to
a level which management believes should remain stable for some time. Prices
have improved and the Company is gaining market share as smaller service
suppliers have left the area. The Company anticipates that revenues from
services provided to the non-conventional sector will remain stable in 1997 and
the foreseeable future.
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The percentage of the Company's net revenues from the conventional and
non-conventional fuel sectors for each of the three years ended December 31,
1996 were as follows:
1996 1995 1994
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Conventional 60% 58% 57%
Non-Conventional 40% 42% 43%
OPERATING HAZARDS AND INSURANCE
The services of the Company are used in oil and gas well drilling,
workover and production operations that are subject to inherent risks such as
blow-outs, fires, poisonous gas and other oil and gas field hazards, many of
which can cause personal injury and loss of life, severely damage or destroy
equipment, suspend production operations and cause substantial damage to
property of others. Ordinarily, the operator of the well assumes the risk of
damage to the well, the producing reservoir and surrounding property and revenue
loss in the event of accident, except in the case of gross or willful negligence
on the part of the Company or its employees.
The Company has general liability, property damage and workers'
compensation insurance. Although, in the opinion of the Company's management,
the limits of its insurance coverage are consistent with industry practices,
such insurance may not be adequate to protect the Company against liability or
losses occurring from all the consequences of such risks or incidents. The
occurrence of an event not fully covered by insurance (and a determination of
the liability of Company for consequential losses or damages) could result in
substantial losses to the Company and have a materially adverse effect upon its
financial condition, results of operations, and cash flows.
The Company maintains two policies totaling $2,000,000 on the life of
William L. Jenkins, its President and Chief Operating Officer, and maintains
$1,000,000 policies on the lives of each of Danny Thornton and Allen Neel, both
Vice-Presidents. See Item 9, "Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act." The
benefits under such policies are payable to the Company.
BUSINESS ENVIRONMENT
The business of the Company is affected by the general demand in the
economy for petroleum products; availability of drilling rigs, casing and other
necessary goods and services; revision in governmental policies with respect to
oil and natural gas imports and other factors
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affecting potential competition from foreign sources of oil and natural gas; and
state conservation commission regulations affecting allowable rates of
production, well spacing and other factors. Oil and gas prices continue to have
moderate fluctuations increasing the overall instability of the market.
The low prices for oil and gas that have depressed the industry in
recent years have moderated recently. With this stability has come an increase
in activity throughout the industry. The industry continues to realign itself
with major oil companies selling properties to independent producers. While this
will continue to provide new opportunities for the Company, there can be no
assurance that these trends will continue or that the Company will benefit from
these developments.
COMPETITION
Most of the Company's competitors are divisions of larger diversified
corporations which offer a wide range of oil field services. Its chief
competitors include Halliburton Company and Schlumberger, Ltd., as well as a
number of other companies active in the industry. These competitors have
substantially greater economic resources than the Company. Competition
principally occurs in the areas of technology, quality of products and field
personnel, equipment availability, facility locations and price. The industry
has seen an extended period of price competition. Deep discounts are commonplace
and are expected in the industry. The Company continues to make a conscious
effort to compete, not just on price, but on its ability to offer advanced
technology, experienced personnel, and a safe working environment.
The Company's growth is dependent upon its ability to attract and
retain skilled oil field and management personnel. The competition for such
qualified employees is intense and there can be no assurance that sufficient
qualified persons will be available at such times as the Company requires their
services.
REGULATION
The oil and gas business is a heavily regulated industry. The Company's
activities are subject to various licensing requirements and minimum safety
procedures and specifications, anti-pollution controls on equipment, waste
discharge and other environmental and conservation requirements imposed by
federal and state regulatory authorities. Serious penalties and fines are
imposed for violations from such directives and violations could result in the
loss of licenses and other penal proceedings.
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The Company is not currently the subject of any, nor is it aware of
any, threatened investigations or actions under any federal or state
environmental, occupational safety or other regulatory laws. The Company
believes that it will be able to continue compliance with such laws and
regulations without a material adverse effect on its earnings and competitive
position. However, there can be no assurance that unknown future changes in such
laws and regulations would not have such an effect if and when such changes
occur.
EMPLOYEES
As of March 28, 1997, the Company employed 110 persons, 98 of whom were
full-time employees and 12 of whom were part-time employees. Of the Company's 98
full-time employees, nine are management personnel, seven are administrative
personnel and 82 are operational personnel. Seven of the Company's employees are
employed at the Company's headquarters in Columbus, Mississippi and the
Company's other employees are located primarily in the Black Warrior Basin and
the Permian Basin service areas. None of the Company's employees is represented
by a labor union, and the Company is not aware of any current activities to
unionize its employees. Management of the Company considers the relationship
between the Company and its employees to be good.
The Company has a three-year employment agreement with William L.
Jenkins, its President, Chief Operating Officer and a Director and stockholder
of the Company. The Company also has employment agreements with Danny Ray
Thornton and Allen Neel, Vice-Presidents of the Company. The Company's success
is currently dependent upon the efforts of these individuals, and the loss of
the services of any of these individuals could have a material adverse effect on
the Company's business, unless a qualified replacement can be obtained by the
Company. See Item 9, "Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act." The Company relies
substantially on their efforts to expand its services and for its marketing and
sales activities. If the Company is unable to continue to contract for these
services, or if these services are lost for any reason in the future, the
Company will be substantially and adversely affected.
ITEM 2. PROPERTIES
The Company leases 6,500 square feet of office space in Columbus,
Mississippi for a five-year term expiring on September 30, 2001 for its
executive offices. The monthly rental is
13
<PAGE>
$1,900, plus electric and gas utilities. The Company also leases a maintenance
area in Tuscaloosa, Alabama of approximately 5,000 square feet under a one-year
lease at $1,700 per month. In addition, the Company leases shop sites and
maintenance areas in Odessa, Texas (22,000 square feet at $2,750 per month),
Hobbs, New Mexico (10,000 square feet at $1,800 per month), Brownfield, Texas
(6,500 square feet at $1,850 per month) and Laurel, Mississippi (8,000 square
feet at $1,750 per month).
Included in the assets acquired from DynaJet are two parcels of real
estate located in Gillette, Wyoming aggregating approximately 7 1/2 acres,
presently used for offices, a workshop and storage, which are intended to be
sold by the Company.
The Company owns 27 electrical wireline service trucks and 7 workover
rigs, all of which are operational. The Company believes that all of its
properties and mobile electric wireline equipment are well maintained and
suitable for their intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is its property the subject of, any
material legal proceedings other than ordinary routine litigation incidental to
its business, or which is covered by insurance. See Note 17 to Notes to
Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1996, to a vote of security holders of the Company, through
the solicitation of proxies, or otherwise.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is quoted in the NASDAQ OTC Bulletin Board
under the trading symbol BWWL. The following table sets forth the bid prices for
the Company's Common Stock for the periods indicated (adjusted for the 1-for-200
reverse stock split of the outstanding shares of the Company's Common Stock
effectuated on October 30, 1995) as provided by the NASDAQ OTC Bulletin Board:
BID PRICES
1995 HIGH LOW
- ----------------------------------------------------------------------------
First Quarter $6.25 $4.00
Second Quarter $10.00 $4.00
Third Quarter $8.00 $6.00
Fourth Quarter $6.00 $6.00
BID PRICES
1996 HIGH LOW
- ----------------------------------------------------------------------------
First Quarter $6.50 $2.00
Second Quarter $6.50 $4.00
Third Quarter $6.50 $1.06
Fourth Quarter $4.55 $1.75
The foregoing amounts represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions, and do not represent
the prices of actual transactions. On February 28, 1997, the closing bid
quotation for the Common Stock, as reported by the NASDAQ OTC Bulletin Board,
was $3.00.
As of December 31, 1996, the Company had approximately 345 shareholders
of record. The Company has never paid a cash dividend on its Common Stock and
management has no present intention of commencing to pay dividends.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INDUSTRY OVERVIEW AND ECONOMIC FACTORS IMPACTING COMPANY OPERATIONS
The level of activity and profitability experienced by the Company is
directly related to the demand for the Company's services by the domestic oil
and gas industry. The market price of oil and natural gas is the principal
factor driving this demand. In recent years, there have been some periods of
relative price stability but only isolated areas of real growth. In 1996,
however, most of the industry experienced some growth in demand and pricing.
Management of the Company believes that the continuing stability of domestic oil
prices and relatively high gas prices should help continue this trend in 1997.
Increased demand for the services provided by the Company and its
competitors coupled with a general consolidation in the service sector has
reduced downward pressure on pricing. This has led to a reduction in "predatory"
pricing used by some companies to increase market share and helped improve
overall margins. The Company believes that further improvements in pricing will
be seen in 1997 as this trend continues. The Company plans to continue its
marketing policy which stresses the safety, reliability, technological advantage
and overall quality of its services. Management believes that an increasing
number of customers consider these factors foremost in their selection criteria
for a service company.
The Company intends, as and if opportunities arise, to aggressively
seek to expand its wireline and other service areas through the acquisition of
other oil and gas service companies that meet its strategic goals. In addition
to the pending transactions with PWS and Petro-Log described herein, several
such transactions throughout the domestic market are currently being explored to
meet this goal. The Company will continue to re-deploy its assets to areas that
are most beneficial to the long-term growth of the Company.
The Company is actively seeking to expand its directional drilling
services by providing downhole steering tools in addition to hoisting services.
Directional drilling entails entering a production zone horizontally, using
specialized drilling equipment, which expands the area of interface of
hydrocarbons and thereby greatly enhancing recoverability. This area of business
is intended to enable the Company to enlarge its customer base by providing
steering services to other drilling contractors which do not have "in house"
steering tools. Another area which the Company intends to expand is tubing
conveyed perforating. The Company is providing this service in Alabama and
Mississippi and plans to expand this service throughout its operational areas.
16
<PAGE>
The Company has purchased state of the art downhole tools including a
segmented bond and magnetic and 40-arm casing inspection tools which it expects
to receive in the Spring of 1997. This acquisition will enable the Company to
provide services unavailable from other smaller wireline company competitors and
thereby enable the Company to provide services in a less price competitive
environment.
TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
The Company had income before extraordinary gain of $427,438 for the
year ended December 31, 1996, as compared to a loss before extraordinary gain of
$545,562 in 1995. After reflecting the extraordinary gain on extinguishment of
debt, net of income taxes, in both 1996 and 1995, the Company experienced net
income of $2,035,939 for the year ended December 31, 1996, as opposed to a net
loss of $158,149 for 1995.
Revenues increased by $1,402,803 to $7,582,021 for the year ended
December 31, 1996 primarily as a result of the overall increase in the market
and improved pricing. Tools and packer sales are closely related to activity in
the Black Warrior Basin and showed an increase of $58,624 from 1995. Revenues by
business line are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
- ----------------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Wireline Services (logging, $5,584,753 $4,625,744 $4,275,433
perforating, crane rental and
directional drilling services)
Completion (workover and $1,709,265 $1,324,095 $1,464,815
pump sales)
Tools and Packers (sales and $ 288,003 $ 229,379 $ 333,952
rentals of bridge plugs and
packers)
-------------------------- ------------------------- -------------------------
$7,582,021 $6,179,218 $6,074,200
========================== ========================= =========================
</TABLE>
17
<PAGE>
Wireline services in the Black Warrior Basin and Permian Basin increased
$959,009 during 1996. The increase was primarily in the Permian Basin and was
attributable to increased sales in conventional and directional drilling
services. Revenues from completion activities increased by $385,170. This
increase was primarily due to services provided in connection with the
abandonment of unproductive wells.
Cost and expenses increased by $708,951 for the year ended December 31,
1996, as compared to 1995. This increase was due primarily to the increase in
the level of activities. Salaries and benefits increased by $365,804 for 1996,
as compared to 1995, while the total number of employees increased from 82 at
December 31, 1995 to 110 at December 31, 1996. This was due to salary increases
and hiring of additional personnel. Depreciation and amortization expense
decreased by $116,201 for 1996 as compared to 1995. These decreases were due to
several items of equipment being fully depreciated in 1996. In 1996, the Company
successfully negotiated a reduction in worker's compensation rates and
explosives costs. The Company continues to monitor other expense components to
minimize overall costs.
Interest and amortization decreased by $283,793 for 1996 as compared to
1995. This was directly related to the conversion of debt into equity. See Note
7 of Notes to Consolidated Financial Statements.
The provision (benefit) for income taxes totaled $(65,715) for 1996 and
$(226,554) for 1995. These totals contain Federal and State deferred as well as
current amounts. See Note 12 of Notes to Consolidated Financial Statements. The
current federal and state tax benefits in 1995 results from the utilization of
the net operating losses generated in 1995 to offset the income tax expense
associated with the extraordinary gain on extinguishment of debt described in
Note 7 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by Company operating activities was $771,462 for the year
ended December 31, 1996 as compared to $609,218 for the year ended December 31,
1995. Investing activities of the Company used cash of $725,137 during the year
ended December 31, 1996 for the acquisition of property, plant and equipment and
another business offset by proceeds from the sale of fixed assets of $95,071.
During the year ended December 31, 1995, acquisitions of property, plant and
equipment used cash of $299,306 offset by proceeds of $120,031 from the sale of
fixed assets. Financing activities provided cash of $643,382 from the net
proceeds from the sale of shares of common stock during the year ended December
31, 1996 offset by principal payments on long-term notes and capital lease
obligations of $342,149. During the year ended
18
<PAGE>
December 31, 1995, bank and other borrowings resulted in proceeds of $41,959
offset by principal payments on long-term debt and capital lease obligations of
$227,530.
Cash at December 31, 1996 was $727,454 as compared with cash at
December 31, 1995 of $284,825.
During the year ended December 31, 1996, $1,343,750 principal amount of
notes payable and subordinated debentures was converted to common stock and
$1,514,468 of accrued interest was forgiven. The Company expended $796,930 for
the acquisition of property, plant and equipment financed under capital leases
and notes payable and incurred an additional $380,000 of notes payable in
connection with the acquisition of a business. During the year ended December
31, 1995, $1,296,302 of principal of notes payable and subordinated debentures
was converted to common stock and $57,078 of principal and $556,889 of accrued
interest was forgiven. In addition, $52,962 of accrued interest was converted
into common stock. The Company expended $371,846 during 1995 on the acquisition
of property, plant and equipment financed under capital leases and notes
payable.
In November 1995, the Company executed Reorganization Agreements with
the holders of an aggregate of $1,922,130 principal amount of outstanding
debentures and indebtedness pursuant to which the debentures and indebtedness
were agreed to be exchanged for an aggregate of 961,065 shares of the Company's
Common Stock. In addition, pursuant to such agreements, Common Stock Purchase
Warrants of the Company were to be exchanged with the debentureholders for two
new classes of Common Stock Purchase Warrants. Each class of new warrants was to
represent the right to purchase an aggregate of 183.750 shares of Common Stock.
The Class A warrants were to be exercisable at $3.00 per share for a period of
four (4) years and the Class B warrants were to be exercisable at prices
increasing in annual increments over the first three (3) years after issuance
from $3.00 per share to $5.00 per share and were to expire five (5) years after
issuance. Through December 31, 1995, an aggregate of $1,353,380 principal amount
of debentures and indebtedness was exchanged for 648,151 shares of Common Stock
and the remaining $568,750 of debentures to be exchanged pursuant to the
agreements executed in November 1995 was subject to the fulfillment of certain
closing conditions. Issuance of the warrants was not completed in 1995. In
September and October 1996, the holders of an additional $800,000 principal
amount of Debentures executed Reorganization Agreements and the Reorganization
Agreements entered into in November 1995 were amended so as to provide that in
lieu of the issuance of the Class A warrants, an aggregate of 101,250 shares of
Common Stock would be issued and the exercise price of the Class B warrants
would be reduced to $2.00 per share throughout the five-year term of such
warrants. During 1996, $1,368,750 principal amount of indebtedness was exchanged
for an aggregate of 625,414 shares of Common Stock and an aggregate of 303,750
Class B warrants were issued. In addition, an aggregate of 101,250
19
<PAGE>
shares of Common Stock were issued in exchange for the Company's obligation to
issue the Class A warrants. Pursuant to all such agreements, an aggregate of
$2,071,357 of accrued interest and penalties were waived by the debenture
holders.
In connection with the foregoing restructuring, the Company also
effected a 1-for-200 reverse stock split on October 30, 1995.
In October 1996, the Company completed a private sale of an aggregate
of 600,000 shares of Common Stock for gross proceeds of $750,000, or a price of
$1.25 per share. Approximately $288,000 of the net proceeds were used to pay a
portion of the purchase price for DynaJet and the balance was used to purchase
tools and equipment and complete construction of a wireline truck. The
purchasers of the shares were given the right to have such shares included in
any registration statement filed by the Company under the Securities Act of
1933, as amended, relating to an offering of the Company's securities provided
such persons agree, if requested by the managing underwriter of such offering,
not to sell such securities for a period of one hundred eighty (180) days after
the effective date of such registration statement.
In addition to the DynaJet acquisition described above, the Company is
seeking to expand its wireline service areas by completing strategic
acquisitions of other companies engaged in providing wireline services. On
January 27, 1997, the Company entered into a letter of intent to acquire the
outstanding stock of Production Well Services Co., Inc. ("PWS"), which provides
wireline services in southern Mississippi in the Mississippi Salt Dome Basin.
The letter of intent, which is subject to, among other conditions, the
completion of a due diligence review by the Company and the preparation and
execution of a definitive acquisition agreement, provides for a cash purchase
price of $540,000 plus the issuance of an option to purchase 100,000 shares of
Common Stock. The letter of intent further provides that PWS' indebtedness at
the closing of the transaction will not exceed $112,500. The letter of intent
provides the transaction is to be completed on or before May 28,1997.
In addition, the Company entered into a letter of intent on April 1,
1997 to acquire all of the outstanding stock of Petro-Log, Inc. ("Petro-Log"),
which provides wireline services in the states of Wyoming, Montana, and South
Dakota. The letter of intent, which is subject to completion of a due diligence
review by the Company and the preparation and execution of a definitive
agreement, among other conditions, provides for a cash purchase price of
$2,350,000, including related expenses.. Excluded from the acquisition are the
cash and receivables and real estate of Petro-Log. The letter of intent also
excludes Petro-Log's payables from the transaction and provides that Petro-Log
will have no other liabilities at the closing of the transaction. Petro-Log's
assets include 17 wireline trucks, one offshore wireline skid, grease injection,
mast, and crane trucks, tool trucks, trailers and forklifts, pressure control
equipment, logging equipment
20
<PAGE>
and tools and other equipment. The letter of intent provides that the
transaction is to be completed on or before June 1, 1997.
Both of the foregoing transactions are subject to the availability of
financing for the cash portion of the purchase price which financing is not
currently available to the Company.
Currently several additional acquisitions are being explored and
negotiations with respect to such transactions are ongoing; however, the Company
has no definitive agreements to acquire any additional wireline companies. There
can be no assurance that the Company will be able to acquire additional wireline
companies, including the PWS and Petro-Log with which it has entered into
letters of intent, or that any such acquisitions will be beneficial to the
Company. The process of integrating acquired properties into the Company's
operations may result in unforeseen difficulties and may require a
disproportionate amount of management's attention and the Company's resources.
In connection with acquisitions, the Company could become subject to significant
contingent liabilities arising from the activities of the acquired companies to
the extent the Company assumes, or an acquired entity becomes liable for,
unknown or contingent liabilities or in the event that such liabilities are
imposed on the Company under theories of successor liability.
The Company intends to fund its acquisitions, including the proposed
PWS and Petro-Log acquisitions described above, using cash flow from its current
operations as well as the possible proceeds from secured lending from banks or
other institutional lenders and the private or public sale of debt and equity
securities. The Company is currently seeking to raise additional capital to fund
the PWS and Petro-Log acquisitions well as its other acquisition activities but
has not entered into any definitive arrangements with respect thereto. Any such
capital that is raised will be on terms yet to be negotiated and may be on terms
that dilute the interests of current stockholders of the Company. Loans may be
collateralized by all or a substantial portion of the Company's assets. There
can be no assurance that the Company will raise additional capital when it is
required to complete the PWS and Petro-Log acquisitions or any other
acquisitions or that the Company will have or be able to raise sufficient
capital to fund its acquisition strategy.
The Company is currently engaged in reviewing the acquisition of
updated financial accounting computer systems which will, among other things, be
programmed for record keeping in the year 2000 and beyond, which the Company's
current system is unable to perform. The Company believes the expense involved
will not be material.
21
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE.
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings per
share previously found in APB Opinion 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This statement requires restatement of all prior period EPS
data presented.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
commentary and elsewhere in this Report are "forward-looking statements" as
defined under the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. Forward-looking statements include, but are not limited
to, statements under the following headings: "Description of Business -
General," "- Acquisition Strategy," "- Acquisition Financing," "- Business
Environment," "- Competition," "Management's Discussion and Analysis or Plan of
Operations - Industry Overview and Economic Factors Impacting Company
Operations," "- Liquidity and Capital Resources."
The Company wishes to caution readers that important factors described
elsewhere in this Report, or in other Securities and Exchange Commission
filings, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the
22
<PAGE>
Company's actual consolidated results during 1997 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. Additionally, the factors discussed could impact
materially the Company's ability to achieve its business plans and acquisition
strategy.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of the Company meeting the
requirements of Regulation S-B are filed on the succeeding pages of this Item 7
of this Annual Report on Form 10-KSB, as listed below:
Page
Report of Independent Accountants for the Years Ended
December 31, 1996, 1995 and 1994.......................................... F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995................................................ F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994.......................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1996, 1995 and 1994.............................. F-4
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1996, 1995 and 1994.......................................... F-5
Notes to Consolidated Financial Statements................................ F-6
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
During the two fiscal years ended December 31, 1996, the Company has
not filed any Current Report on Form 8-K reporting any change in accountants in
which there was a reported disagreement on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure.
23
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table contains information concerning the current
Directors and executive officers of the Company:
NAME AGE POSITION
- --------------------------------------------------------------------------------
William L. Jenkins 43 President, Chief Operating Officer
and Director
Danny Ray Thornton 45 Vice-President - Operations
Allen Neel 39 Vice-President
John A. McNiff, Sr. 69 Secretary and Director
Michael Brod 51 Director
WILLIAM L. JENKINS has been President, Chief Operating Officer and a
Director of the Company since March 1989. From 1973 until 1980, Mr. Jenkins held
a variety of field engineering and training positions with Welex A Halliburton
Company, in the South and Southwest. From 1980 until March 1989, Mr. Jenkins
worked with Triad Oil & Gas, Inc., as a consultant, providing services to a
number of oil and gas companies. During that time, Mr. Jenkins was involved in
the organization of a number of drilling and oil field service companies,
including a predecessor of the Company, of which he served as
Secretary/Treasurer until 1988. Mr. Jenkins has over twenty years' experience in
the oil field service business. Mr. Jenkins is Mr. Thornton's brother-in-law.
DANNY RAY THORNTON is a Vice-President of the Company and has been
employed by the Company since March 1989. From 1982 to March 1989, Mr. Thornton
was the president and a principal stockholder of Black Warrior Mississippi, the
Company's operational predecessor. Mr. Thornton has been engaged in the oil and
gas services industry in various capacities since 1978. His principal duties
with the Company include supervising and consulting on wireline and workover
operations. Mr. Thornton is Mr. Jenkins' brother-in-law,
24
<PAGE>
ALLEN NEEL, is a Vice-President of the Company and has been employed by
the Company since August 1990. In 1981, Mr. Neel received his BS Degree in
Petroleum Engineering from the University of Alabama. From 1981 to 1987, Mr.
Neel worked in engineering and sales for Halliburton Services. From 1987 to
1989, he worked as a District Manager for Graves Well Drilling Co. When the
Company acquired the assets of Graves in 1990, Mr. Neel assumed a position with
the Company.
JOHN A. MCNIFF, SR., a Director and Secretary of the Company since
1991, has served as President and Chief Executive Officer, and is a Director of
Pangaea Investment Consultants, Ltd., a Bermuda-based company engaged in
providing financial consulting services and raising capital for emerging United
States, Canadian and Mexican companies, since its inception in 1990. From 1981
to 1989, Mr. McNiff was chairman and chief executive officer of Wycombe, Ltd.,
and its subsidiaries, a broker/dealer firm, a syndicator and general partner of
cable television investments and a syndicator and general partner of oil and gas
investments. From 1970 to 1980, Mr. McNiff was a senior partner of the New York
City law firm of Wagner, McNiff and Dimaio and therefter "of counsel" to the
firm.
MICHAEL BROD was elected a Director of the Company in January 1997. Mr.
Brod is a former Allied member of the New York Stock Exchange and former
President of a member firm. He was employed in the corporate finance department
of Dickinson & Company, Inc. from November 1995 to February 1997 and is
currently engaged as a financial consultant to Swartwood & Co., a registered
broker/dealer.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, Directors and beneficial owners of more than ten percent
(10%) of the Company's Common Stock are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms that they file. To the best
of the Company's knowledge, based solely on a review of such reports as filed
with the Securities and Exchange Commission, all such persons have complied with
such reporting requirements, except as follows: John A. McNiff, Sr., a Director
of the Company, is president of Pangaea Investment Consultants, Ltd. which was
approximately 118 and 97 days late, respectively, in filing Form 4 Reports
during the year ended December 31, 1996 reporting eight transactions which
occurred in November and December 1996. Mr. McNiff disclaims a beneficial
interest in the shares held by Pangaea Investment Consultants, Ltd.
25
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION - GENERAL
The following table sets forth compensation paid or awarded to the
President and Chief Executive Officer of the Company for all services rendered
to the Company in each of the years 1996, 1995 and 1994. No executive officer
received compensation exceeding $100,000 in any of those years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- ------------------------------
BONUS/ANNUAL SECURITIES LONG-TERM
NAME AND INCENTIVE UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY AWARD OPTIONS PAYOUTS COMPENSATION
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Jenkins, 1996 $95,000 -0- 100,000 -0- $1,216 (1)
President 1995 $63,000 -0- -0- -0- -0-
1994 $64,592 -0- -0- -0- -0-
- -----------------
</TABLE>
(1) Includes the premiums paid by the Company on a $1,000,000 insurance policy
on the life of Mr. Jenkins which names his wife as beneficiary and owner of
the policy.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
The following table provides information with respect to the
above-named executive officer regarding options granted to such person during
the Company's year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS/
UNDERLYING SARS/ SARS GRANTED TO EXERCISE OR
OPTIONS GRANTED (#) EMPLOYEES IN BASE PRICE MARKET PRICE ON
NAME FISCAL YEAR ($/SHARE) EXPIRATION DATE DATE OF GRANT
- ------------------ --------------------- --------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William Jenkins 100,000 100% $2.00 Sept. 13, 2006 $2.00
</TABLE>
26
<PAGE>
STOCK OPTION HOLDINGS
The following table provides information with respect to the named
executive officer regarding options held at December 31, 1996 (such officer did
not exercise any option during the most recent fiscal year).
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
-----------------------------------------------------------------------------------
NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996 (1)
-------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCDISABLE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William L. Jenkins 100,000 (2) -0- $100,000 -0-
</TABLE>
- ----------
(1) Based on the average bid and asked prices on February 28, 1997.
(2) Exercisable at $2.00 per share.
No options were granted, exercised or value realized in 1996 by the
named executive officer.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement, dated September
18, 1996, with William L. Jenkins, to serve as its President, Chief Executive
Officer and a Director of the Company. The Employment Agreement, which
terminates on September 30, 1999, provides for an annual base salary of
$110,000, adjusted annually for inflation. Pursuant to the agreement, Mr.
Jenkins was granted a ten-year option to purchase 100,000 shares of the
Company's common stock at an exercise price of $2.00 per share, the fair market
value of the stock on September 13, 1996, the date the option was granted. In
addition, provided the Company's operating results equal or exceed 85% of
certain benchmark operating results agreed to by the Company and Mr. Jenkins, he
will be granted as of the last day of the fiscal year to which such benchmark
operating results relate a ten-year option to purchase an additional 50,000
shares of Common Stock for each year of the agreement exercisable at the closing
bid price for the Company's Common Stock on the last business day of such year.
With certain exceptions, the agreement restricts Mr. Jenkins from engaging in
activities in competition with the Company during the term of his employment
and, in the event Mr. Jenkins terminates the agreement prior to its
27
<PAGE>
termination date, for a period of 18 months thereafter and also in the event he
terminates the agreement, from soliciting for employment any employee of the
Company for a period of two years after termination.
The Company has entered into two-year employment agreements terminating
on January 31, 1998 with each of Danny Ray Thornton and Allen Neel,
Vice-Presidents of the Company, pursuant to which they receive base compensation
of $75,000 per year. On each anniversary date of the agreements, the Company and
the employee agree to renegotiate the base salary taking into account the rate
of inflation, overall profitability and the cash position of the Company, the
performance and profitability of the areas for which the employee is responsible
and other factors. The agreements contain restrictions on such persons engaging
in activities in competition with the Company during the term of their
employment and for a period of two years thereafter. In addition, the agreements
provide for the grant to such employees of options to purchase 10,000 shares of
the Company's Common Stock on each of the first three anniversary dates of the
agreements, provided such persons continue to be employed by the Company,
exercisable at a price equal to 50% of the mean between the highest and lowest
price which the shares traded during the three months prior to the date of
grant.
28
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997 (a) by each person
who is known by the Company to own beneficially more than five percent (5%) of
the Company's Common Stock, (b) by each of the Company's Directors and officers,
and (c) by all Directors and officers as a group:
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS (1)(2) OWNED SHARES(3)
------------------------------------------- ------------------ --------------
William L. Jenkins 310,000 (4) 13.6%
John A. McNiff, Sr. 183,940 (5) 8.2%
Pangaea Investment Consultants, Ltd.
48 Par-la-ville Road - Suite 213
Hamilton, HM11, Bermuda
Michael Brod -0- ---
180 East 88th Street - #8
New York, New York 10128
Pangaea Investment Consultants, Ltd. (6) 183,940 (7) 8.2%
48 Par-la-ville Road - Suite 213
Hamilton, HM11, Bermuda
Morgan Devin Everett & Co. Ltd. 179,250 (7) 8.1%
c/o International Trust Company of
Bermuda Ltd.
Bermuda Commercial Bank Building
44 Church Street
Hamilton, HM12, Bermuda
International Trust Company of 167,812 (7) 8.4%
Bermuda Ltd.
Bermuda Commercial Bank Building
44 Church Street
Hamilton, HM12, Bermuda
Mansfield Soderberg & Co., Ltd. 127,638 (7) 7.5%
Bermuda Commercial Bank Building
44 Church Street
Hamilton, HM12, Bermuda
Danny Ray Thornton 666 *
29
<PAGE>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS (1)(2) OWNED SHARES(3)
------------------------------------------- ------------------ --------------
Allen Neel -0- -0-
All Directors and Officers as a Group 494,606 (4)(5) 21.3%
(5 persons including the above)
- ----------------------------
* Less than 1%.
(1) This tabular information is intended to conform with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934 relating to the determination of
beneficial ownership of securities. The tabular information gives effect to
the exercise of warrants or options exercisable within 60 days of the date
of this table owned in each case by the person or group whose percentage
ownership is set forth opposite the respective percentage and is based on
the assumption that no other person or group exercise their option.
(2) Unless otherwise indicated, the address for each of the above is c/o Black
Warrior Wireline Corp., 3748 Highway #45 North, Columbus, Mississippi
39701.
(3) The percentage of outstanding shares calculation is based upon 2,185,216
shares outstanding as of March 31, 1997, except as otherwise noted.
(4) Includes 100,000 shares issuable to Mr. Jenkins at an exercise price of
$2.00 per share on exercise of a ten-year stock option.
(5) Includes 144,565 shares of Common Stock and warrants to purchase 39,375
shares of common stock held by Pangaea Investment Consultants, Ltd. over
which Mr. McNiff may be deemed to share investment control. Mr. McNiff
disclaims beneficial ownership of such securities.
(6) Mr. McNiff is the President of Pangaea Investment Consultants, Ltd.
(7) Includes 39,375 shares issuable on exercise of warrants at $2.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company executed Reorganization Agreements with the holders of
certain debentures of the Company on November 30, 1995 (the "1995 Reorganization
Agreements"), including Pangaea Investment Consultants, Ltd., Morgan Devin
Everett & Co. Ltd., International Trust Company of Bermuda Ltd. and Mansfield
Soderberg & Co. Ltd. (the "Shareholder Group"), principal stockholders of the
Company, pursuant to which such persons agreed to exchange the debentures held
by them for shares of the Company's Common Stock In accordance with the terms of
the agreements, through December 31, 1995, the Shareholder
30
<PAGE>
Group exchanged an aggregate of $656,250 principal amount of debentures for an
aggregate of 299,586 shares of Common Stock. Morgan Devin Everett & Co. Ltd.,
International Trust Company of Bermuda Ltd. and Mansfield Soderberg & Co. Ltd.
continued to hold at December 31, 1995 an aggregate of $393,750 principal amount
of debentures which were to be exchanged in the aggregate for an additional
225,414 shares of Common Stock and two new classes of Common Stock Purchase
Warrants. Pursuant to the 1995 Reorganization Agreements, the first series of
warrants (the "Class A Warrants") were to be exercisable at $3.00 per share for
a period of four (4) years and the second series of warrants (the "Class B
Warrants") were to be exercisable at prices increasing in annual increments over
the first three (3) years after issuance from $3.00 per share to $5.00 per share
and were to expire five (5) years after issuance. On September 20, 1996, the
Company and the Shareholder Group, as well as certain other debtholders, amended
the terms of the 1995 Reorganization Agreements to provide for the exchange of
the $393,750 of debentures three members of the Shareholder Group continued to
hold for an aggregate of 225,414 shares of Common Stock and also so as to
provide that in lieu of the issuance of the Class A warrants to the Shareholder
Group, an aggregate of 52,500 shares of Common Stock would be issued to the
Shareholder Group and the exercise price of the Class B warrants would be
reduced to $2.00 per share throughout the five-year term of such warrants. See
"Item 1. Description of Business - Recent Debt Restructuring."
In addition, pursuant to the 1995 Reorganization Agreements, two of the
Company's current executive officers and a third person who is currently
employed by the Company (herein such persons are collectively referred to as the
"Employee Group") agreed to convert secured loans to the Company aggregating
$297,131 into shares of the Company's Common Stock on the basis of one share of
Common Stock for each $2 of indebtedness exchanged and sell their shares in
accordance with the terms of the agreement. The Employee Group (listed below)
exchanged the following amounts of indebtedness for the number of shares of
Common Stock set forth:
AMOUNT OF NUMBER OF SHARES
NAME INDEBTEDNESS OF COMMON STOCK
- ---- ------------ ---------------
Danny Ray Thornton $127,342 63,671
Allen Neel $ 42,447 21,223
Reese James $127,342 63,671
The 1995 Reorganization Agreements contained the agreement of the members of the
Employee Group to sell the shares they received through Monetary Advancement
International, Inc.
31
<PAGE>
("MAII") at a price of $2 per share during the twelve months following the
closing under the 1995 Reorganization Agreements. In addition, the Employee
Group and the Company entered into a supplemental agreement pursuant to which,
among other things, the Company guaranteed that MAII or another purchaser would
purchase the shares issued to them at a price of $2 per share during the twelve
months following the closing. It was further agreed in the supplemental
agreement that if the shares were not purchased within such twelve month period,
the Employee Group would suffer damages which were stipulated to be $.71942 per
share with maximum liquidated damages of $100,000. The Company collateralized
its guarantee with a pledge of all its accounts receivable with the Company's
liability limited to the first $100,000 of receivables collected. Subsequently,
the Employee Group delivered certificates and stock powers for an aggregate of
148,565 shares to MAII to be sold in accordance with the terms of the 1995
Reorganization Agreements and the supplemental agreement. The Employee Group
received payment from MAII for an aggregate of 26,234 shares and an aggregate of
122,331 shares were transferred by MAII into its name (and subsequently
transferred into a street name) without paying for such shares. MAII has refused
to either return or pay for such shares.
The Employee Group has advised the Company that but for the Company's
guarantee and the understanding that MAII would purchase all their shares at $2
per share within twelve months of the closing of the 1995 Reorganization
Agreements they would not have agreed to convert their secured indebtedness into
shares of the Company's Common Stock and that therefore the Company should
reimburse them for the entire amount of their loss or an aggregate of $244,662.
The Company believes that the Employee Group has meritorious claims against MAII
to recover either the shares not paid for or their value. Inasmuch as the
Employee Group, or the Company on their behalf, intends to pursue those claims,
the Company has accrued no liability to the Employee Group for any portion of
the claim on its financial statements for the year ended December 31, 1996.
In October 1994, the Company entered into an agreement with William L.
Jenkins, President of the Company, to lease 6,500 square feet of office space in
a building owned by him. The Company leased these premises from Mr.Jenkins
through October 1996 when he sold the building to a non-affiliated person who
continues to lease the space to the Company at the same rental. See "Item 2.
Properties." Before its termination, the lease with Mr. Jenkins called for
monthly rental payments of $1,900. During 1996, the Company paid rentals of
$19,000 to Mr. Jenkins pursuant to the lease. See Notes 4 and 7 of Notes to
Consolidated Financial Statements.
In March 1995, the Company received a letter from the District Director
of the Internal Revenue Service (the "IRS") in which he formally notified the
Company that the IRS had preliminarily calculated deficiencies of $35,057 and
$541,727 in federal taxes for the years ended December 31, 1989 and December 31,
1990, respectively. The adjustments proposed by the IRS
32
<PAGE>
included the valuation of bonus stock compensation to William L. Jenkins,
President of the Company, as well as certain other items. The Company agreed to
pay whatever personal tax liability was determined to be owing by Mr. Jenkins
related to the bonus stock resulting from an unfavorable resolution of the IRS'
proposed adjustment. In June 1996, the Company settled this matter with the IRS
on terms which, among other things, resulted in an additional tax liability to
Mr. Jenkins in the amount of $98,524 for taxes, penalties and interest related
to the bonus stock. The Company reimbursed Mr. Jenkins for this sum on January
23, 1997 and has agreed to further reimburse Mr. Jenkins for the tax liability
resulting from this payment and any further tax reimbursement payments made to
Mr. Jenkins in future years.
During the year ended December 31, 1996, the Company issued 12,000
shares of Common Stock, valued at $15,000 to Pangaea Investment Consultants,
Ltd. in reimbursement of expenses.
33
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits required by Regulation S-B are set forth in the
following list and are filed either by incorporation by reference from previous
filings with the Securities and Exchange Commission or by attachment to this
Annual Report on Form 10-KSB as so indicated in such list.
Exhibit Designation
------- -----------
3.2 Restated Certificate of Incorporation of the Company,
as filed with the Secretary of State of the State of
Delaware on June 21, 1989 (incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
3.3 Certificate of Incorporation of the Company
(incorporated by reference to the Company's
Registration Statement on Form S-18, effective date
December 6, 1988).
3.4 Amendment to the Certificate of Incorporation of the
Company (incorporated by reference to the Company's
Registration Statement on Form S-18, effective date
December 6, 1988).
3.5 By-Laws of the Company (incorporated by reference to
the Company's Registration Statement on Form S-18,
effective date December 6, 1988).
4.1 14% Debenture, dated August 10, 1990, issued to Henry
Hoffman, in the initial principal amount of $450,000
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.2 14% Debenture, dated August 10, 1990, issued to W.
Stewart Cahn, in the initial principal amount of
$250,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
34
<PAGE>
4.3 14% Debenture, dated September 18, 1990, issued to
Lorin Silverman, in the initial principal amount of
$100,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.4 14% Debenture, dated September 6, 1990, issued to
Martha Heyman, in the initial principal amount of
$10,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.5 14% Debenture, dated October 2, 1990, issued to Mark
G. Flanders, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.6 14% Debenture, dated November 1, 1990, issued to
Helen Margulies, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.7 14% Debenture, dated November 8, 1990, issued to
Selma Seider, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.8 14% Debenture, dated November 5, 1990, issued to
Delaware Charter Guarantee, in the initial principal
amount of $25,000 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990).
4.9 14% Debenture, dated November 7, 1990, issued to
Henry A. Klein, in the initial principal amount of
$10,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.10 14% Debenture, dated November 8, 1990, issued to
Selma Seider, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
35
<PAGE>
4.11 14% Debenture, dated November 9, 1990, issued to
Rebecca Goldman, in the initial principal amount of
$10,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.12 14% Debenture, dated November 12, 1990, issued to
Cary and Judith Fishman, in the initial principal
amount of $5,000 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990).
4.13 14% Debenture, dated November 16, 1990, issued to
Rebecca Plevinsky, in the initial principal amount of
$10,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.14 14% Debenture, dated November 19, 1990, issued to
Lena Giordano, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.15 14% Debenture, dated November 22, 1990, issued to
Robert M. Runyon, in the initial principal amount of
$10,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.16 14% Debenture, dated November 26, 1990, issued to
June Prall, in the initial principal amount of $5,000
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.17 14% Debenture, dated October 3, 1990, issued to
Robert C. Loeb, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
4.18 14% Debenture, dated November 1, 1990, issued to
Martha Heyman, in the initial principal amount of
$5,000 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
36
<PAGE>
4.19 Form of Debenture Purchase Agreement relating to the
Company's 13% Convertible Subordinated Debentures due
August 31, 1995 (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
4.20 Form of 13% Convertible Subordinated Debenture due
August 31, 1995 (contained within Exhibit 4.19
above).
4.21 Warrant, dated July 1, 1991, pursuant to which the
Company granted John A. McNiff, Sr., the right to
acquire 34,996 shares of Common Stock of the Company
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991).
10.1 * Employment Agreement, dated September 18, 1996,
between William L. Jenkins and the Company.
10.2 Accounts Receivable Factoring and Security Agreement,
dated August 29, 1991, among Rhonda J. Jenkins, Reese
James, Danny Ray Thornton, Lanelle A. Neel and the
Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991).
10.3 Reorganization Agreement, dated as of November 30,
1995, between the Company and Pangaea Investment
Consultants, Ltd., and Mansfield Soderberg & Co.,
Ltd., William L. Jenkins, Reese James, Allen and
Lanelle Neel, and Danny Ray Thornton, Henry Hoffman,
W. Stewart Cahn, Lorin Silverman, and B. and E. Deeds
(incorporated by reference to the Current Report
filed on Form 8-K on December 15, 1995, by the
Company).
10.4 Supplemental Agreement, dated as of November 30,
1995, between the Company and Reese James, Allen and
Lanelle Neel, and Danny Ray Thornton.
10.5 Security Agreement, dated as of December 21, 1995,
between the Company and Rhonda J. Jenkins, Reese
James, Danny Ray Thornton, and Lanelle A. Neel.
37
<PAGE>
10.6 Business Consulting Agreement, dated as of November
1, 1995, between the Company and Monetary Advancement
International, Inc.
10.7 ** Employment Agreement, dated January 31, 1997, between
Danny Ray Thornton and the Company.
10.8 ** Employment Agreement, dated January 31,1997, between
Allen Neel and the Company.
10.9 * Letter Agreement, dated September 20, 1996, between
the Company and Morgan Devin Everett & Co. Ltd., and
amendment thereto.
10.10 * Letter Agreement, dated September 20, 1996, between
the Company and International Trust Company of
Bermuda Ltd., and amendment thereto.
10.11 * Letter Agreement, dated September 20, 1996, between
the Company and Mansfield Soderberg & Co. Ltd., and
amendment thereto.
10.12 * Letter Agreement, dated September 20, 1996, between
the Company and Pangaea Investment Consultants, Ltd.,
and amendment thereto.
21 Subsidiaries.
NAME STATE OF INCORPORATION
Boone Wireline Co. Alabama
27 Financial Data Schedule.
- ------------------------
* Filed herewith
** To be filed by amendment.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated November
19, 1996 in response to Item 2 thereof reporting the DynaJet acquisition.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 14, 1997
BLACK WARRIOR WIRELINE CORP.
By: /s/ William L. Jenkins
-------------------------------
William L. Jenkins, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ William L. Jenkins President (Principal Executive, April 14, 1997
- ------------------------ Financial and Accounting Officer)
William L. Jenkins and Director
/s/ John A. McNiff, Sr. Director April 14, 1997
- ------------------------
John A. McNiff, Sr.
/s/ Michael Brod Director April 14, 1997
- ------------------------
Michael Brod
<PAGE>
BLACK WARRIOR WIRELINE CORP.
AND SUBSIDARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<PAGE>
Report of Independent Accountants
The Stockholders and Board of Directors
Black Warrior Wireline Corp.
Columbus, Mississippi
We have audited the accompanying consolidated balance sheets of Black Warrior
Wireline Corp. and subsidiaries (the Company) as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Black Warrior
Wireline Corp. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
March 21, 1997, except Note 19,
as to which the date is April 1, 1997
F-1
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 727,454 $ 284,825
Accounts receivable, less allowance for doubtful accounts of
$136,959 and $130,115 136,9306 830,384
Inventories 183,467 185,813
Prepaid expenses 53,424 31,917
Federal income tax receivable 14,636 80,432
Deferred tax asset 138,071
Other receivables 178
------------ ------------
Total current assets 2,486,358 1,413,549
Land and building, held for sale 400,000
Property, plant, and equipment, less accumulated depreciation of $3,729,370
and $3,311,919 2,194,591 1,306,126
Other assets 5,420 5,405
Goodwill 224,305
------------ ------------
Total assets $ 5,310,674 $ 2,725,080
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 808,832 $ 821,254
Accounts payable, related parties 89,733
Accrued salaries and vacation 25,085 15,839
Income taxes payable 52,548
Accrued interest payable 29,530 1,214,422
Other accrued expenses 381,396 229,446
Current maturities of notes payable to banks 18,272 60,225
Mortgage notes payable, related party 150,000
Current maturities of long-term debt and capital lease obligations 307,806 1,526,127
------------ ------------
Total current liabilities 1,863,202 3,867,313
Deferred tax liability 214,355
Notes payable to banks, less current maturities 31,486 8,350
Mortgage notes payable, related party 230,000
Long-term debt and capital lease obligations, less current maturities 713,873 385,696
------------ ------------
Total liabilities 3,052,916 4,261,359
------------ ------------
Commitments and contingencies (Notes 7, 8, 15, 16, 17, and 19)
Common stock, par value $.0005 per share, 50,000,000 shares authorized,
2,185,216 and 759,052 shares issued at December 31, 1996 and 1995,
respectively 1,093 380
Additional paid-in capital 5,133,087 3,375,702
Accumulated deficit (2,293,029) (4,328,968)
Treasury stock, at cost, 4,073 shares at 1996 and 1995respectively (583,393) (583,393)
------------ ------------
Total stockholders' equity (deficit) 2,257,758 (1,536,279)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 5,310,674 $ 2,725,080
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 7,582,021 $ 6,179,218 $ 6,074,200
Operating costs 5,116,777 4,522,920 4,813,755
Selling, general, and administrative expenses 1,302,994 1,187,900 1,283,991
Depreciation and amortization 574,400 690,601 820,743
------------- ------------- -------------
Income (loss) from operations 587,850 (222,203) (844,289)
Interest expense and amortization of debt discount (342,197) (625,990) (585,886)
Net gain on sale of fixed assets 76,645 65,450 201,933
Other income 39,425 10,627 5,692
------------- ------------- -------------
Income (loss) before benefit for income taxes
and extraordinary gain 361,723 (772,116) (1,222,550)
Benefit for income taxes (65,715) (226,554) (80,432)
------------- ------------- -------------
Income (loss) before extraordinary gain 427,438 (545,562) (1,142,118)
Extraordinary gain on extinguishment of debt, net of income
taxes of $-0- and $226,554 in 1996 and 1995,
respectively (Note 7) 1,608,501 387,413
------------- ------------- -------------
Net income (loss) $ 2,035,939 $ (158,149) $ (1,142,118)
============= ============= =============
Income (loss) per average common share*:
Income (loss) before extraordinary gain $ 0.41 $ (6.14) $ (17.30)
Extraordinary gain, net of income taxes 1.55 4.36
------------- ------------- -------------
Net income (loss) $ 1.96 $ (1.78) $ (17.30)
============= ============= =============
Average common and common equivalent shares outstanding* 1,040,192 88,905, 66,008
============= ============= =============
</TABLE>
* 1994 loss per average common share and average common and common equivalent
shares outstanding have been restated to reflect a 1 for 200 reverse stock
split effected during 1995. See Note 10.
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Common Stock Paid-In Accumulated Treasury Stock
Shares Par Value Capital Deficit Shares Cost
------------ ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $13,869,252 $ 6,935 $41,955,345 $ (3,028,701) $814,626 $ (583,393)
Shares issued in settlement of
accrued liability 300,000 150 37,350
Net loss for the year ended
December 31, 1994 (1,142,118)
----------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 14,169,252 7,085 1,992,695 (4,170,819) 814,626 (583,393)
Effect of 1 for 200 reverse
stock split (14,098,351) (7,049) 7,049 (810,553)
Conversion of notes payable and
subordinated debentures
to common stock 648,151 324 1,295,978
Shares issued in consideration
for consulting services 40,000 20 79,980
Net loss for the year ended
December 31, 1995 (158,149)
---------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 759,052 380 3,375,702 (4,328,968) 4,073 (583,393)
Shares issued in private 600,000 300 643,080
placement
Conversion of subordinated
debentures to common stock
and stock warrants 814,164 407 1,099,311
Shares issued to related party in
consideration for services
performed 12,000 6 14,994
Net income for the year ended
December 31, 1996 2,035,939
----------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 2,185,216 $ 1,093 $ 5,133,087 $ (2,293,029) 4,073 $ (583,393)
=========== ========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,035,939 $ (158,149) $(1,142,118)
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities:
Depreciation 574,400 690,601 787,543
Amortization 33,200
Amortization of deferred gain (141,637)
Allowance for doubtful accounts 6,844 12,575 26,286
Net gain on disposition of assets (76,645) (65,450) (60,296)
Compensation, consulting, and management expenses paid
by issuance of common stock 15,000 80,000
Gain on extinguishment of debt (1,608,501) (613,967)
Deferred tax benefit (118,263)
Benefit for income taxes (80,432)
Change in:
Accounts receivable (456,033) 32,052 57,341
Inventories 3,556 42,381 137,984
Prepaid expenses (18,284) 41,838 11,870
Other receivables 65,974 20,257 (16,135)
Other assets (15) (1,563) 991
Accounts payable and accrued liabilities 347,490 528,643 613,080
----------- ------------ ------------
Cash provided by operating activities 771,462 609,218 227,677
----------- ------------ -----------
Cash flows from investing activities:
Acquisitions of property, plant, and equipment (468,354) (299,306) (104,818)
Proceeds from sale of fixed assets 95,071 120,031 178,260
Acquisition of business, net of cash acquired -256,783
----------- ------------ ------------
Cash (used in) provided by investing activities (630,066) (179,275) 73,442
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from bank and other borrowings 41,959 56,561
Proceeds from issuance of common stock, net 643,382
Principal payments on long-term debt, notes payable, and
capital lease obligations (342,149) (227,530) (378,043)
----------- ------------ ------------
Cash provided by (used in) financing activities 301,233 (185,571) (321,482)
----------- ------------ ------------
Net increase (decrease) in cash and cash 442,629 244,372 (20,363)
equivalents
Cash and cash equivalents, beginning of year 284,825 40,453 60,816
----------- ------------ ------------
Cash and cash equivalents, end of year $ 727,454 $ 284,825 $ 40,453
=========== ============ ============
Supplemental disclosure of cash flow information: Cash paid during
the year for:
Interest $ 74,746 $ 78,392 $ 59,444
=========== ============ ============
Income taxes $ 0 $ 0 $ 0
=========== ============ ============
Supplemental schedule of noncash investing and financing activities:
Notes payable and subordinated debentures converted to common
stock and stock warrants (Note 7) $ 1,343,750 $1,296,302
Principal forgiven 57,078
Accrued interest forgiven (Note 7) 1,514,468 556,889
Accrued interest converted to notes payable 52,962
Shares issued in settlement of accrued liability $ 37,500
Acquisition of property, plant, and equipment financed under
capital
leases and notes payable 796,930 371,846 361,244
Vehicles sold to officer for reduction in notes payable, 5,300
related parties
Accounts payable to legal counsel converted to notes payable 81,404
Accrued salaries and loans converted to notes payable, related 113,037
parties
Notes payable incurred in connection with acquisition of 380,000
business
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Black Warrior Wireline Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. GENERAL INFORMATION
Black Warrior Wireline Corp., a Delaware corporation, is an integrated
oil and gas well servicing company which provides wireline, drilling,
completion, and workover services primarily in the Black Warrior Basin of
Alabama and Mississippi, the Permian Basin of Texas and New Mexico, and
the Powder River Basin in the Rocky Mountain region.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Black Warrior Wireline Corp. and its wholly-owned
subsidiary, Boone Wireline Co., and the following inactive subsidiaries:
Black Warrior International, Inc., Black Warrior International (Bermuda),
Ltd., Black Warrior Oil and Gas, Ltd., and Black Warrior Syria, Ltd. (the
Company). All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Inventories - Inventories, which consist primarily of supplies used in
well servicing activities, have useful lives of less than one year and
are stated at the lower of cost (first-in, first-out method) or net
realizable value.
Land and building, held for sale - Land and building, held for sale are
stated at the lower of cost or estimated net realizable value.
Property, Plant, and Equipment - Property, plant, and equipment is stated
at cost. The cost of maintenance and repairs is charged to expense when
incurred; the cost of betterments is capitalized. The cost of assets sold
or otherwise disposed of and the related accumulated depreciation are
removed from the accounts and the gain or loss on such disposition is
included in income. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets which range from two
to ten years.
Long-Lived Assets - During the year ended December 31, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. In accordance with SFAS 121, the Company will
recognize impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the asset's
carrying amount. There are no such impairments at December 31, 1996 and
management does not anticipate any material future impact to the
Company's financial statements as a result of this new pronouncement.
Investment in Partnerships - The Company has a 50% ownership interest in
two partnerships, Black Warrior Mideast Partnership (inactive) and Black
Warrior Mideast Company (BWMC) (see Note 5). The investments are carried
at cost and adjusted for equity in undistributed earnings or losses of
the partnerships. The investment is not reduced below zero for losses
because the underlying debt is nonrecourse. Equity income from the
partnerships will not be recognized until the cumulative income exceeds
the cumulative unrecognized losses.
F-6
<PAGE>
Notes to Consolidated Financial Statements, Continued
Goodwill - Goodwill is stated at cost and is being amortized on a
straight-line basis over ten years. The Company assesses the
recoverability and the amortization period of the goodwill by determining
whether the amount can be recovered through undiscounted cash flows of
the businesses acquired, excluding interest expense and amortization,
over the remaining amortization period. If impairment was indicated by
this analysis, measurement of the loss would be based on the fair market
value of the business acquired. The Company considers external factors
relating to the acquired business, including local market developments,
regional and national trends, regulatory developments and other pertinent
factors in making its assessment. The Company does not believe there
currently are any indicators that would require an adjustment to the
carrying value of the goodwill or its remaining life as of December 31,
1996.
Income Taxes - The Company uses an asset and liability approach for
financial accounting and reporting for income taxes. Deferred tax assets
are recognized only to the extent of their anticipated realization.
Stock-Based Compensation - In 1996, the Company adopted the provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, which defines a
fair value based method of accounting for stock-based employee
compensation plans. In accordance with the provisions of SFAS No. 123,
the Company has chosen to continue to apply the accounting provisions of
Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, to its stock-based employee compensation arrangements.
Implementing the disclosure provisions of SFAS No. 123, which supercede
the disclosure requirements of APB No. 25, did not have any material
effect on the consolidated financial position, results of operations or
cash flows of the Company (see Note 16).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
Recently Issued Accounting Standards - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 establishes
standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing earnings per
share previously found in APB Opinion 15, Earnings per Share, and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Diluted
EPS is computed similarly to fully diluted EPS pursuant to Opinion 15.
This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. This statement requires restatement of all
prior-period EPS data presented. The adoption of SFAS No. 128 is not
anticipated to have a material effect on the Company's earnings per share
data as previously presented.
Reclassifications - Certain reclassifications have been made to the 1995
financial statements to conform to the 1996 presentation.
3. ACQUISITION
On November 20, 1996, the Company acquired substantially all of the
assets of Dyna Jet, Inc. (Dyna Jet), a privately owned Wyoming
corporation. Dyna Jet is engaged in the wireline and oil and gas well
service business in Gillette, Wyoming.
For financial statement purposes, the acquisition was accounted for as a
purchase and, accordingly, Dyna Jet's results are included in the
consolidated financial statements since the date of acquisition. The
aggregate purchase price was approximately $758,000, consisting of
approximately $288,000 in cash, funded by a portion of the proceeds from
the issuance of common stock pursuant to a private placement (see Note
10) and $470,000 in promissory notes and payables. The aggregate purchase
price has been allocated to the assets of the Company, based upon their
F-7
<PAGE>
respective fair market values. The excess of the purchase price over
assets acquired, goodwill, approximated $224,000 and is being amortized
over ten years.
The following table presents unaudited pro forma results of operations
for the years ended December 31, 1996 and 1995, as if the acquisition and
private placement of common stock (see Note 10) had occurred at the
beginning of the years presented. The pro forma summary information does
not necessarily reflect the results of operations as they actually would
have been, if the acquisition and private placement had occurred at the
beginning of the years presented.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 8,001,537 $ 6,689,778
------------- -------------
Income (loss) before extraordinary gain $ 275,880 $ (803,184)
------------- -------------
Net income (loss) $ 1,884,381 $ (415,771)
------------- -------------
Income (loss) per common share:
Income (loss) before extraordinary gain $ 0.18 $ (1.16)
Extraordinary gain 1.04 0.56
------------- -------------
Net income (loss) per common share $ 1.22 $ (0.60)
============= =============
</TABLE>
The unaudited pro forma results include the historical accounts of the
Company, and historical accounts of the acquired business and pro forma
adjustments including the amortization of the excess purchase price over
the fair value of the net assets acquired, the elimination of interest
expense on a note payable to the former stockholder of Dyna Jet which was
repaid prior to closing, the reduction of depreciation expense to reflect
the sale of certain nonoperating assets to the former owner of Dyna Jet,
and the increase of depreciation expense as a result of purchase price
adjustments.
F-8
<PAGE>
4. RELATED PARTY TRANSACTIONS
During 1996, a member of the Company's Board of Directors served as a
consultant to the Company on various aspects of the Company's business
and strategic issues. The Company compensated the director by issuing
12,000 shares of common stock. This issuance resulted in the recognition
of $15,000 of expense for the year ended December 31, 1996, with a
corresponding increase to common stock and additional paid in capital.
At December 31, 1996, the Company has a note payable of $380,000 and an
accounts payable of $89,733 to the former owner of Dyna Jet, now an
employee of the Company. These payables are collateralized by the land
and building held for sale and accounts receivable acquired in the
acquisition of Dyna Jet.
The Company had an outstanding balance of $289,293 included in notes
payable, related parties, at December 31, 1994 and accrued interest
payable of $2,497 at December 31, 1994 relating to a financing agreement
with RABAD, a partnership comprised of officers and spouses of officers
of the Company, whereby RABAD advanced funds to the Company for
operations. These advances were collateralized by accounts receivable and
bore interest at a rate of prime plus 2%. Interest expense recognized on
these advances for 1995 and 1994 was $20,954 and $27,353, respectively.
On December 20, 1995, RABAD accepted 148,565 shares of common stock of
the Company in full satisfaction of advances totaling $297,131 (see Note
7).
The Company had an outstanding balance of $334,237 in notes payable and
$8,976 in accrued interest at December 31, 1994 to the president of the
Company and his spouse. Interest expense recognized on the notes payable
for 1995 and 1994 was $28,611 and $31,491, respectively. On December 20,
1995, the president of the Company and his spouse accepted 200,000 shares
of the Company's common stock in full satisfaction of the outstanding
balance of notes payable totaling $400,000 (see Note 7).
During 1994, the Company sold two vehicles with a net book value of
$7,500 to the president of the Company in exchange for a $5,300 reduction
in notes payable due him.
During October 1994, the Company began leasing office space from the
president of the Company. The Company leased this office space from the
president of the Company through October 1996 when he sold the building
to a non-affiliated person who continues to lease the space to the
Company at the same rental. The total amount paid to the president during
the years ended December 31, 1996, 1995, and 1994 was $17,264, $22,262,
and $3,200, respectively.
See Note 9 for a description of the sale of fixed assets to BWMC.
See Note 10 for common stock transactions with related parties.
5. INVESTMENT IN BLACK WARRIOR MIDEAST COMPANY
BWMC ceased operations during the year ended December 31, 1993, and the
Company anticipates dissolving the partnership when BWMC's obligations
have been settled. The anticipated dissolution has no impact on the
Company's consolidated financial statements since substantially all of
the liabilities of the partnership are non-recourse. BWMC's non-current
assets consist primarily of drilling and other operating equipment. The
equipment is in the possession of the Company's Middle East agent, which
has impaired BWMC's ability to remove the equipment from the Middle East.
As described in Note 2, the Company has reported the investment in BWMC
using the equity method. However, since substantially all of BWMC's
liabilities are non-recourse to the Company, losses are not recognized
which would reduce the Company's investment basis below zero. Financial
information for the years ended December 31, 1996, 1995, and 1994 is not
available. Therefore, no impact of the investment in BWMC is included in
the accompanying consolidated balance sheets, statement of operations, or
cash flows of the Company.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment includes the following at December 31,
1996 and 1995:
1996 1995
---- ----
Vehicles $ 2,913,175 $ 2,078,292
Drilling rigs and related equipment 322,109 312,231
Operating equipment 2,401,397 1,989,420
Office equipment 287,280 238,102
-------------- --------------
5,923,961 4,618,045
Less accumulated depreciation 3,729,370 3,311,919
-------------- --------------
Net property, plant, and equipment $ 2,194,591 $ 1,306,126
============== ==============
F-9
<PAGE>
The Company had equipment with a net book value of $67,942 and $58,803 at
December 31, 1996 and 1995, respectively, that is not being used in
operations but is being maintained for future service.
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Drilling rigs and related equipment $ 158,909
Vehicles 55,122 $ 15,600
Operating equipment 4,814 28,834
Office equipment 9,955
-------------- -------------
218,845 54,389
Less accumulated depreciation 34,432 43,434
-------------- -------------
Net equipment under capital lease $ 184,413 $ 10,955
============== =============
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
7. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
1996 1995
<S> <C> <C>
Note payable to Trustmark National Bank, interest and principal due
January 1997, interest at prime as reported by Trustmark National
Bank, collateralized by three vehicles and equipment with a net book
value of $5,178 at December 31, 1996. Prime rate at December 31, 1996
was 8.25%.
$ 2,429 $ 28,829
Note payable to Trustmark National Bank, monthly payments of $1,733
required through August 1996, including interest at 8.8%
collateralized by a vehicle and equipment with a net book value of
$26,813 at December 31, 1995.
13,477
Note payable to Trustmark National Bank, monthly payments of $1,502
required through April 1997, including interest at 9.5%.
5,921 22,488
Note payable to Trustmark National Bank, monthly payments of $717
through June 1996 including interest at prime as reported by Trustmark
National Bank, collateralized by equipment with a net book value of
$11,273 at December 31, 1995. Prime rate at December 31, 1995 was
8.5%.
3,781
Note payable to Trustmark National Bank, monthly payments of $578
required through November 2000, including interest fixed at 8%,
collateralized by a vehicle with a net book value of $22,665 at
December 31, 1996.
23,231
Note payable to Trustmark National Bank, monthly payments of $503
required through June 2000, including interest fixed at 8.5%,
collateralized by a vehicle with a net book value of $21,657 at
December 31, 1996.
18,177
------------- -------------
49,758 68,575
Current portion of notes payable to banks (18,272) (60,225)
------------- -------------
Total notes payable to banks $ 31,486 $ 8,350
============= =============
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Installment notes payable, monthly payments required in varying
amounts through December 2001, interest at rates ranging from 7.4% to
13.24%, collateralized by vehicles and equipment with a net book value
of $899,587 at December 31, 1996.
$ 834,380 $ 510,929
Capitalized leases, monthly payments required in varying amounts
through June 2000, interest at rates ranging from 6.25% to 16%,
collateralized by vehicles and equipment with a net book value of
$184,413 at December 31, 1996.
170,895 8,240
Note payable to Haskell, Slaughter, Young & Johnston, Professional
Association, monthly principal payments of $2,500 plus accrued
interest required through August 1997, interest at prime plus 1% as
reported by First Alabama Bank, collateralized by $34,481 in inventory
and miscellaneous equipment with an approximate net book value of
$23,938 at December 31, 1996. Prime rate at December 31, 1996 was
8.25%.
16,404 48,904
14% subordinated debentures, original terms include quarterly
principal payments of $115,625 beginning November 30, 1991 through
August 31, 1993 and interest payable quarterly
900,000
13% convertible subordinated debentures, original terms include
quarterly interest payments of $35,750 beginning September 30, 1991,
with the principal balance due on August 31, 1995
443,750
------------- -------------
1,021,679 1,911,823
Current portion of long-term debt (307,806) (1,526,127)
------------- -------------
Total long-term debt and capital lease obligations $ 713,873 $ 385,696
============= =============
Mortgage note payable to former owner of Dyna Jet, Inc., due and
payable upon the earlier of sale of mortgaged property by the Company
or one year from November 1996, including interest at 8% per annum.
$ 150,000
Mortgage note payable to former owner of Dyna Jet, Inc. due and
payable at earlier of six years from November 1996 or sale of
mortgaged property by the Company with interest at the rate of the
lesser of $1,500 per month or 8% per annum on unpaid balance.
230,000
-------------
Total mortgage notes payable, related party $ 380,000
=============
</TABLE>
The two mortgage notes totaling $380,000, payable to the former owner of
Dyna Jet, are collateralized by the land and building held for sale.
During September and October 1996, the Company executed a Reorganization
Agreement with the holders of certain debt of the Company whereby the
Company converted the remaining portion of the 13% convertible
subordinated debentures and all of the 14% subordinated debentures to
common stock and warrants to purchase common stock. In conjunction with
the conversion, accrued interest was forgiven by the debt holders,
resulting in recognition of an extraordinary gain on extinguishment of
debt of $1,608,501, net of income taxes of $-0- (see Note 12).
On November 30, 1995, the Company executed a Reorganization Agreement
with the holders of certain debt of the Company whereby the Company
converted a portion of the 13% convertible subordinated debentures and
the notes payable to related parties to common stock and warrants to
purchase common stock. In conjunction with the conversion, accrued
interest and certain debt were forgiven by the debt holders, resulting in
the recognition of an extraordinary gain on extinguishment of debt of
$387,413, net of income taxes of $226,554. The following is a summary of
the debt and accrued interest conversion and extinguishment:
F-12
<PAGE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------
Shares
of Accrued
Principal Principal Common Interest
Converted Forgiven Total Stock Forgiven
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
13% Convertible subordinated debentures $ 599,172 $ 57,078 $ 656,250 299,586 $ 535,344
Notes payable to the president of the
Company and his spouse 400,000 400,000 200,000 21,545
Notes payable to RABAD 297,130 297,130 148,565
--------- ---------- ----------- -------- -----------
$ 1296,302 $ 57,078 $ 1,353,380 648,151 $ 556,889
========= ========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------------------
Warrants
to
Shares Shares Purchase
of of Accrued
Principal Principal Common Common Interest
Converted Forgiven Total Stock Stock Forgiven
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
13% Convertible
subordinated
debentures $ 443,750 $ 443,750 305,414 165,000 $ 512,868
14% subordinated 900,000 900,000 508,750 138,750 1,001,600
debentures debentures
--------- --------- ---------- --------- ---------- ---------
$1,343,750 $ 0 $1,343,750 814,164 303,750 $1,514,468
========= ========= ========== ========= ========== =========
</TABLE>
The Company guaranteed that RABAD would be able to sell its common stock
received in the 1995 conversion for $2 per share within one year of this
conversion. This agreement is collateralized by $100,000 of the Company's
accounts receivable. The collateral will be utilized to cover any
deficiencies between the actual selling price and the guaranteed price of
$2 per share, limited to a maximum deficiency guaranteed of $100,000.
RABAD engaged Monetary Advancement International, Inc. (MAII) to sell the
shares received in this conversion. Due to a dispute with the Company
that is more fully described in Note 17, MAII has refused to pay RABAD or
return any unsold shares. As stated in Note 17, the Company intends to
vigorously defend itself against any claims asserted by MAII and does not
believe the aforementioned guarantee will result in any liability to the
Company as RABAD has meritorious claims against MAII. Consequently, no
provision for loss has been made in the Company's consolidated financial
statements because management believes this contingency will be resolved
without any payment of the guarantee by the Company.
F-13
<PAGE>
At December 31, 1995, the Company was in default of its 14% subordinated
debenture and 13% convertible subordinated debenture agreements due to
its failure to make scheduled principal and interest payments. Debenture
holders representing $800,000 of the 14% subordinated debentures
outstanding at December 31, 1995 had notified the Company of default and
requested immediate payment of the entire outstanding balance. In
accordance with the default provisions in the 14% subordinated debenture
and 13% convertible subordinated debenture agreements, the stated
interest rate was increased to 2% per month effective November 30, 1991
and June 30, 1992, respectively.
In addition, the Company was in violation of several other covenants
related to the 14% and 13% convertible subordinated debenture agreements,
including, but not limited to, timely payment of taxes and compliance
with provisions and terms of all material agreements and commitments.
Although the 14% debenture holders and the remaining 13% debenture
holders had not notified the Company regarding acceleration of payment,
the debenture holders had the right to require immediate payment.
Accordingly, the entire balances of the debentures were classified as
current liabilities.
Under the covenants of the debenture agreements, the Company was
prohibited from declaring or paying any dividends to shareholders as long
as the debentures were in default.
The 13% convertible subordinated debentures were originally convertible
into shares of common stock of the Company with the number of shares
issuable upon conversion being determined by dividing the principal
amount of the debentures to be converted by the conversion price in
effect on the conversion date. Giving effect to the 1 for 200 reverse
stock split, the debentures were convertible into 2,500 shares of common
stock at the price per share of $440 at December 31, 1995 based on the
conversion feature as defined in the debenture agreement.
As noted previously, all of the 14% and 13% debenture holders negotiated
the conversion of principal to common stock at a price of $2 per share
subsequent to the effective date of the 1-for-200 reverse stock split,
during the years ended December 31, 1996 and 1995.
At December 31, 1996, aggregate maturities of notes payable and long-term
debt and future minimum lease payments under capital leases are as
follows:
<TABLE>
<CAPTION>
Capital Other
Leases Debt Total
--------------- --------------- ---------------
<S> <C> <C> <C>
1997 $ 55,312 $ 431,852 $ 487,164
1998 56,179 256,261 312,440
1999 55,904 234,465 290,369
2000 27,520 122,056 149,576
2001 5,908 5,908
Thereafter 230,000 230,000
--------------- --------------- ---------------
194,915 1,280,542 1,475,457
Less amounts representing interest 24,020 24,020
--------------- --------------- ---------------
$ 170,895 $ 1,280,542 $ 1,451,437
=============== =============== ===============
</TABLE>
F-14
<PAGE>
8. Commitments
The Company leases land and office space under various operating leases.
The leases generally are for terms of five years and do not contain
purchase options. Rent expense was approximately $202,333, $173,000, and
$142,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
The future minimum lease payments required under noncancelable operating
leases with initial or remaining terms of one or more years at December
31, 1996 were as follows:
1997 $ 119,400
1998 119,400
1999 119,400
2000 112,200
2001 59,050
---------------
$ 529,450
===============
9. Deferred Gain
During November 1991, the Company sold drilling equipment with a net book
value of approximately $394,000 to BWMC for $1,250,000. The Company
included $427,800 of the gain in 1991 income and recorded $427,800 as a
deferred gain to be amortized into income over the estimated remaining
useful life of the drilling equipment of approximately four years. The
Company recognized income of approximately $142,000 from amortization of
the deferred gain during the year ended December 31, 1994. The
amortization is included in gain on sale of fixed assets. The deferred
gain was fully amortized at December 31, 1994.
10. Common Stock Transactions
On September 18, 1996, the Company offered 800,000 shares of the
Company's common stock, in 20 units of 40,000 shares each, at an offering
price of $1.25 per share, pursuant to a private placement memorandum. Of
the 800,000 shares offered, 600,000 shares were sold by the Company's
placement agent, and the Company received net proceeds (after deducting
issuance costs) of $643,382. Approximately $288,000 in proceeds from the
offering was used to acquire Dyna Jet, Inc. and the remainder of the
proceeds will be used for possible future acquisitions and other general
corporate purposes. Options to purchase 80,000 shares of the Company's
common stock at an exercise price of $1.50 per share were issued to the
Company's placement agent, as additional compensation for services
rendered. The options are exercisable for a period of five years from the
date of the private placement. None of the options had been exercised at
December 31, 1996.
During 1995, the Company effectuated a 1-for-200 reverse stock split
effective for each share owned by stockholders of record at the close of
business on October 30, 1995. Par value remained at $.0005 per share. The
reverse stock split reduced the 14,169,252 shares of common stock to
70,901 shares of common stock outstanding. A total of $7,049 was
reclassified from the Company's common stock to the Company's additional
paid in capital. All share and per share amounts in loss per share
calculations have been restated to retroactively reflect the reverse
stock split.
Issuance of common stock for the settlement of liabilities of the Company
are set forth below. Since the market value of the Company's stock was
not readily available, the per share amounts for these transactions have
been determined by the Company's Board of Directors based on the
Company's financial results, business developments, common stock transfer
restrictions, number of shares issued and other factors which would
influence the fair value at the date of Board approval.
F-15
<PAGE>
<TABLE>
<CAPTION>
Amount
Month of Month of Recorded Amount to
Board Issuance/ Number Per Stockholders'
Approval Purchase Description of Shares Share Equity
-------------- ------------- --------------------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
January 1994 January 1994 Issued to settle
litigation 1,500 $ 37.00 $ 37,500
November 1995 December Issued to debt holders in
1995 satisfaction of notes
payable
subordinated debentures 648,151 2.00 1,296,302
November 1995 December Issued in satisfaction of
1995 consulting fees 40,000 2.00 80,000
October 1996 October 1996 Issuance to debt holders in
Issuance to satisfaction
of subordinated
debentures 689,375 1.25 861,719
October 1996 November Issuance to debt holders
1996 in satisfaction of
subordinated debentures 96,250 1.25 120,312
December 1996 December Issued to related party
1996 in Issued in satisfaction
of satisfaction of
consulting fees 12,000 1.25 15,000
October 1996 December Issuance to debt holders
1996 in satisfaction of
subordinated debentures 28,539 1.25 35,674
</TABLE>
11. Stock Warrants
During 1996, the Company issued warrants to purchase shares of the
Company's common stock in connection with the conversion of certain debt
(see Note 7). The warrants give holders the right to purchase up to
303,750 shares of the Company's common stock at $2 per share. The
warrants expire on September 30, 2001 and may be redeemed, at the option
of the Company, at the price of $.50 per warrant, provided that the bid
price of common stock has exceeded $5 per share ending on the trading day
prior to the date on which the notice of redemption is given.
The Company had warrants outstanding at December 31, 1994 giving the
holders the right to purchase up to 1,800,000 shares of the Company's
common stock at $2.50 per share. The warrants expired unexercised during
1995.
In conjunction with the 1990 issuance of the 14% subordinated debentures,
the Company issued warrants to purchase, at a nominal amount, an
aggregate of 2.842% of the issued and outstanding common stock of the
Company, but in no event less than 396,162 shares. The warrants expired
on August 10, 1995 as set forth in the debenture and warrant purchase
agreements.
F-16
<PAGE>
12. Income Taxes
The provision (benefit) for income taxes consists of the following for
the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Federal:
Current $ 39,841 $ (20,5065) $ (80,432)
Deferred (112,096) 0 0
-------------- -------------- --------------
(72,255) (20,5065) (80,432)
-------------- -------------- --------------
State:
Current 12,706 (21,489) 0
Deferred (6,166) 0 0
-------------- -------------- --------------
6,540 (21,489) 0
-------------- -------------- --------------
Total $ (65,715) $ (226,554) $ (80,432)
============== ============== ==============
</TABLE>
In 1996 no provision or benefit has been allocated to the extraordinary
item since the taxable income generated by it consumed a large portion of
the Company's net operating loss carryforwards. These carryforwards were
totally offset by a valuation allowance in the prior year and this
utilization in the current year reduced expense related to the
extraordinary item to zero.
The current federal and state tax benefits in 1995 result from the
utilization of the net operating losses generated in 1995 to offset the
income tax expense associated with the extraordinary gain on
extinguishment of debt described in Note 7.
The current federal tax benefit in 1994 results from the utilization of
net operating losses generated in 1994 to recover taxes previously paid.
The benefit for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate of 34% to income (loss)
before benefit for income taxes and extraordinary gain, as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate $ 12,2986 $ (262,520) $ (415,667)
Nondeductible tax penalties 27,669 22,941
(Decrease) increase in valuation allowance (230,828) 35,966 312,294
Other 14,458
------------ ------------ -------------
Benefit for federal income taxes $ (65,715) $ (226,554) $ (80,432)
============ ============ =============
</TABLE>
At December 31, 1996, the Company has available loss carryforwards of
approximately $1,080,000 for federal tax purposes that expire at various
dates through 2010. Additionally, the Company has state net operating
loss carryforwards of $1,462,000 which expire at various dates to 2010.
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities recorded for financial reporting
purposes and such amounts as measured in accordance with tax laws. In
general, these temporary differences are more inclusive than timing
differences recognized under previously applicable accounting principles.
The items which comprise a significant portion of the deferred tax assets
and liabilities are as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts receivable $ 51,086 $ 35,243
Accrued bonuses and other 86,985 397
Operating loss carryforwards 402,753 1,126,930
Alternative minimum tax credit carryforwards 39,842
------------- -------------
Gross deferred tax asset 580,666 1,162,570
------------- -------------
Gross deferred tax liabilities:
Depreciation (656,950) (389,130)
------------- -------------
Gross deferred tax liability (656,950) (389,130)
------------- -------------
Net deferred tax asset (liability) (76,284) 773,440
Less: valuation allowance (773,440)
------------- -------------
Net deferred tax asset (liability) $ (76,284) $ 0
============= =============
</TABLE>
The net change in the valuation allowance for the years ended December
31, 1996 and 1995 was a decrease of $773,440 and an increase of $35,966,
respectively. The net decrease in the valuation allowance in the current
year primarily relates to the utilization of net operating loss
carryforwards and origination and reversal of other temporary
differences. The net increase in the valuation allowance for the year
ended December 31, 1995 was primarily attributable to an increase in net
operating loss carryforwards and the reversal and origination of
temporary differences.
The Company is required to record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. At December 31, 1996, the Company has recorded in its
consolidated balance sheet a net deferred tax liability as future taxable
amounts exceed future deductible amounts. Consequently, no valuation
allowance has been recorded at December 31, 1996. At December 31, 1995, a
valuation allowance was established for the entire net deferred tax asset
due to substantial doubt as to its realizability.
13. Earnings (Loss) Per Share
Earnings (loss) per share has been computed based on the weighted average
number of shares of common stock actually outstanding and common stock
equivalents, which include shares issuable upon exercise of stock
warrants. For 1996, 1995, and 1994 stock warrants and convertible
debentures have been excluded from the earnings (loss) per share
calculation since they are anti-dilutive. Treasury shares and an
additional 547 shares surrendered to the Company have also been excluded
from the 1996, 1995, and 1994 earnings (loss) per share computations. All
1994 share and per share amounts have been restated to retroactively
reflect the 1-for-200 reverse stock split.
F-18
<PAGE>
14. Major Customers
Most of the Company's business activity is with customers engaged in
drilling and operating natural gas wells primarily in the Black Warrior
Basin in Alabama and Mississippi, the Permian Basin in Texas, and the
Powder River Basin in the Rocky Mountain region. Substantially all of the
Company's accounts receivable at December 31, 1996 and 1995 are from such
customers. Performance in accordance with the credit arrangements is in
part dependent upon the economic condition of the natural gas industry in
the respective geographic areas. The Company does not require its
customers to pledge collateral on their accounts receivable.
The Company earned revenues in excess of 10% of its total revenues from
the following customers for the years ended December 31, 1996, 1995, and
1994, as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Taurus Exploration, Inc. $ 1,916,074 $ 1,921,808 $ 1,940,710
Parker and Parsley Development Company 1,793,411 772,383 655,447
Becfield Drilling Company 1,120,898 1,114,473
</TABLE>
15. Employment Agreements
On September 30, 1996, the Company entered into an employment agreement
with its president, which expires on September 30, 1999, calling for a
base salary of $110,000 per annum, to be adjusted for inflation for each
of the two years ending September 30, 1998 and 1999. In addition, the
agreement gives the president the option to purchase 100,000 shares of
the Company's common stock. The options are exercisable for a period of
ten years from the date of this agreement at an exercise price of $2 per
share. Also, provided the Company's operating results equal or exceed 85%
of the benchmark operating results agreed to between the Company and the
president, the president shall be granted, as of the last day of the
fiscal year as to which such benchmark operating results related, an
option to purchase an additional 50,000 shares of the Company's common
stock. Such options shall be exercisable for a period of ten years at a
price equal to the closing bid price of the Company's common stock on the
last business day of such fiscal year.
The Company paid the president a discretionary bonus of $375,000 through
the issuance of 600,000 shares of common stock valued at $0.625 per share
for the year ended December 31, 1991 and agreed to pay the president's
tax liability related to the bonus. The Company had a remaining accrual
of approximately $98,500 at December 31, 1996 relating to the payment of
the president's tax liability.
The Company has two-year employment agreements with two vice presidents
of the Company, which expire on February 1, 1998, calling for base
salaries of $6,250 per month, to be adjusted annually for inflation. In
addition, if they remain employed pursuant to the employment agreements,
the agreements give the two vice presidents the option for each to
purchase 10,000 shares of the Company's common stock on each of the first
three anniversary dates of the agreement. The purchase price of the
common stock under the options, which is fixed on the date each option is
granted, will be 50% of the mean between the highest and lowest price per
share for transactions in common stock during the three months prior to
the dates the options are granted. The options are exercisable for a
period of 15 years from the date of this agreement, or a period of one
year from the date the employees cease to be employed, if sooner.
16. Stock Options
Pursuant to employment contracts with certain key employees (see Note
15), the Company has issued options to purchase 160,000 shares of the
Company's common stock. Additionally, options to purchase 80,000 shares
of the Company's common stock have been issued to the Company's placement
agent in connection with the private placement (see Note 10). Pertinent
information regarding stock options are as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Number of Range of fff Exercise Vesting
Options Exercise Prices Price Provisions
----------- ---------------- --------- ----------------------------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1993 2,000 $3.75 - 22.27 $10.24 33.3%/yr.
Options granted 5,500 $3.47 - 6.25 $4.29 1,250 in 1994;
----------- --------------- --------- ---------------------------------
Options outstanding, December 31, 1994 and 1995 7,500 $3.46 - 22.27 $7.24 1,750 in 1995; and 2,500 in 1996.
----------- --------------- --------- ---------------------------------
Options canceled (7,500) $3.46 - 22.27 $7.24
Options granted 60,000 $1.66 $1.66 33.3%/yr.
Options granted 180,000 $1.50 - 2.00 $1.78 immediate
----------- --------------- --------- ----------------------------------
Options outstanding, December 31, 1996 240,000 $1.50 - 2.00 $1.75
=========== =============== =========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ---------- ----------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
$1.66 60,000 14.08 $1.66 0
$2.00 100,000 9.75 $2.00 100,000 $2.00
$1.50 80,000 4.75 $1.50 80,000 $1.50
----------- ---------- ---------- ---------- ---------
240,000 9.17 $1.75 180,000 $1.77
=========== ========== ========= ========== ========
</TABLE>
At December 31, 1996, the Company has stock options outstanding under the
aforementioned compensation agreements. The Company applies APB Opinion
No. 25 and related interpretations in accounting for its stock options.
Accordingly, no compensation expense has been recognized for its fixed
stock options to the president, as they were issued at fair market value
or above. Compensation expense of $43,885 has been recognized for options
granted to the two vice presidents, as such options were granted at below
fair market value. Had compensation cost for the Company's stock options
issued been determined based on the fair value at the grant dates for
awards consistent with the method prescribed in SFAS No. 123, the
Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
1996
---------------
Net income - as reported $ 2,035,939
Net income - pro forma $ 2,006,094
Earnings per share - as reported $ 1.96
Earnings per share - pro forma $ 1.93
The pro forma amounts reflected above are not representative of the
effects on reported net income in future years because, in general, the
options granted typically do not vest immediately and additional awards
are made each year.
F-20
<PAGE>
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model with the following
weighted-average assumptions.
1996
-------------
Dividend yield 0%
Expected life (years) 3
Expected volatility 70%
Risk-free interest rate 6.46%
17. Contingencies
On November 1, 1995, the Company entered into a Business Consulting
Agreement with MAII pursuant to which MAII was to provide certain
services, including, among others, providing assistance in preparing and
distributing press releases for a period of six months with an option for
renewal and in equity raising transactions through the private placement
of common stock and the restructuring of the Company's indebtedness. The
Agreement stated that the compensation for these services was to be
200,000 shares of freely traded common stock of the Company with 40,000
shares due upon execution of the Agreement and the balance due during the
term of the Agreement as needed by MAII. It was agreed that MAII's
services would not include any services that constituted the rendering of
legal opinions or that were within the ordinary purview of a certified
public accountant or an NASD registered broker/dealer. The Company issued
the 40,000 shares to MAII and has taken the position that the Agreement
has expired and no further compensation is due and owing, that MAII
failed to perform in accordance with the Agreement and that the intent of
the Agreement and understanding of the parties was that the 160,000
shares would only be issued in conjunction with a private sale of the
Company's securities. On September 24, 1996, MAII demanded that the
Company issue the 160,000 shares to it which the Company refuses to do.
Management of the Company believes that is has substantial and
meritorious defenses to the claim asserted by MAII, intends to defend
itself vigorously in any litigation instituted by MAII and intends to
assert counterclaims against MAII for the return of the 40,000 shares or
their value and for other damages. Although MAII has asserted the claim,
no litigation or arbitration proceeding has been commenced against the
Company. Management of the Company believes that it will not incur any
material liability to MAII in connection with this claim nor will the
claim have a material adverse effect on the consolidated financial
position, results of operations, or cash flows of the Company. In
addition, the Company is reviewing the advisability of it instituting
litigation or an arbitration proceeding against MAII. There can be no
assurance that the Company will be successful in an action that may be
instituted against the Company by MAII or that the Company will be
successful in any action it may institute against MAII.
The Company also is the subject of various legal actions in the ordinary
course of business. Management does not believe the ultimate outcome of
these actions will have a materially adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.
F-21
<PAGE>
18. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate fair value:
Cash and cash equivalents, accounts receivable, current portion of
long-term debt, and accounts payable - The carrying amount is a
reasonable estimate of the fair value because of the short maturity of
these instruments.
Long-term Debt - The fair value is estimated by discounting the future
cash flows using rates currently available to the Company for debt with
similar terms and remaining maturities. The carrying amount and fair
value of long-term debt was $975,359 and $870,359, respectively, at
December 31, 1996, and $394,046 and $367,694, respectively, at December
31, 1995.
19. Subsequent Events
On January 28, 1997, the Company entered into an agreement to acquire the
outstanding stock of Production Well Service Co., Inc., a Mississippi
based integrated oil and gas well servicing company, for approximately
$540,000 in cash and 100,000 options to purchase shares of the Company's
common stock. The transaction is contingent upon, among other things,
satisfactory due diligence of all parties and the Company's ability to
obtain adequate financing to complete the transaction.
In addition, on April 1, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Petro-Log, Inc., a Wyoming based
integrated oil and gas well servicing company, for approximately
$2,250,000. The transaction is contingent upon, among other things,
satisfactory due diligence of all parties and the Company's ability to
obtain adequate financing to complete the transaction.
F-22
<PAGE>
EXHIBITS TO
BLACK WARRIOR WIRELINE CORP.
REPORT ON FORM 10-KSB
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BLACK WARRIOR WIRELINE CORP.
AND
WILLIAM L. JENKINS
Agreement made this 18th day of September, 1996, between Black Warrior
Wireline Corp., a Delaware corporation (the "Company") and William L. Jenkins
(the "Executive").
The Company is desirous of continuing the employment of the Executive
as its President, Chief Executive Officer and a Director, and the Executive is
desirous of continuing in the employment of the Company in those capacities.
The Company and the Executive desire to set forth in this Agreement the
terms and conditions on which the Executive will continue to be employed by the
Company as its President, Chief Executive Officer and a Director with this
Agreement superseding and replacing the Employment Agreement dated April 1,
1994.
Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein.
2. TERM
The employment of the Executive by the Company as provided in
Section 1 will commence on the date hereof and end on September 30, 1999, unless
further extended or sooner terminated as hereinafter provided.
<PAGE>
3. POSITION AND DUTIES
The Executive shall serve as President, Chief Executive
Officer and a Director of the Company, and shall have such responsibilities and
authority consistent with those positions as may, from time to time, be assigned
to the Executive by the Board of Directors of the Company. The Executive shall
devote substantially all his working time and efforts to the business and
affairs of the Company.
4. PLACE OF PERFORMANCE
In connection with the Executive's employment by the Company,
the Executive shall be based at the principal executive offices of the Company
located in Columbus, Mississippi, except for required travel on the Company's
business.
5. COMPENSATION AND RELATED MATTERS
(a) SALARY. During the period of the Executive's employment
hereunder, the Company shall pay to the Executive a base salary at a rate of not
less than $110,000 per annum in equal monthly or other installments. It is
agreed that Executive's base salary for each of the two years ended September
30, 1998 and September 30, 1999 shall be increased to reflect increases in the
cost of living by an amount equal to the result obtained by multiplying $110,000
by the percentage increase in the Consumer Price Index for Urban Wage Earners
and Clerical Workers (U.S. City Average) published by the U.S. Department of
Labor, Bureau of Labor Statistics, for each of the months of September 1997 and
September 1998, respectively, over the Index for the month of September 1996.
Such increased salary shall be payable in the same manner as the base salary.
(b) EXPENSES. The Company shall reimburse Executive for all
normal, usual and necessary expenses incurred by Executive in furtherance of the
business and affairs of the Company against receipt by the Company of
appropriate vouchers or other proof of the Executive's expenditures and
otherwise in accordance with such expense reimbursement policy as may, from time
to time, be adopted by the Board of Directors of the Company.
(c) OTHER BENEFITS. The Company shall maintain in full
force and effect, and the Executive shall be entitled to participate in, all of
its employee benefit plans and arrangements in effect on the date hereof or
plans or arrangements providing the Executive with at least equivalent benefits
thereunder (including, without limitation, each pension and retirement plan and
arrangement, supplemental pension and retirement plan and arrangement, stock
option plan, life insurance and health and accident plan and arrangement,
medical insurance plan, disability plan, survivor income plan, relocation plan
and vacation plan). The Company shall not
<PAGE>
make any changes in such plans or arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all executives of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other executive of the Company. The Executive shall be
entitled to participate in or receive benefits under any employee benefit plan
or arrangement made available by the Company in the future to its executives and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Nothing
paid to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable to
the Executive pursuant to paragraph (a) of this Section.
(d) VACATIONS. The Executive shall be entitled to vacation in
accordance with the Company's existing policies. The Executive shall also be
entitled to all paid holidays given by the Company to its executives.
(e) SERVICES FURNISHED. The Company shall furnish the
Executive with office space, stenographic assistance and such other facilities
and services as shall be suitable to the Executive's position and adequate for
the performance of his duties as set forth in Section 3 hereof.
(f) OPTIONS. Subject to execution of this Agreement, Executive
shall be granted an option to purchase 100,000 shares of the Company's Common
Stock, exercisable for a period of ten (10) years at an exercise price of $2.00
per share (a price determined to be not less than the fair market value of the
Common Stock on September _____, 1996). Such option shall be immediately fully
exercisable. Provided the Company's operating results equal or exceed 85% of the
benchmark operating results agreed to between the Company and the Executive, the
Executive shall be granted as of the last day of the fiscal year as to which
such benchmark operating results relate, an option to purchase an additional
50,000 shares of the Company's Common Stock. Such option shall be exercisable
for a period of ten (10) years at a price equal to the closing bid price of the
Company's Common Stock on the last business day of such fiscal year. The grant
of the foregoing option shall not preclude the participation of the Executive in
any other stock option plan of the Company.
6. OFFICES
The Executive agrees to serve without additional compensation,
if elected or appointed thereto, as a Director of any of the Company's
subsidiaries and in one or more executive offices of any of the Company's
subsidiaries, provided that the Executive is indemnified for serving in any and
all such capacities on a basis no less favorable than is currently provided by
Article VII of the Company's By-Laws. Executive agrees that, upon
<PAGE>
termination of his employment with the Company for any reason whatsoever, he
will resign from all positions as an executive officer and Director of the
Company and all of its subsidiaries.
7. CONFIDENTIAL INFORMATION
Executive covenants and agrees that he will not (except as
required in the course of his employment), while in the employment of the
Company or thereafter, communicate or divulge to, or use for the benefit of
himself, or any other person, firm, association or corporation, without the
consent of the Company, any information concerning any inventions, discoveries,
improvements, processes, formulas, apparatus, technology, expertise,
technological know-how, equipment, methods, trade secrets, research, secret
data, costs or uses or purchasers of the Company's products or services, or
other confidential matters possessed, owned, or used by the Company that may be
communicated to, acquired by, or learned of by the Executive in the course of,
or as a result of, his employment with the Company. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents, equipment, and the like, relating to the business of the Company,
which the Executive shall use or prepare or come into contact with, shall remain
the sole property of the Company.
8. COMPETITION
(a) During the period of the Executive's employment by the
Company, and, in the event Executive terminates his employment prior to the
termination date of this Agreement provided in Section 2 hereof, for a period of
eighteen (18) months after such employment, in the event Executive terminates
his employment prior to the termination date of this Agreement provided in
Section 2 hereof, Executive will not (i) engage in; (ii) have any interest in
any person, firm, or corporation that engages in; or (iii) perform any services
for any person, firm, or corporation that engages in competition with the
Company, or any of its subsidiaries in the development, research relating to,
manufacture, processing, marketing, distribution, or sale of any products or
services that were the subject of activities of the Company, or any of its
subsidiaries, at any time during the period of his employment by the Company, in
any area in which such business shall be carried on.
(b) In the event Executive terminates his employment prior to
the termination date of this Agreement provided in Section 2 hereof, Executive
will not, directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person that they employ or solicit for employment, any
employee of the Company during the period of Executive's employment by the
Company and for a period of two (2) years thereafter.
(c) Notwithstanding any provision of this Section 8 to the
contrary, Executive may own no more than three percent (3%) of the total shares
of all classes of stock outstanding of
<PAGE>
any corporation having securities registered with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
(d) Executive represents that his experience and capabilities
are such that the provisions of this Section 8 will not prevent him from earning
a livelihood.
9. TERMINATION
Notwithstanding any provision of this Agreement to the
contrary, Executive's employment shall terminate upon his death, and the Company
at any time may terminate his employment by giving him written notice of such
termination (i) for cause, as hereinafter defined; (ii) if Executive shall
violate any of the provisions of Sections 7 or 8 hereof; or (iii) if Executive
shall become physically or mentally incapacitated and by reason thereof unable
to perform his duties here under for a period of ninety (90) consecutive days.
For the purpose of clause (i) of this subsection 9, "for cause" shall mean any
of the following events: (x) conviction in a court of law of any crime or
offense involving money or other property of the Company, or any of its
subsidiaries, or any felony, or (y) violation of specific written directions of
the Board of Directors of the Company, provided, however, no discharge shall be
deemed "for cause" under this clause (y) unless Executive shall have first
received written notice from the Board of Directors of the Company advising of
the acts or omissions that constitute such violation, and such violation
continues uncured for a period of thirty (30) days after Executive shall have
received such notice.
10. SUCCESSORS; BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 11, or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement, and all rights of the Executive hereunder,
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
<PAGE>
while any amounts would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee or, if there be no such designee, to the Executive's estate.
11. NOTICE
For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
William L. Jenkins
432 Old Country Lane
Columbus, Mississippi 39201
If to the Company:
Black Warrior Wireline Corp.
3748 Highway #45 North
Columbus, Mississippi 39701
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. MISCELLANEOUS
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by the parties hereto. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. This Agreement
supersedes and replaces the Employment Agreement dated April 1, 1994 between the
Company and Executive which agreement and all
<PAGE>
options agreed to be granted thereunder is herewith terminated. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Mississippi.
13. VALIDITY
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
15. ARBITRATION
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators, in Jackson, Mississippi, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The expense
of such arbitration shall be borne by the Company.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
Black Warrior Wireline Corp.
By:
------------------------------------
Attest Name:
Title:
----------------------------------------
William L. Jenkins
EXHIBIT 10.9
BLACK WARRIOR WIRELINE CORP.
P.O. Drawer 9188
Columbus, Mississippi 39705
(601) 329-1047
Fax: (601) 329-1089
September 20, 1996
Morgan Devin Everett & Company, Ltd.
48 Par-la-ville Road - Suite 213
Hamilton, HM 11, Bermuda
Re: BLACK WARRIOR WIRELINE CORP. (THE "COMPANY")
REORGANIZATION AGREEMENT DATED NOVEMBER 22, 1995
(THE "REORGANIZATION AGREEMENT")
Dear Sirs:
1. Reference is made to the above Reorganization Agreement. You
herewith confirm that, as of the date hereof, you hold $131,250 principal amount
of the Company's indebtedness (the "Indebtedness") owing to you. As provided in
Section 4 of the Reorganization Agreement, concurrently with executing this
letter agreement in the space provided below, you transfer and assign to the
Company such Indebtedness in exchange for 65,625 shares (one (1) share for each
$2 of Indebtedness exchanged) of the Company's duly issued, fully paid and
non-assessable shares of Common Stock. Such shares are issued to you in reliance
upon the exemption from registration contained in Section 3(a)(9) of the
Securities Act of 1933 (the "Act"), as amended, and on the basis that it is
understood that such Indebtedness has been held by you since 1991, it is
understood and agreed that such shares may be immediately resold by you pursuant
to an exemption from the Act.
<PAGE>
Morgan Devin Everett & Company, Ltd.
September 20, 1996
Page 2
You further represent and warrant to the Company as follows:
(i) the Indebtedness exchanged pursuant to the Reorganization Agreement
and this letter agreement constitutes all of the Indebtedness of the
Company held by you;
(ii) you, by your signature hereto, release, discharge and forgive the
Company from any claim for the payment of interest and penalties on the
Indebtedness accruing to the date hereof;
(iii) you release and discharge the Company from any and all claims,
liabilities, and all other obligations whatsoever, contingent or
otherwise, accruing to or held by you at any time up to and including
the date hereof, except for the obligations of the Company expressly
set forth herein; and
(iv) with the delivery of shares of stock to you pursuant hereto, all
of the Company's obligations to you pursuant to Section 4 of the
Reorganization Agreement shall have been fulfilled to your
satisfaction.
2. Reference is further made to Section 5 of the above Reorganization
Agreement. This letter is to confirm the understanding and agreement between you
and the Company that Section 5 of the Reorganization Agreement is herewith
amended to provide that in lieu of the issuance of the Class A Warrants
described therein, you shall receive one (1) share of the Company's Common
Stock, par value $.0005 per share, for each three (3) Class A Warrants you are
entitled to receive pursuant to Section 5 or an aggregate of 13,125 shares of
Common Stock. The issuance of shares of the Company's Common Stock to you in
accordance with the foregoing and the issuance of the Class B Warrants in
accordance with Section 5 of the Reorganization Agreement shall fulfill all of
the Company's obligations to you under Section 5. Only whole shares of Common
Stock shall be issued. It is understood that such shares are "restricted
securities" under the Act and are "Securities" as defined in Section 7 of the
Reorganization Agreement and all of the
<PAGE>
Morgan Devin Everett & Company, Ltd.
September 20, 1996
Page 3
representations, warranties, covenants and agreements you made contained in
Section 7 shall be applicable to such shares as if such shares were Securities.
3. Reference is made to the Conditions set forth in Section 9 of the
Reorganization Agreement. It is understood and agreed that such Conditions are
amended as follows:
(a) As to Section 9.2: It is understood that Messrs Cahn, Hoffman,
Silverman and B. and E. Deeds have not executed the Reorganization
Agreement. Section 9.2 is amended to provide as follows:
"Messrs. Cahn, Hoffman, Silverman and B. and E. Deeds
shall exchange all of their 14% Debentures for shares of
Common Stock on such terms as are mutually agreed between
such persons and the Company and forgive all claims for
the payment of interest and penalties on such
indebtedness, and Messrs. Cahn, Hoffman and Silverman
shall (i) dismiss the Lawsuit (as defined in the
Reorganization Agreement) with prejudice, and (ii) assign
to the Company and the Company shall acquire from Messrs.
Cahn, Hoffman and Silverman all claims related to the
issuance of the 14% Debentures held by Messrs. Cahn,
Hoffman, Silverman, including, but not limited to, the
claims held by Messrs. Cahn, Hoffman and Silverman against
MidTex Corp., Fred Miller and Adolf Weismann."
(b) As to Section 9.3: Messrs. Thornton, James and Mr. and Mrs. Neel
may amend the terms of the supplemental agreements between them and the
Company to contain such terms as are mutually acceptable.
(c) As to Section 9.4: Such private offering may be made for such
number of shares as the Company may determine at $1.25 per share with
the net proceeds to be used for such purposes as the Company may
determine.
<PAGE>
Morgan Devin Everett & Company, Ltd.
September 20, 1996
Page 4
If you are in agreement with the foregoing, please sign and return this
letter whereupon it shall be an agreement between us.
Very truly yours,
Black Warrior Wireline Corp.
By: /s/ William L. Jenkins
--------------------------------
William L. Jenkins, President
Agreed and accepted:
Morgan Devin Everett & Company, Ltd.
By: /s/ Graham E. Hindle
--------------------------------
Graham E. Hindle, Vice-President
EXHIBIT 10.10
BLACK WARRIOR WIRELINE CORP.
P.O. Drawer 9188
Columbus, Mississippi 39705
(601) 329-1047
Fax: (601) 329-1089
September 20, 1996
International Trust Company of Bermuda, Ltd.
48 Par-la-ville Road - Suite 213
Hamilton, HM 11, Bermuda
Re: BLACK WARRIOR WIRELINE CORP. (THE "COMPANY")
REORGANIZATION AGREEMENT DATED NOVEMBER 22, 1995
(THE "REORGANIZATION AGREEMENT")
Dear Sirs:
1. Reference is made to the above Reorganization Agreement. You
herewith confirm that, as of the date hereof, you hold $131,250 principal amount
of the Company's indebtedness (the "Indebtedness") owing to you. As provided in
Section 4 of the Reorganization Agreement, concurrently with executing this
letter agreement in the space provided below, you transfer and assign to the
Company such Indebtedness in exchange for 65,625 shares (one (1) share for each
$2 of Indebtedness exchanged) of the Company's duly issued, fully paid and
non-assessable shares of Common Stock. Such shares are issued to you in reliance
upon the exemption from registration contained in Section 3(a)(9) of the
Securities Act of 1933 (the "Act"), as amended, and on the basis that it is
understood that such Indebtedness has been held by you since 1991, it is
understood and agreed that such shares may be immediately resold by you pursuant
to an exemption from the Act.
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 2
You further represent and warrant to the Company as follows:
(i) the Indebtedness exchanged pursuant to the Reorganization Agreement
and this letter agreement constitutes all of the Indebtedness of the
Company held by you;
(ii) you, by your signature hereto, release, discharge and forgive the
Company from any claim for the payment of interest and penalties on the
Indebtedness accruing to the date hereof;
(iii) you release and discharge the Company from any and all claims,
liabilities, and all other obligations whatsoever, contingent or
otherwise, accruing to or held by you at any time up to and including
the date hereof, except for the obligations of the Company expressly
set forth herein; and
(iv) with the delivery of shares of stock to you pursuant hereto, all
of the Company's obligations to you pursuant to Section 4 of the
Reorganization Agreement shall have been fulfilled to your
satisfaction.
2. Reference is further made to Section 5 of the above Reorganization
Agreement. This letter is to confirm the understanding and agreement between you
and the Company that Section 5 of the Reorganization Agreement is herewith
amended to provide that in lieu of the issuance of the Class A Warrants
described therein, you shall receive one (1) share of the Company's Common
Stock, par value $.0005 per share, for each three (3) Class A Warrants you are
entitled to receive pursuant to Section 5 or an aggregate of 13,125 shares of
Common Stock. The issuance of shares of the Company's Common Stock to you in
accordance with the foregoing and the issuance of the Class B Warrants in
accordance with Section 5 of the Reorganization Agreement shall fulfill all of
the Company's obligations to you under Section 5. Only whole shares of Common
Stock shall be issued. It is understood that such shares are "restricted
securities" under the Act and are "Securities" as defined in Section 7 of the
Reorganization Agreement and all of the
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 3
representations, warranties, covenants and agreements you made contained in
Section 7 shall be applicable to such shares as if such shares were Securities.
3. Reference is made to the Conditions set forth in Section 9 of the
Reorganization Agreement. It is understood and agreed that such Conditions are
amended as follows:
(a) As to Section 9.2: It is understood that Messrs Cahn, Hoffman,
Silverman and B. and E. Deeds have not executed the Reorganization
Agreement. Section 9.2 is amended to provide as follows:
"Messrs. Cahn, Hoffman, Silverman and B. and E. Deeds
shall exchange all of their 14% Debentures for shares of
Common Stock on such terms as are mutually agreed
between such persons and the Company and forgive all
claims for the payment of interest and penalties on such
indebtedness, and Messrs. Cahn, Hoffman and Silverman
shall (i) dismiss the Lawsuit (as defined in the
Reorganization Agreement) with prejudice, and (ii)
assign to the Company and the Company shall acquire from
Messrs. Cahn, Hoffman and Silverman all claims related
to the issuance of the 14% Debentures held by Messrs.
Cahn, Hoffman, Silverman, including, but not limited to,
the claims held by Messrs. Cahn, Hoffman and Silverman
against MidTex Corp., Fred Miller and Adolf Weismann."
(b) As to Section 9.3: Messrs. Thornton, James and Mr. and Mrs. Neel
may amend the terms of the supplemental agreements between them and the
Company to contain such terms as are mutually acceptable.
(c) As to Section 9.4: Such private offering may be made for such
number of shares as the Company may determine at $1.25 per share with
the net proceeds to be used for such purposes as the Company may
determine.
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 4
If you are in agreement with the foregoing, please sign and return this
letter whereupon it shall be an agreement between us.
Very truly yours,
Black Warrior Wireline Corp.
By: /s/ William L.Jenkins
------------------------------
William L. Jenkins, President
Agreed and accepted:
International Trust Company of Bermuda, Ltd.
By: /s/ Alan Covill
---------------------------------------
Alan Covill, Manager
EXHIBIT 10.11
BLACK WARRIOR WIRELINE CORP.
P.O. Drawer 9188
Columbus, Mississippi 39705
(601) 329-1047
Fax: (601) 329-1089
September 20, 1996
Mansfield Soderberg & Company, Ltd.
48 Par-la-ville Road - Suite 213
Hamilton, HM 11, Bermuda
Re: BLACK WARRIOR WIRELINE CORP. (THE "COMPANY")
REORGANIZATION AGREEMENT DATED NOVEMBER 22, 1995
(THE "REORGANIZATION AGREEMENT")
Dear Sirs:
1. Reference is made to the above Reorganization Agreement. You
herewith confirm that, as of the date hereof, you hold $131,250 principal amount
of the Company's indebtedness (the "Indebtedness") owing to you. As provided in
Section 4 of the Reorganization Agreement, concurrently with executing this
letter agreement in the space provided below, you transfer and assign to the
Company such Indebtedness in exchange for 65,625 shares (one (1) share for each
$2 of Indebtedness exchanged) of the Company's duly issued, fully paid and
non-assessable shares of Common Stock. Such shares are issued to you in reliance
upon the exemption from registration contained in Section 3(a)(9) of the
Securities Act of 1933 (the "Act"), as amended, and on the basis that it is
understood that such Indebtedness has been held by you since 1991, it is
understood and agreed that such shares may be immediately resold by you pursuant
to an exemption from the Act.
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 2
You further represent and warrant to the Company as follows:
(i) the Indebtedness exchanged pursuant to the Reorganization
Agreement and this letter agreement constitutes all of the
Indebtedness of the Company held by you;
(ii) you, by your signature hereto, release, discharge and forgive the
Company from any claim for the payment of interest and penalties on
the Indebtedness accruing to the date hereof;
(iii) you release and discharge the Company from any and all claims,
liabilities, and all other obligations whatsoever, contingent or
otherwise, accruing to or held by you at any time up to and including
the date hereof, except for the obligations of the Company expressly
set forth herein; and
(iv) with the delivery of shares of stock to you pursuant hereto, all
of the Company's obligations to you pursuant to Section 4 of the
Reorganization Agreement shall have been fulfilled to your
satisfaction.
2. Reference is further made to Section 5 of the above Reorganization
Agreement. This letter is to confirm the understanding and agreement between you
and the Company that Section 5 of the Reorganization Agreement is herewith
amended to provide that in lieu of the issuance of the Class A Warrants
described therein, you shall receive one (1) share of the Company's Common
Stock, par value $.0005 per share, for each three (3) Class A Warrants you are
entitled to receive pursuant to Section 5 or an aggregate of 13,125 shares of
Common Stock. The issuance of shares of the Company's Common Stock to you in
accordance with the foregoing and the issuance of the Class B Warrants in
accordance with Section 5 of the Reorganization Agreement shall fulfill all of
the Company's obligations to you under Section 5. Only whole shares of Common
Stock shall be issued. It is understood that such shares are "restricted
securities" under the Act and are "Securities" as defined in Section 7 of the
Reorganization Agreement and all of the
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 3
representations, warranties, covenants and agreements you made contained in
Section 7 shall be applicable to such shares as if such shares were Securities.
3. Reference is made to the Conditions set forth in Section 9 of the
Reorganization Agreement. It is understood and agreed that such Conditions are
amended as follows:
(a) As to Section 9.2: It is understood that Messrs Cahn, Hoffman,
Silverman and B. and E. Deeds have not executed the Reorganization
Agreement. Section 9.2 is amended to provide as follows:
"Messrs. Cahn, Hoffman, Silverman and B. and E. Deeds
shall exchange all of their 14% Debentures for shares
of Common Stock on such terms as are mutually agreed
between such persons and the Company and forgive all
claims for the payment of interest and penalties on
such indebtedness, and Messrs. Cahn, Hoffman and
Silverman shall (i) dismiss the Lawsuit (as defined in
the Reorganization Agreement) with prejudice, and (ii)
assign to the Company and the Company shall acquire
from Messrs. Cahn, Hoffman and Silverman all claims
related to the issuance of the 14% Debentures held by
Messrs. Cahn, Hoffman, Silverman, including, but not
limited to, the claims held by Messrs. Cahn, Hoffman
and Silverman against MidTex Corp., Fred Miller and
Adolf Weismann."
(b) As to Section 9.3: Messrs. Thornton, James and Mr. and Mrs. Neel
may amend the terms of the supplemental agreements between them and
the Company to contain such terms as are mutually acceptable.
(c) As to Section 9.4: Such private offering may be made for such
number of shares as the Company may determine at $1.25 per share with
the net proceeds to be used for such purposes as the Company may
determine.
<PAGE>
International Trust Company of Bermuda, Ltd.
September 20, 1996
Page 4
If you are in agreement with the foregoing, please sign and return this
letter whereupon it shall be an agreement between us.
Very truly yours,
Black Warrior Wireline Corp.
By: /s/ William L. Jenkins
---------------------------------
William L. Jenkins, President
Agreed and accepted:
Mansfield Soderberg & Company, Ltd.
By: /s/ C.A. Wilkie
-------------------------------
C.A. Wilkie, President, CEO
EXHIBIT 10.12
BLACK WARRIOR WIRELINE CORP.
P.O. Drawer 9188
Columbus, Mississippi 39705
(601) 329-1047
Fax: (601) 329-1089
September 20, 1996
Pangaea Investment Consultants, Ltd.
48 Par-la-ville Road - Suite 213
Hamilton, HM 11, Bermuda
Re: BLACK WARRIOR WIRELINE CORP. (THE "COMPANY")
REORGANIZATION AGREEMENT DATED NOVEMBER 22, 1995
(THE "REORGANIZATION AGREEMENT")
Dear Sirs:
1. Reference is made to the above Reorganization Agreement. You
herewith confirm that, as of the date hereof, you hold $-0- principal amount of
the Company's indebtedness (the "Indebtedness") owing to you. As provided in
Section 4 of the Reorganization Agreement, concurrently with executing this
letter agreement in the space provided below, you transfer and assign to the
Company such Indebtedness in exchange for -0- shares (one (1) share for each $2
of Indebtedness exchanged) of the Company's duly issued, fully paid and
non-assessable shares of Common Stock. Such shares are issued to you in reliance
upon the exemption from registration contained in Section 3(a)(9) of the
Securities Act of 1933 (the "Act"), as amended, and on the basis that it is
understood that such Indebtedness has been held by you since 1991, it is
understood and agreed that such shares may be immediately resold by you pursuant
to an exemption from the Act.
<PAGE>
Pangaea Investment Consultants, Ltd.
September 20, 1996
Page 2
You further represent and warrant to the Company as follows:
(i) the Indebtedness exchanged pursuant to the Reorganization
Agreement and this letter agreement constitutes all of the
Indebtedness of the Company held by you;
(ii) you, by your signature hereto, release, discharge and forgive the
Company from any claim for the payment of interest and penalties on
the Indebtedness accruing to the date hereof;
(iii) you release and discharge the Company from any and all claims,
liabilities, and all other obligations whatsoever, contingent or
otherwise, accruing to or held by you at any time up to and including
the date hereof, except for the obligations of the Company expressly
set forth herein; and
(iv) with the delivery of shares of stock to you pursuant hereto, all
of the Company's obligations to you pursuant to Section 4 of the
Reorganization Agreement shall have been fulfilled to your
satisfaction.
2. Reference is further made to Section 5 of the above Reorganization
Agreement. This letter is to confirm the understanding and agreement between you
and the Company that Section 5 of the Reorganization Agreement is herewith
amended to provide that in lieu of the issuance of the Class A Warrants
described therein, you shall receive one (1) share of the Company's Common
Stock, par value $.0005 per share, for each three (3) Class A Warrants you are
entitled to receive pursuant to Section 5 or an aggregate of 13,125 shares of
Common Stock. The issuance of shares of the Company's Common Stock to you in
accordance with the foregoing and the issuance of the Class B Warrants in
accordance with Section 5 of the Reorganization Agreement shall fulfill all of
the Company's obligations to you under Section 5. Only whole shares of Common
Stock shall be issued. It is understood that such shares are "restricted
securities" under the Act and are "Securities" as defined in Section 7 of the
Reorganization Agreement and all of the
<PAGE>
Pangaea Investment Consultants, Ltd.
September 20, 1996
Page 3
representations, warranties, covenants and agreements you made contained in
Section 7 shall be applicable to such shares as if such shares were Securities.
3. Reference is made to the Conditions set forth in Section 9 of the
Reorganization Agreement. It is understood and agreed that such Conditions are
amended as follows:
(a) As to Section 9.2: It is understood that Messrs Cahn, Hoffman,
Silverman and B. and E. Deeds have not executed the Reorganization
Agreement. Section 9.2 is amended to provide as follows:
"Messrs. Cahn, Hoffman, Silverman and B. and E. Deeds
shall exchange all of their 14% Debentures for shares of
Common Stock on such terms as are mutually agreed between
such persons and the Company and forgive all claims for
the payment of interest and penalties on such
indebtedness, and Messrs. Cahn, Hoffman and Silverman
shall (i) dismiss the Lawsuit (as defined in the
Reorganization Agreement) with prejudice, and (ii) assign
to the Company and the Company shall acquire from Messrs.
Cahn, Hoffman and Silverman all claims related to the
issuance of the 14% Debentures held by Messrs. Cahn,
Hoffman, Silverman, including, but not limited to, the
claims held by Messrs. Cahn, Hoffman and Silverman
against MidTex Corp., Fred Miller and Adolf Weismann."
(b) As to Section 9.3: Messrs. Thornton, James and Mr. and Mrs. Neel
may amend the terms of the supplemental agreements between them and
the Company to contain such terms as are mutually acceptable.
(c) As to Section 9.4: Such private offering may be made for such
number of shares as the Company may determine at $1.25 per share with
the net proceeds to be used for such purposes as the Company may
determine.
<PAGE>
Pangaea Investment Consultants, Ltd.
September 20, 1996
Page 4
If you are in agreement with the foregoing, please sign and return this
letter whereupon it shall be an agreement between us.
Very truly yours,
Black Warrior Wireline Corp.
By: /s/ William L. Jenkins
---------------------------------
William L. Jenkins, President
Agreed and accepted:
Pangaea Investment Consultants, Ltd.
By: /s/ J.A. McNiff, Sr.
---------------------------------
J.A. McNiff, Sr., President & CEO
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 1,369,306
<ALLOWANCES> (136,959)
<INVENTORY> 183,467
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<PP&E> 5,923,961
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