SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1997;
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 Number 0-18754
BLACK WARRIOR WIRELINE CORP.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 11-2904094
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3748 HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701
--------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(601) 329-1047
-----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) has filed all Reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 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 90 days.
YES X NO
---- ----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Outstanding at
Class November 19, 1997
--------------------- ------------------------
COMMON STOCK, PAR VALUE
$.0005 PER SHARE
Transitional Small Business Disclosure Format
YES NO X
---- ----
<PAGE>
BLACK WARRIOR WIRELINE CORP.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I -- FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements
Financial Information 2
Consolidated Balance Sheets -- September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations --
Three Months Ended September 30, 1997 and
September 30,1996 4
Condensed Consolidated Statements of Operations--
Nine Months Ended September 30, 1997 and
September 30, 1996 5
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1997 and
Period Ended September 30, 1996 6
Notes to Condensed Consolidated Financial Statements -- 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
1
<PAGE>
PART I -- FINANCIAL INFORMATION
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITY LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
Quarterly Report on Form 10-QSB are "forward-looking statements" as
defined under the Securities Exchange Act of 1394, as amended, that
involve risks and uncertainties. Forward-looking statements include,
but are not limited to, statements under the heading "Management's
Discussion and Analysis of Financial Condition ad Results of
Operations." Such forward-looking statements relate to the Company's
ability to attain and maintain profitability and cash flow, the
stability of and future prices for oil and gas, pricing in the oil and
gas services industry and the ability of the Company to compete in the
premium services market, the ability of the Company to expand through
acquisitions and to redeploy its equipment among regional operations,
the ability of the Company to upgrade, modernize and expand its
equipment, including its wireline fleet, the ability of the Company to
expand its tubing conveyed perforating services, the ability of the
Company to raise additional capital to meet its requirements and to
obtain additional financing, its ability to successfully implement its
business strategy, and its ability to maintain compliance with the
covenants of its various loan documents and other agreements pursuant
to which securities have been issued. The inability of the Company to
meet these objectives or the consequences on the Company from adverse
developments in general economic conditions, adversed developments in
the oil and gas industry, and other factors could have a material
adverse effect on the Company. The Company cautions readers that
various risk factors referred to herein could cause the Company's
operating results to differ materially from those expressed in any
forward-looking statements made by the Company and could adversely
affect the Company's financial condition and its ability to pursue its
business strategy.
2
<PAGE>
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,016,632 $ 727,454
Accounts receivable, less allowance for
doubtful accounts of $230,038 at September
30,1997 and $136,959 at December 31,1996 4,511,686 1,369,306
Inventories 354,880 183,467
Prepaid expenses 285,070 53,424
Deferred tax asset 138,071 138,071
Federal income tax receivable 0 14,636
------------ -----------
Total current assets 6,306,339 2,486,358
Land and building, held for sale 400,000 400,000
Property, plant & equipment, less accumulated
depreciation of $4,334,286 and $3,729,370 at
September 30, 1997 and December 31, 1996 6,858,272 2,194,591
Goodwill, less amortization of $98,262 and $0 at September 30, 1997 8,192,475 224,305
and December 31, 1996
Other assets 160,471 5,420
------------- ---------------
Total assets $ 21,917,557 $ 5,310,674
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,161,696 $ 808,832
Accounts payable, related party 54,098 89,733
Accrued salaries and vacation pay 61,108 25,085
Income tax payable 558,943 52,548
Accrued interest payable 149,110 29,530
Other accrued expenses 750,275 381,396
Mortgage note payable, related party 550,549 150,000
Notes payable to bank 163,595 18,272
Bridge loan payable, related party 3,000,000
Current maturities of long-term debt and
capital lease obligations 538,868 307,806
-------------- ---------------
Total current liabilities 7,988,242 1,863,202
Deferred tax liability 214,355 214,355
Note payable to bank, less current maturities 99,027 31,486
Mortgage payable, related party 0 230,000
Long-term debt and capital lease obligations,
less current maturities 8,915,318 713,873
-------------- ---------------
Total liabilities 17,216,942 3,052,916
Common stock, par value $.0005 per share,
12,500,000 shares authorized, 2,250,216 and 2,185,216
shares issued at September 30, 1997 and December 31, 1996 1,516 1,093
Additional paid-in capital 7,369,162 5,133,087
Common stock to be issued in connection with acquisition 280,000
(133,333 shares)
Accumulated deficit (2,366,670) (2,293,029)
Treasury stock, at cost, 814,626 shares (583,393) (583,393)
------------- --------------
Total stockholders' equity 4,700,615 2,257,758
------------- --------------
Total liabilities and stockholders' equity $ 21,917,557 $ 5,310,674
============= ==============
</TABLE>
See Notes to Condensed Consolidated financial Statements
3
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
<S> <C> <C>
Net revenues $ 4,565,840 $ 2,053,346
----------------------------------------------
Operating costs and expenses (4,093,563) (1,632,245)
Depreciation and amortization expense (467,455) (145,042)
----------------------------------------------
Operating income (loss) 4,822 276,059
Interest expense and amortization
of debt discount (154,476) (107,249)
Other income 32,258 7,280
----------------------------------------------
Income (loss) before provision
(benefit)for income taxes (117,396) 176,090
Provision(benefit) for income taxes 0 (595,713)
----------------------------------------------
Income before extraordinary 771,803
gain on extinguishment of debt
Extraordinary gain on extinguishment of
debt, net of taxes 0 1,014,758
----------------------------------------------
Net income (loss) $ (117,396) $ 1,786,561
====================== ==================
Net income (loss) per common share $ (.05) $ 1.23
Weighted average common
shares outstanding 2,466,072 1,448,427
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
<S> <C> <C>
Net revenues $ 9,218,909 $ 5,200,094
-------------------------------------------------------
Operating costs and expenses (8,034,800) (4,611,439)
Depreciation and amortization expense (931,969) (420,313)
-------------------------------------------------------
Operating income (loss) 252,140 168,342
Interest expense and amortization
of debt discount (408,149) (312,364)
Other income 82,374 84,861
-------------------------------------------------------
Income (loss) before provision
(benefit)for income taxes (73,635) (59,161)
Provision (benefit)for income taxes 0 (595,713)
-------------------------------------------------------
Income before extraordinary
gain on extinguishment of debt 536,552
Extraordinary gain on extinguishment
of debt, net of taxes 0 1,014,758
-------------------------------------------------------
Net income (loss) $ (73,635) $ 1,551,310
===================== ==================
Net income (loss) per common share $ (.03) $ 1.07
Weighted average common
shares outstanding 2,313,324 1,448,427
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) $ (73,641) $ 1,551,310
Adjustments to reconcile net income(loss) to
cash provided by operations:
Depreciation 833,110 420,313
Amortization 88,756
Allowance for doubtful accounts 93,079
Net gain on disposal of plant, property
and equipment (26,570) (76,045)
Gain on extinguishment of debt (1,014,757)
Deferred tax benefit (595,713)
Change in:
Accounts receivable (1,079,489) (467,376)
Inventories (128,860) 8,314
Prepaid expenses (95,145) 87,870
Income/other receivable 14,636 (178)
Other assets 34,950 (366)
Accounts payable and other liabilities 96,980 266,091
------------- -----------------
Cash(used in)provided
by operations (242,194) 179,463
------------- -----------------
Cash flow from investing activities:
Acquisitions of plant,
property, and equipment (1,358,015) (154,416)
Proceeds from sale of plant, property
and equipment 68,548 94,463
Acquisition of business, net of cash acquired (98,427)
------------- -----------------
Cash used in
investing activities (1,387,894) (59,953)
------------- -----------------
Cash flow from financing activities:
Debt issuance costs (190,000)
Proceeds from debt 2,471,018
Principal payments on debt and
lease obligations (361,752) (241,190)
------------- -----------------
Cash(used in) provided by
financing activities 1,191,266 (241,190)
------------- -----------------
Net increase(decrease) 289,178 (121,680)
in cash and cash equivalents
Cash and cash equivalents, beginning of period 727,454 284,825
------------- -----------------
Cash and cash equivalents, end of period $ 1,016,632 $ 163,145
------------- -----------------
Supplemental disclosure of cash flow information:
Taxes paid $ 51,750 $ 0
Interest paid 90,907 57,582
Supplemental schedule of noncash investing and financing:
Acquisition of plant, property and equipment financed under
capital leases and notes payable 1,370,565
Common stock issued for consulting 136,500
Business acquisition, net of cash acquired:
Current assets 2,198,523
Current liabilities (4,901,126)
Property, plant, and equipment 2,810,189
Assets, noncurrent 7,958,499
Long term liabilities (5,686,086)
Equity (2,379,999)
</TABLE>
6
<PAGE>
BLACK WARRIOR WIRELINE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial position of Black
Warrior Wireline Corp. and subsidiaries (the "Company"). Such
adjustments are of a normal recurring nature. The consolidated results
of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. The consolidated
financial statements and notes thereto should be read in conjunction
with the consolidated financial statements and notes as of December 31,
1996 and for the years ended December 31, 1996, 1995, and 1994 included
in the Company's 1996 Annual Report on form 10-KSB. Operating results
of the Company for the nine and three months ended September 30, 1997,
are not necessarily indicative of the result that may be expected for
the entire year ended December 31, 1997.
2. 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 debenture holders 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 March
31, 1996, 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 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
7
<PAGE>
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.
3. BUSINESS COMBINATIONS
Effective June 6, 1997, the Company completed the acquisition of
Production Well Services, Inc. (PWS). PWS is engaged in the wireline
and oil and gas well services business in southern Alabama and southern
Mississippi. The purchase price was financed with the proceeds of a
$2,000,000, 9% Convertible Promissory Note and the issuance of 133,333
shares of the Company's common stock. In addition to providing the
funds to complete the PWS acquisition, a portion of the funds were used
to purchase and improve equipment. For financial statement purposes,
the acquisition was accounted for as a purchase and accordingly, PWS's
results are included in the consolidated financial statements since the
date of acquisition. The acquisition resulted in excess of cost over
fair market value of net assets acquired of approximately $610,000,
which will be amortized over ten years. The following is a summary of
assets acquired, liabilities assumed, and consideration paid in
connection with the acquisition:
Fair value of assets acquired, including goodwill $ 1,146,478
Cash paid for assets acquired, net of cash received 836
Common stock issued in connection with acquisition (279,999)
-----------
Liabilities assumed or incurred $ 867,315
-----------
Effective June 9, 1997, the Company completed the acquisition of
Petro-Log, Inc. (Petro-Log). Petro-Log is engaged in the wireline and
oil and gas well services business in Wyoming, Montana, and South
Dakota. The purchase price was financed from the proceeds of the
$3,000,000, 10% Bridge Loan Note. In addition to providing the funds to
complete the Petro-Log acquisition, a portion of the funds were used to
purchases and improve equipment. For financial statement purposes, the
acquisition was accounted for as a purchase and accordingly,
Petro-Log's results are included in the consolidated financial
statements since the date of acquisition. The following is a summary of
assets acquired, liabilities assumed, and consideration paid in
connection with the acquisition:
Fair value of assets acquired $ 2,402,739
Cash paid for assets acquired (265,239)
-----------
Liabilities assumed or incurred $ 2,137,500
-----------
On October 9, 1997, the Company completed the acquisition, effective as
of September 1, 1997, of Diamondback Directional, Inc .(DDI). DDI is
engaged in providing oil and gas well drilling services, horizontal
drilling as well as conventional directional drilling. The business
will be operated as a division of the Company under the name "
Diamondback Directional". The purchase price for the business an assets
acquired was approximately $8,920,000, of which $2,750,000 was paid in
cash , $3,170,549 by issuance of the
8
<PAGE>
Company's promissory notes bearing interest at 6.5% per annum, payable
quarterly, and due on August 31, 1999, and $3,000,000 by issuance of
647,569 shares of the Company's Common Stock. The purchase price is
subject to adjustment, by reduction of the principal amount of the
notes, to the extent the gross receipts from the Diamondback Division
operations for the twelve months ended August 31, 1998 and August 31,
1999 fail to meet a specified performance standard. The Company has
agreed that in the event it files a registration statement under the
Securities Act of 1933 relating to an underwritten public offering of
its shares, the holder of the shares issued in the transaction will
have certain rights to have the shares included in the registration
statement. The acquisition resulted in an excess of cost over fair
market value of net assets acquired of approximately $7,450,000, which
will be amortized over twenty-five years. The following is a summary of
assets acquired, liabilities assumed, and consideration paid in
connection with the acquisition:
Fair value of assets acquired, including goodwill $ 9,531,668
Cash paid for assets acquired, net of cash received 165,976
Common stock issued in connection with acquisition (2,100,000)
-----------
Liabilities assumed or incurred $ 7,597,644
-----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDUSTRY OVERVIEW AND ECONOMIC FACTORS IMPACTING COMPANY OPERATIONS
The overall level of activity and profitability experienced by the
Company and the oil and gas well service industry is directly related
to the demand for the Company's services by the domestic oil and gas
industry. The principal factors driving the demand for the Company's
services are market price of oil and natural gas and the continuing
technological advances in the industry. 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 through 1997 and beyond.
Advances in seismic technology and drilling practices have increased
success rates, lowered finding costs and increased production rates,
which in turn have allowed operators to conduct more stable and active
programs even in periods of lower energy prices.
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.
The Company's continuing upgrading of technological capabilities has
enabled the Company to compete in the premium services market which has
better margins and lower discounts. The Company believes that continued
improvements will be seen in the remainder of 1997 and beyond as this
trend continues.
9
<PAGE>
CORPORATE OPERATIONAL AND EXPANSION STRATEGY
The Company's strategy is to continue to aggressively expand through
acquisitions and to take advantage of improving market conditions and
the benefits of these acquisitions. The Company also intends to expand
its operations through the redeployment of equipment among the
Company's existing regional operations. The Company seeks acquisitions
of companies with existing operations, established reputations and
equipment that can be assimilated into the Company's operations.
During the year ended December 31, 1996 and through September 30, 1997,
the Company acquired the following companies. On November 19, 1996, the
acquisition of Dyna-Jet,Inc., a Wyoming corporation ("Dyna-Jet"), was
completed. Dyna-Jet is engaged in the wireline and oil and gas well
services business in the Gillette, Wyoming area. On June 6, 1997, the
Company acquired Production Well Services, Inc., a Mississippi
corporation ("PWS"). PWS is engaged in the wireline and oil and gas
services business southern Mississippi and southern Alabama area. On
June 9, 1997 the Company acquired Petro-Log, Incorporated, a Wyoming
corporation ("Petro-Log"). Petro-Log is engaged in the wireline and oil
and gas well services business in Wyoming, Montana and South Dakota.
The Company has consolidated the management of Dyna Jet and Petro Log
and is operating the combined business as Petro Log in the Rocky
Mountains. Effective September 1, 1997, the business and assets of
Diamondback Directional, Inc. were acquired by the Company. DDI, a
Texas corporation located in Conroe, was engaged in providing oil and
gas well drilling services, horizontal drilling as well as conventional
directional drilling. The Company will continue the operations of DDI
as Diamondback Directional, a division of the Company. The Company is
committed to expend $4,000,000.00 on new equipment for its Diamondback
Directional division during 1998 and 1999. The Company anticipates it
will fund these expenditures from its anticipated cash flow as well as
from the proceeds of public or private debt or equity from arrangements
that may be entered into. Herein, Dyna-Jet, PWS, Petro-Log, and DDI are
referred to as the "Acquired Companies".
The Company also intends to expand its tubing conveyed perforating
services. The Company is providing this service in Alabama and
Mississippi and plans to introduce this service throughout its
operational areas.
The Company has purchased state of the art downhole tools including
segmented bond tools, and magnetic and 40-arm casing inspection tools.
These tools were placed into service in the second quarter and third
quarters of 1997 and their impact should be felt during the remainder
of the year. These tools are expected to enable the Company to provide
services unavailable from smaller wireline competitors and thereby
enable the Company to provide services in a less price competitive
environment.
The ongoing modernization and expansion of the Company's wireline fleet
continued in the third quarter with new and refurbished trucks being
delivered to all regions. The
10
<PAGE>
Company plans to accelerate its production of wireline units to two per
month by the second quarter of 1998. The Company expects to fund the
production of wireline units out of available cash flow and/or from the
proceeds of additional borrowing.
RESULTS OF OPERATIONS
Revenues by division for the quarters and nine months ended
September 30, 1997 and September 30, 1996 are summarized
below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1997 30, 1996 30, 1997 30, 1996
--------------------------- ---------------------------
Wireline services
<S> <C> <C> <C> <C>
(logging, perforating) $ 6,548,856 $ 3,681,558 $ 2,815,176 $ 1,544,453
Directional drilling 1,282,086 0 1,282,086 0
services
Completion (workover
services) 1,180,922 1,294,715 406,164 449,000
Tools and Packers 207,045 223,821 62,414 59,893
(sales and rentals of
bridge plugs)
-----------------------------------------------------------------------------------
Total $ 9,218,909 5,200,094 $ 4,565,840 2,053,346
=================== ========= ================== =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996
The Company had a loss, before provision for income taxes, of $117,396
for the third quarter of 1997 as compared with income, before provision
for income taxes, of $1,786,561 for the same period of 1996. The loss
before provision for income taxes of $117,396 can be attributed to
several factors. The costs of tools and supplies increased $156,000 as
compared with the same period ended September 30, 1996. Equipment
rental increased $116,000 as compared with the three months ended
September 30, 1996, primarily as a result of the rental of steering
tools used in conjunction with providing directional and horizontal
drilling services. Tools were rented on an interim basis in order to
determine the market of these services. Salaries increased $929,182 for
the three months ended September 30, 1997. This increase can be
attributed to the increased personnel of the Acquired Companies as well
as increased salary levels. Depreciation and amortization increased
$322,412 for the three month ended September 30, 1997,
11
<PAGE>
primarily because of the larger asset base and amortization of
goodwill. Operating costs and expenses increased by $2,461,319 in the
third quarter of 1997 as compared with the same period in 1996. This
was primarily due to the Company's expanding volume of business
resulting from the various acquisitions and increased costs of
materials in the industry.
Interest expense increased by $47,227 in the third quarter of 1997 as
compared with the same period in 1996. Interest expense relating to the
issuance of the St. James Capital debt for the third quarter totaled
$117,377 and interest related to the DDI debt totaled $16,939.
Net revenues increased by $2,512,494 to $4,565,840 for the third
quarter of 1997 compared with net revenues of $2,053,346 in the same
period in 1996. While completion services and sales and rentals of
tools and packers declined, there was a substantial increase in
wireline service revenues. A substantial portion of this increase
resulted from revenues from the PWS and Petro Log acquisitions. The DDI
acquisition contributed $1,282,086 in revenues for September 1997. The
Company expects a continued increase in demand from most of the
Company's customers during 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
The Company had a loss, before provision for income taxes, of $73,635
for the nine months ended September 30, 1997 as compared with income,
before provision for income taxes, of $1,551,311 for the same period of
1996. The loss before provision for income taxes of $73,635 can be
attributed to several factors. The costs of tools and supplies
increased $294,392 as compared with the same nine month ended September
30, 1996. Equipment rental increased $226,125 as compared with the nine
month ended September 30, 1996, primarily as a result of the rental of
steering tools used in conjunction with providing directional and
horizontal drilling services. Tools were rented on an interim basis in
order to determine the market of these services. Salaries increased
$1,320,139 for the nine months ended September 30, 1997 with the total
number of employees increasing to 176 at September 30, 1997 from 98 at
September 30, 1996. This increase can be attributed to increased
personnel of the Acquired Companies as well as increased salary levels.
DDI increased the number of salaried employees and contract drillers by
40 persons during the nine month period. Depreciation and amortization
increased $511,655 for the nine months ended September 30, 1997,
primarily because of the larger asset base and amortization of
goodwill. Operating costs and expenses increased by $3,423,362 in the
nine month ended September 30, 1997 as compared with the same period in
1996. This was due to the Company's expanding volume of business with
the various acquisitions and increased costs of materials in the
industry.
12
<PAGE>
Revenues contributed by the Acquired Companies for the nine month
period ended September 30, 1997, were $2,672,687. DDI had revenues of
$1,282,086, PWS had revenues of $480,058 and Petro-Log/Dyna-Jet
contributed $910,543 for the nine month period ended September 30,
1997. The Company's revenues also increased as a consequence of the
increased utilization of its previously owned oil and gas well service
operations as well as improved pricing for the Company's services.
In conjunction with the financing of the acquisitions, the Company
entered into an agreement with Southwick Investments and incurred fees
totaling $190,000 that will be expensed over the life of a 9%
Convertible Promissory Note and the 10% Bridge Loan issued in June
1997. The fee was paid from the proceeds of the two notes. In addition,
a total of 65,000 shares of the Company's common stock was issued to
Swartwood, Hesse Inc., and Pangaea Investment Consultants, LTD in
consideration of two year consulting agreements between such firms and
the Company. The total cost of $136,500 will be expensed over the term
of the consulting agreements. Interest expense related to the
Diamondback Purchase Promissory Note was $16,939.
Interest expense increased by $95,784 in the nine month ended September
30, 1997 as compared with the same period in 1996.
Notes with three to five year maturities were used to purchase new
vehicles and equipment during the first nine months of 1997. An
aggregate of $361,750 in principal payments was paid during the nine
months ended September 30, 1997. This amount reduced notes payable.
Additional note payables issued during the nine months totaled
$1,370,565. Other debt increased during the first nine months in the
amount of $7,900,000 from the St. James financing and $3,000,000 from
the DDI acquisition. Interest resulting from the debt ranged from prime
to 12.00%.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by the Company's operating activities was $590,712 for the
nine months ended September 30, 1997 as compared with cash provided of
$179,363 for the nine month period ended September 30, 1996. Investing
activities of the Company used cash of $1,358,015 during the nine month
period ended September 30, 1997 for the acquisitions of property,
plant, and equipment, and acquisition of new business offset by
proceeds from the sale of fixed assets of $68,548. Financing activities
provided cash of $361,750 to pay principal payments of long-term notes
and capital lease obligations.
The acquisitions of PWS and Petro-Log were financed with the proceeds
of borrowing from St. James Capital Partners, L.P. ("St. James").
Pursuant to an Agreement for Purchase and Sale dated June 6, 1997 (the
"June Agreement") between the Company and St. James, the Company agreed
to issue and sell and St. James agreed to purchase the Company's
promissory notes aggregating $5,000,000. Of such amount, $2,000,000 is
represented by the Company's 9% Convertible Promissory Note due June 6,
2002, and
13
<PAGE>
$3,000,000 is represented by the Company's 10% Bridge Loan Note
originally due September 4, 1997, which was extended November 30, 1997.
The $2,000,000 note is convertible into shares of the Company's Common
Stock at an initial conversion price of $2.75 per share, increasing one
year after issuance to $3.25 per share and further increasing two years
after issuance to $3.75 per share, subject to anti-dilution adjustment
for certain issuances of securities by the Company at prices per share
of Common Stock less than the conversion price then in effect. Payment
of principal and interest on both of the notes is collateralized by
substantially all the assets of the Company. The Company is seeking to
refinance the Bridge Note with the proceeds of a senior secured loan
not yet obtained. St. James has agreed to subordinate the indebtedness
owing to it to up to $4,000,000 of indebtedness of the Company to a
senior lender out of which, if borrowed prior to its maturity date, the
Bridge Note must be paid, and up to $2,000,000 of working capital
financing. St. James was also issued warrants to purchase an aggregate
of 666,000 shares of Common Stock at an initial exercise price of $2.75
per share, increasing one year after issuance to $3.25 per share and
further increasing two years after issuance to $3.75 per share, subject
to anti-dilution adjustment for certain issuances of securities by the
Company at prices per share of Common Stock less than the exercise
price then in effect. The shares issuable on conversion of the note and
exercise of the warrants have demand and piggy-back registration rights
under the Securities Act of 1933.
Of the $5,000,000 proceeds from the sale of the notes, $2,000,000 was
advanced concurrently with the acquisition of PWS and $3,000,000 was
advanced concurrently with the acquisition of Petro-Log. In addition to
providing the funds to complete the PWS and Petro-Log acquisitions, the
proceeds were used to purchase and improve equipment, including the
purchase of four additional wireline trucks, and for working capital.
On October 9, 1997, the Company entered into an Agreement for Purchase
and Sale (the "October Note Purchase Agreement") with St. James,
whereby St. James purchased and the Company sold its $2.9 million
convertible promissory note (the "October Note") bearing interest at 7%
per annum due on October 9, 1999. Payment of principal and interest on
the October Note is collateralized by substantially all the assets of
the Company. The October Note is convertible into shares of the
Company's Common Stock at a conversion price of $4.6327 per share,
subject to anti-dilution adjustment for certain issuances of securities
by the Company at prices per share of Common Stock less than the
conversion price then in effect. St. James has agreed to subordinate
its security interests and rights to the indebtedness and security
interests of the lenders providing up to $4.5 million pursuant to a
term loan and $3.0 million pursuant to a revolving credit facility,
neither of which financings have yet been arranged. St. James was also
issued in consideration of a payment of $36,250 a warrant to purchase
an aggregate of 725,000 shares of Common Stock exercisable at a price
of $4.6327 per share, subject to anti-dilution adjustment for certain
issuance of securities by the Company at prices per share of Common
Stock less than the conversion price then in effect. The shares
issuable on conversion of the October Note and exercise of the warrant
have demand and piggy-back registration rights under the securities Act
of 1933. The Company agreed that one person
14
<PAGE>
designated by St. James would be nominated for election to the
Company's Board of Directors. The October Agreement grants St. James
certain preferential rights to provide future financing to the Company,
subject to certain exceptions.
The notes issued to St. James contain various affirmative and negative
covenants, including a prohibition against the Company consolidating,
merging or entering into a share exchange with another person, with
certain exceptions, without the consent of St. James. Events of default
under the notes include, among other events, (i) a default in the
payment of principal or interest: (ii) a breach of the Company's
covenants, representations, and warranties under the October Agreement
or the June Agreement; (iii) a breach under the other agreements
between the Company and St. James, subject to certain exceptions; (iv)
any person or group of persons acquiring 40% or more of the voting
power of the Company's outstanding shares who was not the owner thereof
as of October 10, 1997, a merger of the Company with another person,
its dissolution or liquidation or a sale of all or substantially all
its assets; and (v) certain events of bankruptcy. In the event of a
default under any of the notes issued to St. James, it could seek to
foreclose against the collateral for the Notes. St. James received an
origination fee of $36,250 in connection with the October transaction.
Of the proceeds from the $2.9 million October Note , $2,750,000 was
applied to the purchase of the DDI assets and the balance was used to
purchase additional equipment and for transaction expenses.
The Company is engaged in negotiations with an institutional lender to
borrow $4.5 million. If consummated, the proceeds of the borrowing will
be used to repay the St. James Bridge Note as well as other
indebtedness and to provide working capital. The borrowing would bear
interest at a rate of equal to 2.75% over the yield on US Treasury
Notes having like term at the time of closing and would be amortized in
equal monthly installments over an 84-month period with a balloon
payment of the remaining outstanding principal due at the end of the
60th month. The borrowing would be collateralized by a senior security
interest in substantially all of the Company's wireline trucks and
other equipment. Such borrowing is expected to be completed in the
fourth quarter of 1997.
The Company may, if in the opinion of management market and other
conditions are favorable, seek to raise additional equity capital
by a public or private offering of its securities. The Company has
not entered into any agreements in principal or other agreements
relating thereto and there can be no assurance the Company will
raise addtional capital from any such sources. Management believs
that the Company's exisitng and anticipated cash flows will be
adequate to mmet the Comany's current requirments for funds.
St. James has agreed to convert the $2,000,000 Note into shares of the
Company's Common Stock at such time as the Company has filed a
registration statement under the Securities Act of 1933 relating to the
shares issuable on conversion of that note, and the
15
<PAGE>
October Note, and on exercise of the Warrants issued to St. James and
such registration statement has been declared effective.
By the end of 1998, the Company expects that its various administrative
and well servicing systems will have the capability to process
transactions dated beyond 1999. The costs to complete its efforts to
modify or replace such systems are not expected to be material.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 supersedes existing generally accepted accounting
principles relative to the calculation of earnings per share, is
effective for years ending after December 15, 1997 and requires
restatement of all prior period earnings per share information upon
adoption. Generally, SFAS 128 requires a calculation of basic earnings
per share, which takes into consideration income (loss) available to
common shareholders and the weighted average of common shares
outstanding. SFAS 128 also requires the calculation of a diluted
earnings per share, which takes into effect the impact of all
additional common shares that would have been outstanding if all
dilutive potential common shares relating to options , warrants, and
convertible securities had been issued, as long as their effect is
dilutive, with a related adjustment of income available to common
shareholders, as appropriate. SFAS 128 requires dual presentation of
basic and diluted earnings per share on the face of the statement of
operation and requires a reconciliation of the numerator and
denominator of the basic earnings per share computation. The Company
does not expect the effect of its adoption of SFAS 128 to be material.
The Board has issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in
the financial statements. Comprehensive income is defined as the change
in equity of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. It includes
all changes in equity during a period except those resulting from
investments by owners and distributions to owners. This Statement does
not require a specific format for the presentation of comprehensive
income but requires an amount representing total comprehensive income
for the period. This Statement is effective for fiscal years beginning
after December 15, 1997 with reclassification of earlier periods
required. Other than the additional presentation requirements of this
Statement, the Company does not anticipate a material impact on the
financial position, results of operations, earnings per share or cash
flows.
The Board has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for
the way that public business enterprises report information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports.
16
<PAGE>
This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to
allocate resources to segments.
The financial information required includes a measure of segment profit
or loss, certain specific revenue and expense items, segment assets and
reconciliation of each category to the general financial statements.
The descriptive information required includes the way that the
operating segments were determined, the products and services provided
by the operating segments, differences between the measurements used in
reporting segment information and those used in the general purpose
financial statements, and changes in the measurement of segment amounts
from period to period.
This Statement is effective for financial statements for periods
beginning after December 15, 1997 with restatement of earlier periods
required in the initial year of application. This Statement need not be
applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the
initial year of application is to be reported in financial statements
for interim periods in the second year of application. The Company is
currently determining if these disclosures will be applicable and,
therefore, required in future periods.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 1, 1997 an arbitration proceeding was commenced before the
American Arbitration Association, New York, New York against the
Company by Monetary Advancement International ("MAI"). MAI alleges that
the dispute arises out of a breach of a consulting agreement allegedly
entered into in November 1995. MAI is seeking the issuance to it of
160,000 shares if the Company's Common Stock and compensatory and
punitive damages. Management of the Company believes that it has
substantial and meritorious defenses to the claim asserted by MAI,
intends to defend itself vigorously in the arbitration proceeding and
intends to assert counterclaims. Management of the Company believes
that it will not incur any material liability to MAI in connection with
the arbitration proceeding and that the claim will not have a material
adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of stockholders on July 21, 1997. At
the meeting, the following persons were elected as Directors of the
Company to serve until the 1998
17
<PAGE>
annual meeting of stockholders and until the election and qualification
of their successors.
William L. Jenkins
John A. McNiff, Sr.
Michael Brod
John L. Thompson
In addition, the following matters were voted upon at the annual
meeting. The number of votes cast for, against or withheld, and the
number of abstentions or non-votes is stated.
Proposal to approval the adoption of the 1997 Omnibus Incentive Plan.
In Favor 1,034,168
Against 64,359
Abstained 23,054
Proposal to approve the adoption of the 1997 Non-Employee Stock
Option.
In Favor 1,069,093
Against 32,224
Abstained 20,009
Proposal to amend the Certificate of Incorporation to decease the
number of shares of Common Stock authorized from
50,000,000 to 12,500,000.
In Favor 1,702,043
Against 1,362
Abstained 20,209
Proposal to amend the Certificate of Incorporation to authorize the
issuance of up to 2,500,000 shares of Preferred Stock.
In Favor 1,115,620
Against 25,650
Abstained 20,016
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Amendment filed July 22, 1997
3.2 Certificate of Amendment filed October 31, 1997
10.1 1997 Omnibus Incentive Plan
10.2 1997 Non-Employee Stock Option Plan
18
<PAGE>
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K/A on August 21,
1997, with respect to Item 7 of Form 8-K.
No other Items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-QSB.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
(Registrant)
Date: November 19th , 1997
-------------
William L. Jenkins
---------------------------------------
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)
20
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
BLACK WARRIOR WIRELINE CORP.
Black Warrior Wireline Corp., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: That at a Meeting of the Board of Directors of Black Warrior
Wireline Corp., resolutions were duly adopted setting forth a proposed amendment
to the Certificate of Incorporation of said Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
Corporation for consideration thereof or directing that said amendment be
submitted to stockholders for action without a meeting by consents in writing.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of
the Corporation be hereby amended to read in its entirety as follows:
FOURTH: The total number of shares of Capital Stock which the
Corporation shall have authority to issue is Twelve Million Five
Hundred Thousand (12,500,000) shares, of a par value of $.0005 per
share.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the stockholders of said Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Black Warrior Wireline Corp. has caused this
Certificate to be signed by William L. Jenkins, its President, and John A.
McNiff, Sr., its Secretary, this 21st day of July, 1997.
Attest: Black Warrior Wireline Corp.
/s/ John A. McNiff /s/ William L. Jenkins
- ----------------------------- -------------------------------------
John A. McNiff, Sr., Secretary William L. Jenkins, President
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
BLACK WARRIOR WIRELINE CORP.
Black Warrior Wireline Corp., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: That at a Meeting of the Board of Directors of Black Warrior
Wireline Corp., resolutions were duly adopted setting forth a proposed amendment
to the Certificate of Incorporation of said Corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
Corporation for consideration thereof or directing that said amendment be
submitted to stockholders for action without a meeting by consents in writing.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation of
this corporation be hereby amended to read in its entirety as follows:
FOURTH: The total number of shares of capital stock of all
classes which the Corporation shall have authority to issue is Fifteen
Million (15,000,000) shares, of which Twelve Million Five Hundred
Thousand (12,500,000) shares, of a par value of $.0005 per share, shall
be designated "Common Stock", and Two Million Five Hundred Thousand
(2,500,000) shares, of a par value of $.01 per share, shall be
designated "Preferred Stock."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the stockholders of said Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said Black Warrior Wireline Corp. has caused this
Certificate to be signed by William L. Jenkins, its President, and Melissa
Clark, its Assistant Secretary, this 29th day of October, 1997.
Attest: Black Warrior Wireline Corp.
/s/ Melissa Clark /s/ William L. Jenkins
- ----------------------------- -------------------------------------
Melissa Clark, Assistant Secretary William L. Jenkins, President
Exhibit 10.1
BLACK WARRIOR WIRELINE CORP.
1997 OMNIBUS INCENTIVE PLAN
Section 1. Purpose
The purposes of this Black Warrior Wireline Corp. 1997 Omnibus
Incentive Plan (the "Plan") are to encourage selected employees of Black Warrior
Wireline Corp., a Delaware corporation (together with any successor thereto, the
"Company") and its Affiliates (as defined below) to acquire a proprietary
interest in the growth and performance of the Company, to generate an increased
incentive to contribute to the Company's future success and prosperity, thus
enhancing the value of the Company for the benefit of its shareholders, and to
enhance the ability of the Company and its Affiliates to attract and retain
qualified individuals upon whom, in large measure, the sustained progress,
growth, and profitability of the Company depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that directly or
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, as determined by
the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent,
or other Stock Award or Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean a written agreement,
contract, or other instrument or document evidencing an Award granted under the
Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean a committee of the Board designated
by the Board to administer the Plan and composed of not less than two directors,
each of whom is a "disinterested person" within the meaning of Rule 16b-3.
<PAGE>
(g) "Dividend Equivalent" shall mean any right granted under
Section 6(d) of the Plan.
(h) "Fair Market Value" shall mean, with respect to any
property (including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods or procedures as
shall be established from time to time by the Committees.
(i) "Incentive Stock Option" shall mean an option granted
under Section 6(a) of the Plan that meets the requirements of Section 422 of the
Code or any successor provision thereto.
(j) "Key Employee" shall mean any officer, director or other
key employee who is a regular full-time employee of the Company or its present
and future Affiliates.
(k) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(m) "Participant" shall mean a Key Employee who has been
granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under
Section 6(f) of the Plan.
(o) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, or government or political subdivision thereof.
(p) "Released Securities" shall mean securities that were
Restricted Securities with respect to which all applicable restrictions have
expired, lapsed, or been waived.
(q) "Restricted Securities" shall mean Restricted Stock or any
other Award under which issued and outstanding Shares are held subject to
restrictions imposed by the terms of the Award.
(r) "Restricted Stock" shall mean any Shares granted under
Section 6(c) of the Plan.
(s) "Restricted Stock Unit" shall mean any right granted under
Section 6(c) of the Plan that is denominated in Shares.
<PAGE>
(t) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulation thereto.
(u) "Shares" shall mean the common stock of the Company, $0.01
par value, and such other securities or property as may become the subject of
Awards pursuant to an adjustment made under Section 4(b) of the Plan.
(v) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
(w) "Stock Award" shall mean an Award of an Option, Restricted
Stock, or other right or security consisting of or convertible into Shares.
(x) "Stock-Based Award" shall mean an Award of a Stock
Appreciation Right, Dividend Equivalent, Restricted Stock Unit or other right,
the value of which is determined by reference to Shares.
(y) "Tandem Option" shall mean a Non-Qualified Option issued
in tandem with a Stock Appreciation Right.
Section 3. Administration
(a) Generally. The Plan shall be administered by the Board,
or, if appointed, the Committee (herein, unless the context otherwise requires,
the Board or the Committee, if appointed, is referred to as the Committee).
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time, and shall be final, conclusive, and binding upon all Persons,
including the Company, any Affiliate, any Participant, any holder or beneficiary
of any Award, any Shareholder, and any employee of the Company or of any
Affiliate.
(b) Powers. Subject to the terms of the Plan and applicable
law, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other Awards,
or other property, or canceled, forfeited, or
<PAGE>
suspended, and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other Awards, other property, and other
amounts payable with respect to an Award under the Plan shall be deferred; (vii)
interpret and administer the Plan and any instruments or agreements relating to,
or Awards made under, the Plan; (viii) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (ix) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ
attorneys, consultants, accountants or other persons and the Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. No member of the Committee
shall be personally liable for any action, determination or interpretation taken
or made in good faith with respect to the Plan, or Awards made thereunder, and
all members of the Committee shall be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation.
Section 4. Shares Available for Awards
(a) Shares Available. Subject to adjustment as provided in
Section 4(b):
(i) Limitation on Number of Shares. Awards issuable under the
Plan are limited such that the maximum aggregate number of Shares which may
issued pursuant to, or by reason of, Stock Awards and Stock-Based Awards are
600,000. To the extent that an Award ceases to remain outstanding by reason of
termination of rights granted thereunder, forfeiture or otherwise, the Shares
subject to such Award shall again become available for Award under the Plan.
(ii) Accounting for Awards. For purposes of this Section 4,
for any Award which is denominated in, or with respect to, Shares, the number of
Shares covered by such Award, or to which such Award relates, shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan; provided, however, that Awards
that operate in tandem with (whether granted simultaneously with or at a
different time from), or that are substituted for, other Awards may be counted
or not counted under procedures adopted by the Committee in order to avoid
double counting. Any Shares that are delivered by the Company pursuant to any
Award, and any Awards that are granted by, or become obligations of, the
Company, through the assumption by the Company or an Affiliate of, or in
substitution for, outstanding awards previously granted by an acquired company
shall be counted against the Shares available for granting Awards under the
Plan.
<PAGE>
(iii) Sources of Shares Deliverable Under Awards. Any
Shares delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall
determine that any (i) subdivision or consolidation of Shares, (ii) dividend or
other distribution (whether in the form of cash, Shares, other securities, or
other property), (iii) recapitalization or other capital adjustment of the
Company or (iv) merger, consolidation or other reorganization of the Company or
other rights to purchase Shares or other securities of the Company, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (x) the number and type of Shares (or
other securities or property) which thereafter may be made the subject of
Awards, (y) the number and type of Shares (or other securities or property)
subject to outstanding Awards, and (z) the grant, purchase, or exercise price
with respect to any Award or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award; provided, however, in each case,
that with respect to Awards of Incentive Stock Options no such adjustment shall
be authorized to the extent that such adjustment would cause the Plan to violate
Section 422 of the Code or any successor provisions thereto; and provided
further, however, that the number of Shares subject to any Award denominated in
Shares shall always be a whole number.
Section 5. Eligibility
Awards may be granted only to Key Employees. In determining
the employees to whom Awards shall be granted and the number of shares or units
to be covered by each Award, the Committee shall take into account the nature of
employees' duties, their present and potential contributions to the success of
the Company and such other factors as it shall deem relevant in connection with
accomplishing the purposes of the Plan. A Director of the Company or a
subsidiary who is not also a regular full-time employee will not be eligible to
receive an Award. A Key Employee who has been granted an Award or Awards under
the Plan may be granted an additional Award or Awards, subject to such
limitations as may be imposed by the Code on the grant of Incentive Stock
Options. No member of the Committee shall be eligible to receive an Award under
the Plan.
Section 6. Awards
(a) Options. The Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine:
<PAGE>
(i) Exercise Price. The purchase price per Share
purchasable under a Non-Qualified Stock Option shall be determined by the
Committee; provided, however, that such purchase price shall not be less than
the lower of (x) 100% of Fair Market Value of a Share on the date of grant of
such Non-Qualified Stock Option or (y) 85% of Fair Market Value of a Share on
the date of exercise. The purchase price per Share purchasable under an
Incentive Stock Option shall not be less than 100% of the Fair Market Value of a
Share on the date of grant of such Incentive Stock Option.
(ii) Option Term. The term of each Non-Qualified Stock
Option shall be fixed by the Committee but generally shall not exceed 10 years
from the date of grant. The term of each Incentive Stock Option shall in no
event be more than 10 years from the date of grant.
(iii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms (including,
without limitation, cash, Shares, outstanding Awards or other consideration, or
any combination thereof, having a Fair Market Value on the exercise date equal
to the relevant option price) in which, payment of the option price with respect
thereto may be made or deemed to have been made.
(iv) Early Termination. The unexercised portion of any
option granted under the Plan will generally be terminated (a) thirty (30) days
after the date on which the Participant's employment is terminated for any
reason other than (i) cause, (ii) mental or physical disability, or (iii) death;
(b) immediately upon the termination of the Participant's employment for cause;
(c) three months after the date on which the Participant's employment is
terminated by reason of retirement or mental or physical disability, or (d)(i)
12 months after the date on which the Participant's employment is terminated by
reason of the death of the employee, or (ii) three months after the date on
which the Participant shall die if such death shall occur during the three-month
period following the termination of the Participant's employment by reason of
retirement or mental or physical disability.
(v) Incentive Stock Options. All terms of any Incentive
Stock Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision thereto, and
any regulations promulgated thereunder.
(b) Stock Appreciation Rights. The Committee is authorized to
grant Stock Appreciation Rights to Participants. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right grant under
the Plan shall confer upon the holder hereof a right to receive, upon exercise
thereof, an amount in cash equal of the excess of (i) the Fair Market Value of
one Share on the date of exercise over (ii) the Fair Market Value of one share
on the date of grant of the Stock Appreciation Right. Subject to the terms of
the Plan and any
<PAGE>
applicable Award Agreement, the grant price, term, methods of exercise, methods
of settlement, and any other terms and conditions of any Stock Appreciation
Right shall be as determined by the Committee. The Committee may impose such
conditions or restrictions on the exercise of any Stock Appreciation Right as it
may deem appropriate, including, but not limited to the following: (i) no
aggregate payment by the Company during any fiscal year upon the exercise of
Stock Appreciation Rights may exceed $250,000 without Board approval and (ii) a
Participant may not exercise a Stock Appreciation Right if the aggregate amount
to be received as a result of his or her exercise of Stock Appreciation Rights
in the preceding 12-month periods exceeds such Participant's current base
salary.
(c) Restricted Stock and Restricted Stock Units. The Committee
is hereby authorized to grant Awards of Restricted Stock and Restricted Stock
Units to Participants subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or
property), which restrictions may lapse separately or in combination at such
time or times, in such installments or otherwise, as the Committee may deem
appropriate but not inconsistent with the provisions of the Plan:
(i) Registration. Any Restricted Stock granted under
the Plan may be evidenced in such a manner as the Committee may deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of Shares of Restricted Stock granted under the Plan, such
certificate shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment (as determined under criteria
established by the Committee) for any reason during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock Units still, in
either case, subject to restriction shall be forfeited to and reacquired by the
Company; provided, however, that the Committee may, when it finds that a waiver
would be in the best interests of the Company, waive in whole, or in part any or
all remaining restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units.
(iii) Lapse of Restrictions. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate, shall be
delivered to the holder of Restricted Stock promptly after such Restricted Stock
shall become Released Securities.
(d) Dividend Equivalents. The Committee is hereby authorized
to grant Awards to Participants under which the holders thereof shall be
entitled to receive payments equivalent to dividends with respect to a number of
Shares and payable on such date or dates as determined by the Committee, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. Subject to the
<PAGE>
terms of the Plan and any applicable Award Agreement, such Awards may have such
terms and conditions as the Committee shall determine.
(e) Other Awards. The Committee is hereby authorized, to the
extent permitted under Rule 16b-3 and applicable law, to grant to participants
such other Awards that are denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, Shares (including, without
limitation, securities convertible into Shares), as are deemed by the Committee
to be consistent with the purposes of the Plan. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the terms and
conditions of such Awards. Shares or other securities delivered to a Participant
pursuant to a purchase right granted under this Section 6(e) shall be purchased
for such consideration, which may be paid by such method or methods and in such
form or forms, including, without limitation, cash, Shares, outstanding Awards,
or other consideration, or any combination thereof, as the Committee shall
determine. The value of the consideration paid for Shares and other securities
delivered to a Participant under this Section 6(e), as established by the
Committee, shall not be less than the Fair Market Value of such Shares or other
securities as of the date such purchase right is granted.
(f) Performance Awards. The Committee is hereby authorized to
grant Performance Awards to Participants. Subject to the terms of the Plan and
any applicable Award Agreement, a Performance Award granted under the Plan (i)
may be denominated as a Stock Award or a Stock-Based Award and payable in cash,
Shares, other securities or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals and during such performance periods as
the Committee shall establish. Subject to the terms of the Plan and any
applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, and the amount of any
payment or transfer to be made pursuant to any Performance Award shall be
determined by the Committee.
(g) General.
(i) No Cash Consideration for Awards. Awards shall
be granted for no cash consideration or such minimal cash consideration as may
be required by applicable law.
(ii) Awards May Be Granted Separately or Together.
Awards may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other Award or any award
granted under any other plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards, or in addition to or in tandem with
awards granted under any other plan of the Company or any Affiliate, may be
granted either at the same time as or at a different time from the grant of such
other Awards or awards; provided, that any Tandem Option shall be subject to the
following provisions: upon
<PAGE>
exercise of an Option issued as part of a Tandem Option, the Participant shall
be entitled to a credit toward the option exercise price equal to the value of
the Stock Appreciation Rights issued in tandem with the Option exercised, but
not in an amount that would exceed the amount of the federal income tax
deduction allowed to the Company in respect to such Stock Appreciation Rights
and not in an amount which would reduce the amount of the Participant's payment
below the par value of the Shares subject to the Option. Upon such exercise of a
Tandem Option, the related Stock Appreciation Right shall terminate and the
value of such Stock Appreciation Right shall be limited to such credit. Upon the
exercise of a Stock Appreciation Right issued as part of a Tandem Option, the
Option to which such Stock Appreciation right relates shall crease to be
exercisable to the extent of the number of Shares with respect to which the
Stock Appreciation Right was exercised.
(iii) Forms of Payment Under Awards. Subject to the
terms of the Plan and of any applicable Award Agreement, payment or transfer to
be made by the Company or an Affiliate upon the grant or exercise of an Award
may be made in such form or forms as the Committee shall determine, including,
without limitation, cash, Shares, other securities, other Awards, or other
property, or any combination thereof, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting or reasonable interest on installment or deferred payments or the
grant of crediting of Dividend Equivalents in respect of installments or
deferred payments denominated in Shares or other securities.
(iv) Limits on Transfer of Awards. No Award (other than
Released Securities), and no right under any such Award, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by will or
by the laws of descent and distribution (or, on the case of an Award of
Restricted Securities, to the Company); provided, however, that, if so
determined by the Committee, a Participant may, in the manner established by the
Committee, designate a beneficiary or beneficiaries to exercise the rights of
the Participant, and to receive any property distributable, with respect to any
Award upon the death of the Participant. Each Award, and each right under any
Award, shall be exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law with respect to any Award
that is not an Incentive Stock Option, by the Participant's guardian or legal
representative. No award (other than Released Securities), and no right under
such Award, may be pledged, alienated, attached, or otherwise encumbered, and
any purported pledge, alienation, attachment, or encumbrance thereof shall be
void and unenforceable against the Company or any Affiliate.
(v) Term of Awards. Except as set forth in Section
6(a)(ii), the term of each Award shall be for such period as may be determined
by the Committee.
(vi) Share Certificates. All certificates for Shares
or other securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise
<PAGE>
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
Section 7. Amendment and Termination
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan, including, without limitation, any
amendment, alteration, suspension, discontinuation, or termination that would
impair the rights of any Participant, or any other holder or beneficiary of any
Award theretofore granted to the extent such rights are not then accrued and
vested, without the consent of any shareholder, Participant, other holder or
beneficiary of an Award, or other Person; provided, however, that
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the shareholders of the Company no amendment, alternation,
suspension, discontinuation, or termination shall be made that would: (i)
increase the total number of Shares available for Awards under the Plan, except
as provided in Section 4 of the Plan; (ii) materially increase the benefits
accruing to Participants under the Plan; or (iii) materially modify the
requirements as to eligibility for participation in the Plan.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted, prospectively or
retroactively, without the consent of any relevant Participant or holder or
beneficiary of an Award.
(c) Adjustments of Awards Upon Certain Acquisitions. In the
event the Company or any Affiliate shall assume outstanding employee awards in
connection with the acquisition of another business or another corporation or
business entity, the Committee may make such adjustments, not inconsistent with
the terms of the Plan, in the terms of Awards as it shall deem appropriate in
order to achieve reasonable comparability or other equitable relationship
between the assumed awards and the Awards granted under the Plan as so adjusted.
(d) Adjustments of Awards Upon the Occurrence of Certain
Unusual or Non-Recurring Events. The Committee shall be authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring
<PAGE>
events (including, without limitation, the events described in Section 4(b)
hereof) affecting the Company, any Affiliate, or the financial statements of the
Company or any Affiliate or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits to be made available under the Plan.
(e) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan, or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Key Employee or Participant shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Key Employees, Participants, or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to each recipient.
(b) Withholding. The Company or any Affiliate shall be
authorized to withhold from any Award granted or any payment due or transfer
made under any Award or under the Plan the amount (in cash, Shares, other
securities, or other property) of withholding taxes due in respect of an Award,
its exercise, or any payment or transfer under such Awards or under the Plan and
to take such other actions as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes. In case of Awards paid in
Shares, the Participant or other person receiving such Shares may be required to
pay the Company or Affiliate, as appropriate, the amount of any such withholding
taxes which is required to be withheld with respect to such Shares.
(c) No Limit on Other Plans. Nothing contained in the Plan
shall prevent the Company or any Affiliate from adopting or continuing in effect
other or additional compensation arrangements and such arrangements may be
either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(e) Governing Law. The validity, construction, and effect of
the Plan any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal law.
<PAGE>
(f) Severability. In any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, such provision shall be deemed void stricken and the remainder of
the Plan and any such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliates pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision hereof.
Section 9. Effective Date of the Plan
The Plan is effective as of May 5, 1997.
Section 10. Term of the Plan
The Plan shall continue until the earlier of (i) the date on
which all Stock Awards and Stock-Based Awards issuable hereunder have been
issued, or (ii) the termination of the Plan by the Board. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond such date and the authority of
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award, and the
authority of the Board to amend the Plan, shall extend beyond such date.
OptionPlans\1997OmnibusIncentivePlan
Exhibit 10.2
BLACK WARRIOR WIRELINE CORP.
1997 NON-EMPLOYEE STOCK OPTION PLAN
1. PURPOSE.
(a) The purpose of the 1997 Non-Employee Stock Option Plan
(the "Plan") is to provide a means by which each director or consultant to Black
Warrior Wireline Corp., a Delaware corporation (the "Company"), who is not
otherwise an employee of the Company or of any Affiliate of the Company (each
such person being hereafter referred to as a "Non-Employee") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity
and as consultants to the Company, and to provide incentives for such persons to
exert maximum efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan
not be incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board") unless and until the Board delegates administration
to a committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan.
(1) To construe and interpret the Plan and
options granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any option
agreement, in a manner and to the extent it shall deem necessary or expedient to
make the Plan fully effective.
<PAGE>
(2) To amend the Plan as provided in paragraph 10.
(3) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate one-hundred
thousand (100,000) shares of the Company's Common Stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall revert
to and again become available for issuance pursuant to exercises of options
granted under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY. Options shall be granted only to Non-Employee
Directors of the Company or consultants to the Company.
5. OPTION PROVISIONS. Each option shall contain the following terms
and conditions:
(a) No option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) The exercise price of each option shall not be less than
one hundred percent (100%) of the fair market value on the Grant Date of the
stock subject to such option.
(c) The purchase price of stock acquired pursuant to an option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (1) in cash at the time the option is exercised, or (2) by delivery to
the Company of shares of the Company's Common
- 2 -
<PAGE>
Stock that have been held for the requisite period necessary to avoid a charge
to the Company's reported earnings and valued at the fair market value on the
date of exercise, or (3) by a combination of such methods of payment.
(d) An option shall not be transferable except by will or by
the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the option is granted only by such person or by
his or her guardian or legal representative.
(e) An option shall be exercisable at such time or times as
may be determined by the Board at the time of grant, provided, however, with
respect to options granted to Directors, any unexercised portion of an option
granted under the Plan shall terminate thirty (30) days after the date the
Director is no longer a Director of the Company.
(f) The Company may require any optionee, or any person to
whom an option is transferred under subparagraph 5(d), as a condition of
exercising any such option: (1) to give written assurances satisfactory to the
Company as to the optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the option; and (2)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
option has been registered under a then-currently effective registration
statements under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii), as to any particular requirements, a determination is made by counsel
for the Company that such requirements need not be met in the circumstances
under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein,
an option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan,
the Company shall keep available at all times the number of shares of stock
required to satisfy such options.
- 3 -
<PAGE>
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option granted
under the Plan, or any stock issued or issuable pursuant to any such option. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such options.
7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock
pursuant to options granted under the Plan shall constitute general funds of the
Company.
8. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee with or without cause.
(c) No Non-Employee individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of Common Stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan,
it shall be a condition precedent to the Company's obligation to issue or
transfer shares to a Non-Employee, or an affiliate of such Non-Employee, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
make arrangements satisfactory to the Company to insure that the amount of any
federal or other withholding tax required to be withheld with respect to such
sale or transfer, or such removal or lapse, is made available to the Company for
timely payment of such tax.
- 4 -
<PAGE>
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, at the sole discretion of the
Board and to the extent permitted by applicable law; (i) any surviving
corporation shall assume any options outstanding under the Plan or shall
substitute similar options for those outstanding under the Plan, or (ii) the
time during which such options may be exercised shall be accelerated and the
options terminated if not exercised prior to such event, or (ii) such options
shall continue in full force and effect.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend
the Plan; provided, however, that the Board shall not amend the plan more than
once every six months, with respect to the provisions of the Plan which relate
to the amount, price and timing of grants, other than to comport with changes in
the Code, the Employee Retirement Income Security Act, or the rules thereunder.
Except as provided in paragraph 9 relating to adjustments upon changes in stock,
no amendment shall be effective unless approved by the stockholders of the
Company within twelve (12) months before or after the adoption of the amendment,
where the amendment will:
(1) Increase the number of shares reserved for
options under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act); or
- 5 -
<PAGE>
(3) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to comply with
the requirements of Rule 16b-3 promulgated under the Exchange Act,
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be altered or impaired by such amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on May 5, 2007. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the option was
granted.
12. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board
of Directors, subject to the condition subsequent that the Plan is approved by
the stockholders of the Company.
(b) No option granted under the Plan shall be exercised or
exercisable unless and until the condition of subparagraph 12(a) above has been
met.
- 6 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,016,632
<SECURITIES> 0
<RECEIVABLES> 4,511,686
<ALLOWANCES> (230,038)
<INVENTORY> 354,880
<CURRENT-ASSETS> 6,306,339
<PP&E> 11,192,558
<DEPRECIATION> (4,334,286)
<TOTAL-ASSETS> 21,917,557
<CURRENT-LIABILITIES> 7,988,242
<BONDS> 0
0
0
<COMMON> 1,516
<OTHER-SE> (583,393)
<TOTAL-LIABILITY-AND-EQUITY> 21,917,557
<SALES> 4,565,840
<TOTAL-REVENUES> 9,218,909
<CGS> 0
<TOTAL-COSTS> 9,374,918
<OTHER-EXPENSES> 8,034,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,149
<INCOME-PRETAX> (117,396)
<INCOME-TAX> 0
<INCOME-CONTINUING> (73,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,396)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
