<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998
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 0-18656
PONDER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2268672
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
</TABLE>
5005 RIVERWAY DRIVE, SUITE 550
HOUSTON, TEXAS 77056
(Address of principal executive offices, zip code)
(713) 965-0653
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT DECEMBER 31, 1998
Common Stock, $.01 par value 9,297,810
</TABLE>
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION (Unaudited)
Item 1: Condensed Consolidated Balance Sheets as of November 30,
1998, and August 31, 1998................................. 3
Condensed Consolidated Statements of Operations for the
Three Months Ended November 30, 1998 and 1997............. 4
Condensed Consolidated Statements of Comprehensive Income
(Loss) for the Three Months Ended November 30, 1998 and
1997...................................................... 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended November 30, 1998 and 1997............. 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........................................... 14
Item 2: Changes in Securities....................................... 14
Item 3: Defaults Upon Senior Securities............................. 14
Item 4: Submission of Matters to a Vote of Security Holders......... 14
Item 5: Other Information........................................... 14
Item 6: Exhibits and Reports on Form 8-K............................ 14
</TABLE>
2
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1998 1998
------------ ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 168 $ 149
Receivables, net.......................................... 5,377 4,672
Parts and supplies........................................ 4,390 4,435
Available for sale securities............................. 220 560
Prepaid expenses and other................................ 578 175
-------- --------
Total current assets.............................. 10,733 9,991
-------- --------
PROPERTY AND EQUIPMENT...................................... 41,377 40,992
Less -- Accumulated depreciation and amortization......... (17,397) (16,656)
-------- --------
23,980 24,336
-------- --------
DEFERRED AND OTHER ASSETS, net.............................. 458 425
-------- --------
GOODWILL, net............................................... 1,260 1,280
-------- --------
TOTAL ASSETS...................................... $ 36,431 $ 36,032
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 8,954 $ 8,355
Accounts and notes payable, trade......................... 4,443 4,096
Accrued liabilities and other............................. 3,257 2,704
-------- --------
Total current liabilities......................... 16,654 15,155
-------- --------
LONG-TERM DEBT, less current maturities..................... 468 456
-------- --------
OTHER LONG-TERM LIABILITIES................................. 25 31
-------- --------
DEFERRED TAXES PAYABLE...................................... 892 886
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 10,000,000
shares, no shares issued as of November 30, 1998, and
August 31, 1998, respectively.......................... -- --
Common stock, $.01 par value, authorized 150,000,000
shares, issued and outstanding 9,297,810 shares and
9,260,281 shares at November 30, 1998, and August 31,
1998, respectively..................................... 93 93
Additional paid-in capital................................ 48,244 48,179
Cumulative foreign currency translation adjustment........ 192 69
Accumulated deficit....................................... (29,188) (28,228)
Note receivable for common stock.......................... (69) (69)
Unrealized loss on available for sale securities.......... (880) (540)
-------- --------
Total stockholders' equity........................ 18,392 19,504
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 36,431 $ 36,032
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
SERVICES AND TOOL RENTALS................................... $ 4,359 $ 4,256
SALES OF TOOLS AND PARTS.................................... 767 845
---------- ----------
Services, tool rentals and sales.................. 5,126 5,101
---------- ----------
COST OF SERVICES AND TOOL RENTALS........................... 1,852 1,548
COST OF TOOLS AND PARTS SOLD................................ 338 292
---------- ----------
Costs of services, tool rentals and sales......... 2,190 1,840
---------- ----------
Gross profit...................................... 2,936 3,261
---------- ----------
EXPENSES:
Operating................................................. 3,077 2,808
General and administrative................................ 405 400
---------- ----------
3,482 3,208
---------- ----------
Operating income (loss)........................... (546) 53
OTHER INCOME (EXPENSE):
Interest, net............................................. (421) (443)
Gain (loss) on disposal of assets......................... (4) (34)
Other..................................................... 11 --
---------- ----------
NET INCOME (LOSS)........................................... $ (960) $ (424)
========== ==========
BASIC AND DILUTED LOSS PER SHARE............................ $ (.10) $ (.08)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 9,273,096 5,005,960
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30
-----------------
1998 1997
-------- ------
<S> <C> <C>
NET INCOME (LOSS)........................................... $ (960) $(424)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized loss on available-for-sale securities.......... (340) --
Foreign currency translation gain (loss).................. 123 34
------- -----
Comprehensive income (loss)....................... $(1,177) $(390)
======= =====
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30
-----------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (960) $ (424)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities --
Depreciation and amortization.......................... 729 549
(Gain) loss on disposal of assets...................... 4 34
Deferred compensation expense.......................... -- 1
Net change in operating assets and liabilities --
Receivables, net....................................... (655) (454)
Parts and supplies..................................... 45 (130)
Prepaid expenses and other............................. (403) (500)
Accounts and notes payable, trade...................... 347 (977)
Accrued liabilities and other.......................... 1,035 (460)
------- -------
Net cash provided by (used in) operating
activities....................................... 142 (2,361)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (314) (422)
Proceeds from asset sales................................. 89 --
------- -------
Net cash used in investing activities............. (225) (422)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt...................... (4,086) (4,198)
Bank overdraft............................................ (482) 133
Proceeds from long-term debt borrowings................... 4,670 4,347
Proceeds from Senior Convertible Notes.................... -- 2,500
------- -------
Net cash provided by financing activities......... 102 2,782
------- -------
CASH AND CASH EQUIVALENTS:
Increase (decrease)....................................... 19 (1)
Beginning of period....................................... 149 4
------- -------
End of period............................................. $ 168 $ 3
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest............................................... $ 417 $ 437
======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued in connection with debenture
conversions............................................ $ -- $ 6,713
======= =======
Common stock contributed to 401(k) plan................... $ 65 $ 66
======= =======
Capital lease obligation incurred......................... $ 27 $ --
======= =======
Unrealized loss on available for sale securities.......... $ 340 $ --
======= =======
Trade note payable incurred for insurance premiums........ $ 490 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Ponder Industries, Inc., and subsidiaries (collectively referred to
as the Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. However, all adjustments have been made to
the accompanying financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the periods covered. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented herein not misleading. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.
The accompanying condensed consolidated financial statements of the Company
have been prepared on the basis of accounting principles applicable to a going
concern. At November 30, 1998, and August 31, 1998, the Company had deficit
working capital of $5,921 and $5,164, respectively, and an accumulated deficit
of $29,188 and $28,228, respectively. During the three months ended November 30,
1998, the Company incurred a net loss of $960. As discussed in Note 2, the
Company was not in compliance with certain of its debt covenants and,
accordingly, all amounts due this lender have been classified as a current
liability at November 30, 1998, and August 31, 1998. There is no assurance the
Company will be able to achieve future positive cash flows to support
operations. These matters, as well as additional matters discussed in the notes
to the Company's consolidated financial statements in its latest Annual Report
on Form 10-K, raise substantial doubt about the Company's ability to continue as
a going concern. The ability of the Company to continue as a going concern is
dependent upon the ongoing support of its customers, its ability to obtain
capital resources to support operations and its ability to successfully market
its products and services. If the Company is unable to obtain additional capital
resources, or if the funds obtained in such efforts are not adequate to support
the Company until a successful level of operations is attained, the Company
would likely be unable to continue operations as a going concern. The Company's
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997, and, accordingly,
the Company has presented a Statement of Comprehensive Income (Loss) for the
three months ended November 30, 1998 and 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
reclassifications have been made to prior period balances to conform with
current period presentation.
2. LONG-TERM DEBT
As of November 30, 1998, and August 31, 1998, the Company was in technical
default with various affirmative debt covenants of KBK Financial, Inc. (KBK).
Consequently, all amounts due KBK have been classified as a current liability at
November 30, 1998, and August 31, 1998. There are no assurances that the
7
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company will be able to obtain modifications or waivers to the covenants or
terms governing the financing agreement.
In September 1998, the Company obtained $500 from KBK under a short-term
promissory note. The proceeds were used for working capital requirements. The
promissory note bears interest at 15 percent with the principal and accrued
interest originally due November 9, 1998, which maturity date was subsequently
extended to December 24, 1998. In December 1998, the due date of this note was
further extended (Note 5).
3. CONTINGENCIES
On July 17, 1998, Titan Resources, Inc. (Titan) sued the Company in the
District Court of Harris County, Texas. The suit alleges that in 1996, the
Company made misrepresentations in connection with the sale of all of the
Company's outstanding shares in Ponder International Services, Inc. (its former
Azerbaijan subsidiary), to Titan in return for 2,000,000 shares of Titan's
common stock. The suit alleges breach of contract, breach of warranty, negligent
misrepresentation and fraudulent misrepresentation. Titan seeks unspecified
damages. The Company is defending the case vigorously and has counterclaimed for
unspecified sums that Titan owes it pursuant to one of the contracts executed in
connection with this transaction.
The Company is also a party to additional claims and legal proceedings
arising in the ordinary course of business. The Company believes it is unlikely
that the final outcome of any of the claims or proceedings to which the Company
is a party, including those described above, would have a material adverse
effect on the Company's financial statements; however, due to the inherent
uncertainty of litigation, the range of possible loss, if any, cannot be
estimated with a reasonable degree of precision and there can be no assurance
that the resolution of any particular claim or proceeding would not have an
adverse effect on the Company's results of operations for the interim period in
which such resolution occurred.
In July 1998, the Company received notification that it was subject to
delisting on the NASDAQ stock market as its minimum bid price for its common
stock had fallen below $1 per share. In October 1998, the Company gave notice of
a special stockholders' meeting to be held November 11, 1998, to effect a
one-for-five reverse common stock split in order to meet NASDAQ listing
requirements. Subsequent to the reverse common stock split, the minimum bid
price for the Company's common stock has again fallen below $1 per share. There
can be no assurance that the Company will be able to retain its current listing
or meet future listing requirements which could have an adverse effect on the
Company's ability to access additional capital resources.
4. EQUITY TRANSACTIONS
As discussed in Note 3, on November 11, 1998, the Company's stockholders
approved a one-for-five reverse common stock split. On November 13, 1998, the
Company filed appropriate documentation with the Delaware Secretary of State
affecting such common stock split. Accordingly, all common stock and share
information has been adjusted to reflect the reverse stock split. The authorized
capital stock and par value of the Company (10,000,000 shares of preferred
stock, $.01 par value, and 150,000,000 shares of common stock, $.01 par value)
was not reduced or otherwise affected by the reverse stock split.
5. SUBSEQUENT EVENT
In December 1998, the due dates on the Company's $500 short-term promissory
note with KBK (Note 2) and its receivable based revolver with KBK were extended
to March 24, 1999.
8
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to Ponder Industries, Inc. (the Company),
and its subsidiaries that are based on the beliefs of the Company's management
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, one-time events and other factors described herein and in
the Company's other filings with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
The following discussion is included to describe the Company's financial
position and results of operations for the three-month periods ended November
30, 1998 and 1997. The condensed consolidated financial statements and notes
thereto contain detailed information that should be referred to in conjunction
with this discussion.
BUSINESS REVIEW
The Company is an international oil field service and rental tool company
that specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells. The Company also rents specialized oil field
equipment such as pressure control equipment, tools, pipe, tubing and whipstocks
used in the drilling, completion and workover of wells. The Company currently
has 19 locations domestically and 2 locations in the United Kingdom serving the
North Sea area.
The oil and gas industry has historically experienced significant
volatility. Demand for the Company's services and products depends primarily
upon the number of oil and gas wells being drilled, the depth and drilling
conditions of such wells, the volume of production, the number of well
completions and the level of workover activity. Drilling and workover activity
can fluctuate significantly in a short period of time, particularly in the
United States.
The willingness of oil and gas operators to make capital expenditures for
the exploration and production of oil and natural gas will continue to be
influenced by numerous factors over which the Company has no control, including
the prevailing and expected market prices for oil and natural gas. Such prices
are impacted by, among other factors, the ability of the members of OPEC to
maintain price stability through voluntary production limits, the level of
production by non-OPEC countries, worldwide demand for oil and gas, general
economic and political conditions, costs of exploration and production,
availability of new leases and concessions and governmental regulations
regarding, among other things, environmental protection, taxation, price
controls and product allocations. No assurance can be given as to the level of
future oil and gas industry activity or demand for the Company's services and
products.
During 1996 and much of 1997, the oil field service industry experienced a
general improvement in product demand and pricing as relatively stable and
improved oil and natural gas prices combined with a strong world economy to
increase exploration and development activity worldwide. Beginning in late 1997,
worldwide oil prices began to decline significantly and natural gas prices
weakened slightly on a year-to-year basis. These declines have been attributed
to, among other things, an excess supply of oil in world markets, reduced
domestic demand associated with an unseasonably warm winter, high inventory
levels of oil and gas
9
<PAGE> 10
and the impact of the economic downturn in Southeast Asia and other factors over
which the Company has no control.
During the Company's fiscal years ended August 31, 1996 and 1997, and until
December 1997, world oil prices ranged in the mid to near $20's per barrel while
natural gas prices ranged from approximately $2.00 to as high as $3.50 per
thousand cubic feet. At the beginning of the Company's fiscal 1998 year,
approximately 1,030 drilling rigs and approximately 1,400 workover rigs were
operating domestically. During late 1997, oil prices began to decline
significantly, dropping from near $20 to below $10 per barrel for certain posted
prices. Natural gas prices maintained a range of $2.00 to $2.50 per thousand
cubic feet. By November 30, 1998, the activity of domestic drilling and workover
rig utilization had reduced to approximately 690 and 980, respectively. As crude
oil prices continued to stay below the $13 per barrel range, industry activity
continued to decline, especially in the Company's onshore operations. In January
1998, the Company acquired Fishing Tools, Inc. (FTI). FTI has historically been
a profitable company with significant offshore operations, which are generally
less impacted by oil price fluctuations. With the Company's expansion into the
offshore market, the Company has aggressively marketed its operations to merge
the customer base of the Company and FTI with a focus on the major and large
independents with onshore and offshore operations.
While the Company anticipates continued long-term growth in the worldwide
demand for hydrocarbons and a related return to higher activity levels for oil
and gas companies over the next 12 to 18 months, the Company intends to actively
monitor current industry market conditions and to continue to react, if
necessary, through consolidation or elimination of operating locations, further
reduction in personnel and related costs and to continue to aggressively market
its products and services.
The Company has substantially reduced costs by a reduction in operating and
administrative personnel and related expenses, the sale of certain nonproductive
equipment to reduce debt, resolving the litigation involving its convertible
debenture holders and substantially reducing other general and administrative
expenses. The Company is continuing to review its operations for further cost
reductions.
Demand for the Company's services and rentals depends primarily on the
number of oil and gas wells being drilled, the depth and drilling conditions of
such wells and the level of workover activity. Drilling and workover activity is
largely dependent on the prices for oil and natural gas. The Company is unable
to predict the duration of the crude oil price declines and, to a lesser extent,
natural gas price declines or the extent of the impact that such declines may
have on the Company's future results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In April 1996, the Company raised approximately $10 million, net of fees,
by issuing 8 percent convertible debentures. In August 1996, a case was filed in
U.S. District Court alleging that the Company breached an obligation to convert
certain of the debentures. In September 1997, the Company reached a settlement
whereby those convertible debenture holders who had not previously converted
their debentures with the Company agreed to convert the then outstanding
debenture debt of approximately $7,060,000, including accrued interest, into
2,205,217 shares of the Company's common stock. The conversion of the debentures
increased the Company's equity by approximately $6.7 million.
In November 1996, the Company completed a $10 million financing agreement
with KBK Financial, Inc. (KBK). The agreement includes a $4 million Revolving
Receivable Facility, a $2.5 million Revolving Credit Note and a $3.5 million
Term Note (the Notes). The Receivable Facility is a two-year facility that was
scheduled to mature in December 1998, now scheduled to mature in March 1999,
that is based on accounts receivable and is utilized for short-term liquidity
needs. The $2.5 million Revolving Credit Note is a five-year facility, based on
inventory and equipment, and these funds were used to acquire capital assets to
expand the Company's business. The $3.5 million Term Note is a five and one-half
year note, interest only for the first six months and amortizes over the
remaining five years, collateralized by equipment. In June 1998, the Company
increased from $3.5 million to $4.0 million the Term Note payable to KBK. The
Term Note, as amended, requires monthly principal and interest payments of
$98,000 commencing July 1998 with a final payment of all principal and interest
due in June 2002. The proceeds from the note were used to pay off existing bank
debt of approximately $3 million with the balance being used to fund operations
and acquire capital equipment. At
10
<PAGE> 11
November 30, 1998, and August 31, 1998, the Company had borrowed approximately
$7.9 million and $7.2 million, respectively, under the Notes. The Notes require
compliance with various covenants, including the maintenance of a defined debt
service coverage ratio and a defined tangible net worth. As a result of
continued losses primarily relating to the Company's aggressive expansion
commenced in fiscal year 1996 and the rapid decline in industry activity during
the 1998 fiscal year and continuing through the three months ended November 30,
1998, the Company is not in compliance with such covenants and, accordingly, all
amounts due this lender have been classified as a current liability at November
30, 1998, and August 31, 1998. In September 1998, the Company obtained $500,000
from KBK under a short-term promissory note. The proceeds were used for working
capital requirements. The promissory note principal and accrued interest were
originally due in November 1998 which maturity date was subsequently extended to
December 1998 and then further extended to March 1999. The promissory note has
cross-default provisions with the Notes. See Note 2 of notes to condensed
consolidated financial statements.
A $2,500,000 bridge loan (the Bridge Loan) was obtained in October 1997
from White Owl Capital Partners (White Owl) and certain others with the
intention of providing additional capital for acquisitions and expansion of the
Company's business.
In January 1998, the Company purchased all of the outstanding capital stock
of FTI for $6.5 million cash and the issuance of approximately 129,000 shares of
the Company's common stock valued at $1 million. The Company also paid
approximately $1 million of acquired indebtedness of FTI. FTI has historically
been a profitable company with positive cash flow. FTI has significant offshore
operations which are less effected by temporary oil price fluctuations and the
acquisition has had a positive impact on the Company's operations. The cash
consideration for the acquisition was provided through an equity placement with
affiliates of White Owl. The equity placement consisted of the sale of 2.2
million shares of the Company's common stock at $5 per share. Concurrent with
this equity placement, the Bridge Loan was converted into 800,000 shares of the
Company's common stock. These transactions had increased the Company's equity to
approximately $22 million and provided stronger liquidity ratios.
At November 30, 1998, and August 31, 1998, the Company had a deficit
working capital of approximately $5.9 million and $5.2 million, respectively.
The current ratio was approximately .64 to 1.0 at November 30, 1998, compared to
.66 to 1.0 at August 31, 1998. As previously discussed, the Company is in
default of certain covenants of the Notes and, as a result, all the amounts due
this lender, approximately $7.9 million, have been classified as a current
liability and are a component of the approximately $5.9 million working capital
deficit at November 30, 1998. The Company is currently discussing potential debt
refinancing with other lenders to increase its available facilities, decrease
interest rates and establish debt covenants which more appropriately reflect the
Company's current financial and market conditions. There are no assurances that
the Company will be able to refinance its current indebtedness nor that it will
be able to obtain an increase in available facilities, achieve a reduction in
interest rates or improve its debt covenants. Included as a component of the
Company's working capital at November 30, 1998 and 1997, is $220,000 and
$560,000, respectively, representing the Company's investment in 2,000,000
shares of Titan's common stock. The Titan common stock is a thinly traded and
volatile security. See also Notes 1 and 3 of notes to condensed consolidated
financial statements.
In December 1998, an affiliate of White Owl and an employee each advanced
the Company $100,000 for working capital. It is anticipated that the Company
will provide certain real property as collateral to such loans, and that
definitive agreements with respect to each advance will be prepared and
executed.
In July 1998, the Company received notification that it was subject to
delisting on the NASDAQ stock market as its minimum bid price for its common
stock had fallen below $1 per share. In October 1998, the Company gave notice of
a special stockholders' meeting to be held November 11, 1998, to effect a
one-for-five reverse common stock split in order to meet NASDAQ listing
requirements. Subsequent to the reverse common stock split, the minimum bid
price for the Company's common stock has again fallen below $1 per share. There
can be no assurance that the Company will be able to retain its current listing
or meet future listing requirements which could have an adverse effect on the
Company's ability to access additional capital resources.
11
<PAGE> 12
RESULTS OF OPERATIONS
Comparison of the Three Months Ended November 30, 1998 and 1997
A net loss of $960,000, or $.10 per share, was recorded for the three
months ended November 30, 1998, as compared to a net loss of $424,000, or $.08
per share, for the same period of the prior year.
Revenues were approximately $5.1 million for the three months ended
November 30, 1998 and 1997. Revenues for the quarter ended November 30, 1998
reflected the acquisition of FTI in January 1998, however, declining oil and gas
drilling and workover activity resulted in revenue decreases which offset the
acquisition's positive impact.
Costs of services, tool rentals and sales increased $350,000, or 19
percent, to $2,190,000 for the three months ended November 30, 1998, as compared
to $1,840,000 for the same period of the prior year. The net increase resulted
from an increase attributable to the costs of FTI, partially offset by the
closing of two marginal operating locations and the Company's cost reduction
actions. The Company's gross profit margin was 57 percent for the three months
ended November 30, 1998, as compared to 64 percent for the same period of the
prior year.
Operating expenses increased $269,000, or 10 percent, to $3,077,000 for the
three months ended November 30, 1998, as compared to $2,808,000 for the same
period of the prior year. The net increase resulted from the expenses of FTI
offset partially by the Company's reduction in operating personnel and related
expenses and closing two marginal operating locations. Operating expenses, as a
percentage of sales, were 60 percent for the three months ended November 30,
1998, as compared to 55 percent for the same period of the prior year.
General and administrative expenses were relatively stable at $405,000 for
the three months ended November 30, 1998, as compared to $400,000 for the three
months ended November 30, 1997. The cost reduction programs instituted in
mid-1997 have continued through the three months ended November 30, 1998.
General and administrative expenses as a percentage of revenues also remained
stable at 8 percent in the fiscal quarters ended November 30, 1998 and 1997.
Interest expense, net, decreased $22,000, or 5 percent, to $421,000 for the
three months ended November 30, 1998, from $443,000 for the three months ended
November 30, 1997. The decrease is due primarily to a reduction of debt
associated with the Company's primary lender.
Year 2000 Compliance
The efficient operation of the Company's business is dependent on its
computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Company's business, including information management services and financial
reporting, as well as in various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential Year 2000 compliance
problems, as well as manual processes, external interfaces with customers and
services supplied by vendors to coordinate Year 2000 compliance and conversion.
The Year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date sensitive information for
the Year 2000 and beyond. Unless modified prior to the Year 2000, such systems
may not properly recognize such information and could generate erroneous data or
cause a system to fail to operate properly. Based on current information, the
Company believes its Programs and Systems are Year 2000 compliant.
The Company's integrated accounting software is upgraded on a regular
basis, including testing and modification for Year 2000 compliance. During 1998,
the Company purchased additional new hardware and software. The Company believes
that the Year 2000 problem will not pose a significant operational problem.
However, because most computer systems are, by their very nature,
interdependent, it is possible that noncompliant third-party computers may not
interface properly with the Company's computer systems. The Company could be
adversely affected by the Year 2000 problem if it or unrelated parties fail to
successfully address this issue. Management of the Company currently anticipates
that the expenses and capital
12
<PAGE> 13
expenditures associated with its Year 2000 compliance project, including any
costs associated with modifying the Programs and Systems as well as the cost of
purchasing or leasing certain additional hardware and software, will not have a
material effect on its business, financial condition or results of operations
and are expenses and capital expenditures the Company anticipated incurring in
the ordinary course of business regardless of the Year 2000 problem. Purchased
hardware and software has been and will continue to be capitalized in accordance
with normal policy. Personnel and other costs related to this process are being
expensed as incurred.
The costs of Year 2000 compliance and the expected completion dates are the
best estimates of Company management and are believed to be reasonably accurate.
In the event the Company's plan to address the Year 2000 problem is not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines following the Year 2000 date change
that its Programs and Systems are not Year 2000 compliant, the Company will
likely experience considerable delays in processing customer orders and
invoices, compiling information required for financial reporting and performing
various administrative functions. In the event of such occurrence, the Company's
contingency plans call for it to switch vendors to obtain hardware and/or
software that is Year 2000 compliant, and until such hardware and/or software
can be obtained, the Company will plan to use noncomputer systems for its
business, including information management services and financial reporting, as
well as its various administrative functions.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the Act), which was signed into law on October 19, 1998. The Act provides added
protection from liability for certain public and private statements concerning a
company's Year 2000 readiness. The Act also potentially provides added
protection from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before October 19, 1998. As such, to the extent permitted
by applicable law, previously disclosed statements of or by the Company or its
management concerning the Company's Year 2000 readiness are intended to
constitute "Year 2000 Readiness Disclosures," as defined in the Act.
13
<PAGE> 14
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- For a discussion of material developments in
material legal proceedings involving the Company, see Note 3 of the
notes to condensed consolidated financial statements included herein.
Item 2. Changes in Securities -- See response to Item 4 below.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders --
(a) A special meeting of stockholders was held on November 11, 1998.
(b) Not applicable.
(c) With respect to a proposal to amend the Certificate of Incorporation
of the Company to effectuate a one-for-five stock split of the
Company's common stock, 8,116,832 shares of common stock were voted
"For," 208,410 shares were voted "Against," 14,391 shares abstained
from voting and 25,740 shares constituted broker non-votes.
All common stock share information has been adjusted to reflect the
reverse stock split.
Item 5. The deadline for submission of stockholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended ("Rule
14a-8"), for inclusion in the Company's proxy statement for its 1999
annual meeting of stockholders was December 10, 1998. After February 23,
1999, notice to the Company of a stockholder proposal submitted
otherwise than pursuant to Rule 14a-8 will be considered untimely, and
the person named in proxies solicited by the Board of Directors of the
Company for its 1999 Annual Meeting of Stockholders may exercise
discretionary authority voting power with respect to any such proposal
as to which the Company does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 Employment contract with Eugene L. Butler, dated December 1,
1998.
*10.2 Employment contract with Gerald A. Slaughter, dated December
1, 1998.
*11 Computation of Earnings (Loss) Per Share.
*27 Financial Data Schedule.
(b) Reports on Form 8-K
None
- ---------------
* Filed herewith
14
<PAGE> 15
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.
PONDER INDUSTRIES, INC.
By /s/ EUGENE L. BUTLER
-----------------------------------
Eugene L. Butler
President, Chief Executive
Officer and Chairman of
the Board of Directors
By /s/ GERALD A. SLAUGHTER
-----------------------------------
Gerald A. Slaughter
Senior Vice President and
Chief Financial Officer
Dated: January 14, 1999
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
*10.1 Employment contract with Eugene L. Butler, dated December 1,
1998.
*10.2 Employment contract with Gerald A. Slaughter, dated December
1, 1998.
*11 Computation of Earnings (Loss) Per Share.
*27 Financial Data Schedule.
</TABLE>
- ------------------
* Filed herewith
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into the 1st
day of December, 1998 by and between Eugene L. Butler ("Employee") and Ponder
Industries, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company and Employee desire to have Employee continue
Employment with Employer;
WHEREAS, the Company and Employee desire to set forth the terms and
conditions of Employee's employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises and
covenants hereafter set forth, the mutual agreements contained herein, the
employment of Employee by the Company, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as the Company's Chairman of the Board, President and Chief
Executive Officer, and Employee agrees to serve the Company in such capacities
or in such other capacities (subject to Employee's termination rights under
Section 4.2) as the Board of Directors of the Company may direct, all upon the
terms and subject to the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the Company,
acting through its Board of Directors, shall reasonably deem necessary to
discharge Employee's duties in such capacities. Employee may participate in
social, civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement. Employee shall
not engage in any other business activity during the term of this Agreement
without the prior written consent of the Company, other than the passive
management of employee's personal investments or activities which would not
materially detract from Employee's ability to perform his duties under this
Agreement (such as Employee's current positions with other companies and other
future positions of a similar nature).
ARTICLE II
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the Effective Date and
continue for a period of three years, provided that, on each one-year
anniversary of this Agreement, the term of this Agreement shall automatically be
extended for an additional one year. This Agreement is subject to earlier
termination as hereinafter provided.
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<PAGE> 2
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from Company an
annual base salary of $175,000 (before standard deductions) during the first
year of this Agreement. Employee's annual base salary shall be subject to review
and adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $175,000, without
Employee's consent. Employee's annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
(a) AUTOMOBILE ALLOWANCE. An automobile to be chosen by the
Employee, replaceable every two years and complete payment of all operating,
insurance and maintenance expenses attendant thereto. Upon termination of the
Company's obligation to provide this benefit, Employee shall have an option,
exercisable within 90 days of such termination, to purchase such automobile at
its net book value as shown upon the Company's records as of the date of
termination. Employee may, at the sole option of Employee, receive a reasonable
cash allowance in lieu of such Automobile Allowance.
(b) LIFE INSURANCE. Whole life insurance policies in the
aggregate amount of ONE MILLION and No/100 Dollars ($1,000,000) to be owned by
Employee or his designee. The premiums are to be paid by the Company pursuant to
a split dollar program, whereby only a portion of the premium paid is taxable to
Employee. The policy is to be collaterally assigned by Employee or other owner
of the policy to reimburse the Company for certain premiums paid under the split
dollar program. The requirements of this Section 3.3(b) are temporarily waived
by the Employee until such time as the Company achieves financial stability. The
Employee shall have the option to exercise the life insurance benefit by
submitting a written request to the Company.
(c) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall
be entitled to receive all of the medical, health and disability benefits that
may, from time to time, be provided by the Company to its executive officers.
(d) OTHER BENEFITS. Employee shall also be entitled to receive
any other benefits provided by the Company to all employees of Company as a
group, or all executive officers of the Company as a group, including any profit
sharing, 401(k) or retirement benefits.
(e) VACATION PAY. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and policy of
the Company.
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<PAGE> 3
(f) HOLIDAYS. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(g) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the provisions
of this Section 4.1, this Agreement may be terminated by the Company without
cause upon 30 days prior written notice thereof given to Employee. In the event
of termination pursuant to this Section 4.1, (a) the Company shall at the
election of Employee either (x) continue to pay Employee his then effective base
salary under Section 3.1 hereof and all benefits under Section 3.3 hereof
through the expiration of the three-year term then in effect (without giving
effect to any further extensions thereof under Article II hereof) or (y) pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the three-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), and (b) all outstanding stock options and incentive awards held by
Employee shall become fully vested and exercisable. Employee must make his
election under clause (a) above by giving the Company written notice thereof
within 30 days after notice of termination is given pursuant to this Section
4.1. If Employee does not make such an election within the 30-day period, he
will be deemed to have elected to receive the lump-sum payment described in
clause (a)(y) above. Payment or performance by the Company in accordance with
this Section shall constitute Employee's full severance pay and the Company
shall have no further obligation to Employee arising out of such termination.
4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below) upon 30 days prior written notice thereof to the Company. In the event of
such voluntary termination for "good reason," (a) the Company shall at the
election of Employee either (x) continue to pay Employee his then effective base
salary under Section 3.1 hereof and all benefits under Section 3.3 hereof
through the expiration of the three-year term then in effect (without giving
effect to any further extensions thereof under Article II hereof) or (y) pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the three-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), and (b) all outstanding stock options and incentive awards held by
Employee shall become fully vested and exercisable. Employee must make his
election under clause (a) above by giving the Company written notice thereof
within 30 days after notice of termination is given pursuant to this Section
4.2. If Employee does not make such an election within the 30-day period, he
will be deemed to have elected to receive the lump-sum payment described in
clause (a)(y) above.
For purposes of this Agreement, "good reason" shall mean the occurrence
of any of the following events:
(a) Removal from the offices Employee holds on the date
of this Agreement or a material reduction in
Employee's authority or responsibility, including,
without limitation, involuntary removal from the
Board of Directors, but not including termination of
Employee for "cause," as defined below; or
-3-
<PAGE> 4
(b) The Company otherwise commits a material breach of
this Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination 30 days before the effective date of such termination and by
granting Employee at least 30 days to cure the cause. In the event the
employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of the
Company). Except as otherwise provided in this Agreement, the determination of
whether Employee shall be terminated for "cause" shall be made by the Board of
Directors of the Company, in the reasonable exercise of its business judgment,
and shall be limited to the occurrence of the following events:
(a) Conviction of or a plea of nolo contendere to the
charge of a felony (which, through lapse of time or
otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to
perform, or gross negligence in performing,
Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company
through the misappropriation of Company funds or
property; or
(d) The unauthorized absence of Employee from work (other
than for sick leave or disability) for a period of 30
working days or more during any period of 45 working
days during the term of this Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions of
the position, with or without reasonable accommodation, on account of illness,
disability, or other reason whatsoever for a period of more than six consecutive
or nonconsecutive months in any twelve-month period, this Agreement shall
terminate effective upon such incapacity, and Employee (or his legal
representatives) shall be entitled only to the base salary earned pro rata to
the date of such termination with no entitlement to any base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation to
the Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary earned
pro rata to the date of his resignation, but no base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company). On or after the date the Company
receives notice of Employee's resignation, the Company may, at its option, pay
Employee his base salary through the effective date of his resignation and
terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein,
should Employee at any time within 12 months of the occurrence of a "change of
control" (as defined below) cease to be an employee of the Company (or its
successor), by reason of (I) termination by the Company (or its successor) other
than for "cause" (following a change of control, "cause" shall be limited to the
conviction of or a plea of nolo contendere to the charge of a felony which,
through lapse of time or otherwise, is not subject to appeal), or a
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<PAGE> 5
tmaterial breach of fiduciary duty to the Company through the misappropriation
of Company funds or property) or (ii) voluntary termination by Employee for
"good reason upon change of control" (as defined below), then in any such event,
(1) the Company shall at the election of Employee either (x) continue to pay
Employee his then effective base salary under Section 3.1 hereof through the
expiration of the three-year term then in effect (without giving effect to any
further extensions thereof under Article II hereof) or (y) pay Employee, within
45 days of the severance of employment described in this Section 4.6, a lump-sum
payment equal to (without discounting to present value) his then effective base
salary under Section 3.1 hereof through the expiration of the three-year term
then in effect (without giving effect to any further extensions thereof under
Article II hereof), and (2) all outstanding stock options and other incentive
awards held by Employee shall become fully vested and exercisable. In addition,
regardless of the election made by Employee pursuant to paragraph 4.6(a)(1)(x)
or (y) above, Company shall continue all benefits under Section 3.3 hereof,
through the expiration of the three-year term then in effect, to the extent
continuation of such benefits is not prohibited by applicable state and/or
federal law.
(b) Regardless of the election made by Employee under
paragraph (a)(1) above, Employee shall be entitled to an additional payment, to
the extent all payments to Employee (whether pursuant to this Agreement or any
other agreement whatsoever) in connection with a change of control as defined in
this Section 4.6 do not exceed in aggregate, the maximum amount that could be
paid to Employee, without triggering an excess parachute payment under Section
280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
resulting excise tax under Section 4999 of the Code, (referred to herein as the
"maximum payment amount") equal to an amount, which when added to the amounts
payable to the Employee under paragraph (a) equals the maximum payment amount;
it being the express intention of the parties that Employee in all cases
(whether through this Agreement or any other agreement whatsoever) receive the
maximum payment amount in connection with a change of control without creating
an excess parachute payment. If such a payment is required under this paragraph
(b) in addition to the amounts set forth in paragraph (a) above, it shall be
paid at the time and in the manner elected by the Employee under paragraph
(a)(1). Employee must make his election under paragraph (a)(1) above by giving
the Company written notice thereof within 30 days after the severance of
employment described in this Section 4.6. If Employee does not make such an
election within the 30-day period, he will be deemed to have elected to receive
the lump-sum payment described in paragraph (a)(1)(y) above.
(c ) In determining the amount to be paid to Employee under
this Section 4.6, as well as the limitation determined under Section 280G of the
Code, (I) no portion of the total payments which Employee has waived in writing
prior to the date of the payment of benefits under this Agreement will be taken
into account, (ii) no portion of the total payments which nationally recognized
tax counsel (whether through consultation or retention of any actuary,
consultant or other expert), selected by the Company's independent auditors and
acceptable to Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account, (iii) no portion of the total payments which
Tax Counsel determines to be reasonable compensation for services rendered
within the meaning of Section 280G(b)(4) of the Code will be taken into account,
and (iv) the value of any non-cash benefit or any deferred payment or benefit
included in the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
(d) As used in this Section, voluntary termination by Employee
for "good reason upon change of control" shall mean (I) removal of Employee from
the offices Employee holds on the date of this Agreement, (ii) a material
reduction in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation of
the Company's headquarters from its then current location, (iv) a reduction in
Employee's compensation, or (v) the Company otherwise commits a breach of this
Agreement.
-5-
<PAGE> 6
(e) As used in this Agreement, a "change of control" shall be
deemed to have occurred if (I) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing more than 30% of the combined voting power of the Company's then
outstanding securities, or (ii) at any time during the 24-month period after a
tender offer, merger, consolidation, sale of assets or contested election, or
any combination of such transactions, at least a majority of the Company's Board
of Directors shall cease to consist of "continuing directors" (meaning directors
of the Company who either were directors prior to such transaction or who
subsequently became directors and whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least two-thirds of the
directors then still in office who were directors prior to such transaction), or
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation that
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 60% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement of sale or disposition by
the Company of all or substantially all of the Company's assets.
(f) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code (such excise tax,
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax, and any interest in respect
of such penalties, additions to tax or additional amounts, being collectively
referred herein to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment or payments (individually referred to herein as a
"Gross-Up Payment" and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an amount such that after payment
by Employee of all taxes (as defined in paragraph (p) below) imposed upon the
Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(g) Subject to the provisions of paragraph (h) through (n)
below, any determination (individually, a "Determination") required to be made
under this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and Employee
within 15 business days of the termination of Employee's employment, if
applicable, or such other time or times as is reasonably requested by the
Company or Employee. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute") within
15 business days after delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as determined pursuant to such
Determination shall, at the Company's expense, be paid by the Company to
Employee within five business days of Employee's receipt of such Determination.
The existence of a Dispute shall not in any way affect Employee's right to
receive the Gross-Up Payment in accordance with such Determination. If there is
no Dispute, such Determination shall be binding, final and conclusive upon the
Company and Employee, subject in all respects, however, to the provisions of
paragraph (h) through (n) below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments
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<PAGE> 7
(or portions thereof) which will not have been made by the Company should have
been made ("Underpayment"), and if upon any reasonable written request from
Employee or the Company to Tax Counsel, or upon Tax Counsel's own initiative,
Tax Counsel, at the Company's expense, thereafter determines that Employee is
required to make a payment of any Excise Tax or any additional Excise Tax, as
the case may be, Tax Counsel shall, at the Company's expense, determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Employee resulting from any Final Determination (as defined in
paragraph (o) below) that any Payment is subject to the Excise Tax.
(I) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending or
threatened audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by Employee against the Company under this paragraph (I) ("Claim"),
including, but not limited to, a claim for indemnification of Employee by the
Company under paragraph (h) above, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(I) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice relating
to such Employee Claim (or such earlier date that any payment of the
taxes claimed is due from Employee, but in no event sooner than five
calendar days after the Company receives or delivers such Tax Claim
Notice), the Company shall have notified Employee in writing ("Election
Notice") that the Company does not dispute its obligations (including,
but not limited to, its indemnity obligations) under this Agreement and
that the Company elects to contest, and to control the defense or
prosecution of, such Employee Claim at the Company's sole risk and sole
cost and expense; and
(ii) the Company shall have advanced to Employee on
an interest-free basis, the total amount of the tax claimed in order
for Employee, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding
in, for example, United States Tax Court) and shall indemnify and hold
Employee harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
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(iii) the Company shall reimburse Employee for any
and all costs and expenses resulting from any such request by the
Company and shall indemnify and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
(k) Subject to the provisions of paragraph (j) above, the
Company shall have the right to defend or prosecute, at the sole cost, expense
and risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by the Company to a
Final Determination; provided, however, that (I) the Company shall not, without
Employee's prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect Employee, (ii) any request from
the Company to Employee regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the taxable year of
Employee with respect to which the contested issues involved in, and amount of,
the Employee Claim relate is limited solely to such contested issues and amount,
and (iii) the Company's control of any contest or proceeding shall be limited to
issues with respect to the Employee Claim and Employee shall be entitled to
settle or contest, in his sole and absolute discretion, any other issue raised
by the Internal Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such Employee Claim, Employee
shall provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Employee Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Employee Claim. The Company shall keep
Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all
written materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee's expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails
to deliver an Election Notice to Employee within the period provided in
paragraph (j)(I) above or, after delivery of such Election Notice, the Company
fails to comply with the provisions of paragraph (j)(ii) above and (iii) and (k)
above, then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof. If requested by
Employee, the Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with Employee and his authorized representatives in
order to contest effectively such Employee Claim. The Company may attend, but
not participate in or control, any defense, prosecution, settlement or
compromise of any Employee Claim controlled by Employee pursuant to this
paragraph (m) and shall bear its own costs and expenses with respect thereto. In
the case of any Employee
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<PAGE> 9
Claim that is defended or prosecuted by Employee, Employee shall, from time to
time, be entitled to current payment, on a fully grossed-up after tax basis,
from the Company with respect to costs and expenses incurred by Employee in
connection with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph (n),
the Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final
Determination" shall mean (I) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (iii) any disallowance
of a claim for refund or credit in respect to an overpayment of tax unless a
suit is filed on a timely basis; or (iv) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to direct
or cause the direction of the management and policies of such entity or other
person, whether through the ownership of voting securities, by contract or
otherwise.
(r) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
costs and expenses (including reasonable attorneys', accountants' and experts'
fees and expenses) incurred by Employee from time to time as a result of any
contest (regardless of the outcome) by the Company or others contesting the
validity or enforcement of, or liability under, any term or provision of this
Agreement, plus in each case interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code.
Notwithstanding the provision of Section 7.9 to the contrary, the
Company shall pay any attorney's fees incurred by Employee in reasonably seeking
to enforce the terms of this Section 4.6.
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4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NON-COMPETITION
5.1 NON-DISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information or proprietary data of the Company (or any of its subsidiaries),
except as required by applicable law or legal process; provided, however, that
confidential information shall not include any information known generally to
the public or ascertainable from public or published information (other than as
a result of unauthorized disclosure by Employee) or any information of a type
not otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company (or any of its
subsidiaries).
5.2 NON-COMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. Employee hereby
agrees that, during the term of this Agreement and for a period of twelve months
thereafter, he shall not (except in the course of his employment under this
Agreement and in furtherance of the business of the Company (or any of its
subsidiaries)) (I) engage in as principal, consultant or employee in any segment
of a business of a company, partnership or firm ("Business Segment") that is
directly competitive with any significant business of the Company in one of its
major commercial or geographic markets or (ii) hold an interest (except as a
holder of less than 5% interest in a publicly traded firm or mutual funds, or as
a minority stockholder or unitholder in a form not publicly traded) in a
company, partnership or firm with a Business Segment that is directly
competitive, without the prior written consent of the Company.
5.3 VALIDITY OF NON-COMPETITION. The foregoing provisions of Section
5.2 shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NON-COMPETITION COVENANTS INDEPENDENT. The covenants of the
Employee contained in Section 5.2 will be construed as independent of any other
provision in this Agreement; and the existence of any claim or cause of action
by the Employee against the Company will not constitute a defense to the
enforcement by the Company of said covenants. The Employee understands that the
covenants contained in Section 5.2 are essential elements of the transaction
contemplated by this Agreement and, but for the agreement of the Employee to
Section 5.2, the Company would not have agreed to enter into such transaction.
The Employee has been advised to consult with counsel in order to be informed in
all respects concerning the reasonableness and propriety of Section 5.2 and its
provisions with specific regard to the nature of the business conducted by the
Company and the Employee acknowledges that Section 5.2 and its provisions are
reasonable in all respects.
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<PAGE> 11
5.5 REMEDIES. In the event of a breach or threatened breach by the
Employee of Section 5.2 or its provisions, the Company shall be entitled to a
temporary restraining order and an injunction restraining the Employee from the
commission of such breach. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to it for such breach or
threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Any controversy of any nature whatsoever, including but not limited to
tort claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. ss.ss.1-15, as amended. Each
of the parties to this Agreement shall appoint one person as an arbitrator to
hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other agreements between the
parties which may have related to the subject matter contained in this
Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter in to this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
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<PAGE> 12
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement and that its execution and performance of this Agreement is not a
violation or breach of any other agreements between Company and any other person
or entity. The Company represents and warrants that this Agreement is a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such other
relief which a court of competent jurisdiction may deem appropriate.
7.10 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal delivery,
overnight delivery, or first class mail, certified or registered with return
receipt requested, with postage or delivery charges prepaid, and shall be deemed
to have been duly given when delivered personally, upon actual receipt, and on
the next business day when sent via overnight delivery, or three days after
mailing first class, certified or registered with return receipt requested, to
the respective persons named below:
If to the Company: Ponder Industries, Inc.
5005 Riverway, Suite 550
Houston, Texas 77056
If to the Employee: Eugene L. Butler
5005 Riverway, Suite 510
Houston, Texas 77056
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: PONDER INDUSTRIES, INC.
By: /s/
-------------------------------------
Gerald A. Slaughter
Senior Vice President and
Chief Financial Officer
EMPLOYEE: /s/
-------------------------------------------
Eugene L. Butler
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<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into the 1st
day of December, 1998 by and between Gerald A. Slaughter ("Employee") and Ponder
Industries, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company and Employee desire to have Employee continue
Employment with Employer;
WHEREAS, the Company and Employee desire to set forth the terms and
conditions of Employee's employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises and
covenants hereafter set forth, the mutual agreements contained herein, the
employment of Employee by the Company, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as the Company's Senior Vice President and Chief Financial
Officer, and Employee agrees to serve the Company in such capacities or in such
other capacities (subject to Employee's termination rights under Section 4.2) as
the Board of Directors of the Company may direct, all upon the terms and subject
to the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the Company,
acting through its Chief Executive Officer or Board of Directors, shall
reasonably deem necessary to discharge Employee's duties in such capacities.
Employee may participate in social, civic, charitable, religious, business,
education or professional associations, so long as such participation would not
materially detract from Employee's ability to perform his duties under this
Agreement. Employee shall not engage in any other business activity during the
term of this Agreement without the prior written consent of the Company, other
than the passive management of employee's personal investments or activities
which would not materially detract from Employee's ability to perform his duties
under this Agreement (such as Employee's current positions with other companies
and other future positions of a similar nature).
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ARTICLE II
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the Effective Date and
continue for a period of two years, provided that, on each one-year anniversary
of this Agreement, the term of this Agreement shall automatically be extended
for an additional one year. This Agreement is subject to earlier termination as
hereinafter provided.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from Company an
annual base salary of $120,000 (before standard deductions) during the first
year of this Agreement. Employee's annual base salary shall be subject to review
and adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $120,000, without
Employee's consent. Employee's annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
(a) AUTOMOBILE ALLOWANCE. An automobile to be chosen by the
Employee, replaceable every two years and complete payment of all operating,
insurance and maintenance expenses attendant thereto. Upon termination of the
Company's obligation to provide this benefit, Employee shall have an option,
exercisable within 90 days of such termination, to purchase such automobile at
its net book value as shown upon the Company's records as of the date of
termination. Employee may, at the sole option of Employee, receive a reasonable
cash allowance in lieu of such Automobile Allowance.
(b) LIFE INSURANCE. Whole life insurance policies in the aggregate
amount of SEVEN HUNDRED FIFTY THOUSAND and No/100 Dollars ($750,000) to be owned
by Employee or his designee. The premiums are to be paid by the Company pursuant
to a split dollar program, whereby only a portion of the premium paid is taxable
to Employee. The policy is to be collaterally assigned by Employee or other
owner of the policy to reimburse the Company for certain premiums paid under the
split dollar program. The requirements of this Section 3.3(b) are temporarily
waived by the Employee until such time as the Company achieves financial
stability. The Employee shall have the option to exercise the life insurance
benefit by submitting a written request to the Company.
(c) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that may,
from time to time, be provided by the Company to its executive officers.
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(d) OTHER BENEFITS. Employee shall also be entitled to receive any
other benefits provided by the Company to all employees of Company as a group,
or all executive officers of the Company as a group, including any profit
sharing, 401(k) or retirement benefits.
(e) VACATION PAY. Employee shall be entitled to an annual vacation
as determined in accordance with the prevailing practice and policy of the
Company.
(f) HOLIDAYS. Employee shall be entitled to holidays in accordance
with the prevailing practice and policy of the Company.
(g) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the
provisions of this Section 4.1, this Agreement may be terminated by the Company
without cause upon 30 days prior written notice thereof given to Employee. In
the event of termination pursuant to this Section 4.1, (a) the Company shall at
the election of Employee either (x) continue to pay Employee his then effective
base salary under Section 3.1 hereof and all benefits under Section 3.3 hereof
through the expiration of the two-year term then in effect (without giving
effect to any further extensions thereof under Article II hereof) or (y) pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the two-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), and (b) all outstanding stock options and incentive awards held by
Employee shall become fully vested and exercisable. Employee must make his
election under clause (a) above by giving the Company written notice thereof
within 30 days after notice of termination is given pursuant to this Section
4.1. If Employee does not make such an election within the 30-day period, he
will be deemed to have elected to receive the lump-sum payment described in
clause (a)(y) above. Payment or performance by the Company in accordance with
this Section shall constitute Employee's full severance pay and the Company
shall have no further obligation to Employee arising out of such termination.
4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below) upon 30 days prior written notice thereof to the Company. In the event of
such voluntary termination for "good reason," (a) the Company shall at the
election of Employee either (x) continue to pay Employee his then effective base
salary under Section 3.1 hereof and all benefits under Section 3.3 hereof
through the expiration of the two-year term then in effect (without giving
effect to any further extensions thereof under Article II hereof) or (y) pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the two-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), and (b) all outstanding stock options and incentive awards held by
Employee shall become fully vested and exercisable. Employee must make his
election under clause (a) above by giving the Company written notice thereof
within 30 days after notice of termination is given pursuant to this Section
4.2. If Employee does not make such an election within the 30-day period, he
will be deemed to have elected to receive the lump-sum payment described in
clause (a)(y) above.
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For purposes of this Agreement, "good reason" shall mean the occurrence
of any of the following events:
(a) Removal from the offices Employee holds on the date of this
Agreement or a material reduction in Employee's authority or
responsibility, including, without limitation, involuntary
removal from the Board of Directors, but not including
termination of Employee for "cause," as defined below; or
(b) The Company otherwise commits a material breach of this
Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination 30 days before the effective date of such termination and by
granting Employee at least 30 days to cure the cause. In the event the
employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of the
Company). Except as otherwise provided in this Agreement, the determination of
whether Employee shall be terminated for "cause" shall be made by the Board of
Directors of the Company, in the reasonable exercise of its business judgment,
and shall be limited to the occurrence of the following events:
(a) Conviction of or a plea of nolo contendere to the charge of a
felony (which, through lapse of time or otherwise, is not
subject to appeal);
(b) Willful refusal without proper legal cause to perform, or
gross negligence in performing, Employee's duties and
responsibilities;
(c) Material breach of fiduciary duty to the Company through
the misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than
for sick leave or disability) for a period of 30 working days
or more during any period of 45 working days during the term
of this Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions of
the position, with or without reasonable accommodation, on account of illness,
disability, or other reason whatsoever for a period of more than six consecutive
or nonconsecutive months in any twelve-month period, this Agreement shall
terminate effective upon such incapacity, and Employee (or his legal
representatives) shall be entitled only to the base salary earned pro rata to
the date of such termination with no entitlement to any base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation to
the Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary earned
pro rata to the date of his resignation, but no base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company). On or after the date the Company
receives notice of Employee's resignation, the Company may, at its option, pay
Employee his base salary through the effective date of his resignation and
terminate his employment immediately.
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4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein,
should Employee at any time within 12 months of the occurrence of a "change of
control" (as defined below) cease to be an employee of the Company (or its
successor), by reason of (I) termination by the Company (or its successor) other
than for "cause" (following a change of control, "cause" shall be limited to the
conviction of or a plea of nolo contendere to the charge of a felony which,
through lapse of time or otherwise, is not subject to appeal), or a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), then in any such event, (1) the
Company shall at the election of Employee either (x) continue to pay Employee
his then effective base salary under Section 3.1 hereof through the expiration
of the two-year term then in effect (without giving effect to any further
extensions thereof under Article II hereof) or (y) pay Employee, within 45 days
of the severance of employment described in this Section 4.6, a lump-sum payment
equal to (without discounting to present value) his then effective base salary
under Section 3.1 hereof through the expiration of the two-year term then in
effect (without giving effect to any further extensions thereof under Article II
hereof), and (2) all outstanding stock options and other incentive awards held
by Employee shall become fully vested and exercisable. In addition, regardless
of the election made by Employee pursuant to paragraph 4.6(a)(1)(x) or (y)
above, Company shall continue all benefits under Section 3.3 hereof, through the
expiration of the two-year term then in effect, to the extent continuation of
such benefits is not prohibited by applicable state and/or federal law.
(b) Regardless of the election made by Employee under paragraph
(a)(1) above, Employee shall be entitled to an additional payment, to the extent
all payments to Employee (whether pursuant to this Agreement or any other
agreement whatsoever) in connection with a change of control as defined in this
Section 4.6 do not exceed in aggregate, the maximum amount that could be paid to
Employee, without triggering an excess parachute payment under Section 280G(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the resulting
excise tax under Section 4999 of the Code, (referred to herein as the "maximum
payment amount") equal to an amount, which when added to the amounts payable to
the Employee under paragraph (a) equals the maximum payment amount; it being the
express intention of the parties that Employee in all cases (whether through
this Agreement or any other agreement whatsoever) receive the maximum payment
amount in connection with a change of control without creating an excess
parachute payment. If such a payment is required under this paragraph (b) in
addition to the amounts set forth in paragraph (a) above, it shall be paid at
the time and in the manner elected by the Employee under paragraph (a)(1).
Employee must make his election under paragraph (a)(1) above by giving the
Company written notice thereof within 30 days after the severance of employment
described in this Section 4.6. If Employee does not make such an election within
the 30-day period, he will be deemed to have elected to receive the lump-sum
payment described in paragraph (a)(1)(y) above.
(c) In determining the amount to be paid to Employee under this
Section 4.6, as well as the limitation determined under Section 280G of the
Code, (I) no portion of the total payments which Employee has waived in writing
prior to the date of the payment of benefits under this Agreement will be taken
into account, (ii) no portion of the total payments which nationally recognized
tax counsel (whether through consultation or retention of any actuary,
consultant or other expert), selected by the Company's independent auditors and
acceptable to Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account, (iii) no portion of the total payments which
Tax Counsel determines to be reasonable compensation for services rendered
within the meaning of Section 280G(b)(4) of the Code will be taken into account,
and (iv) the value of any non-cash benefit or any deferred payment or benefit
included in the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
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(d) As used in this Section, voluntary termination by Employee for
"good reason upon change of control" shall mean (I) removal of Employee from the
offices Employee holds on the date of this Agreement, (ii) a material reduction
in Employee's authority or responsibility, including, without limitation,
involuntary removal from the Board of Directors, (iii) relocation of the
Company's headquarters from its then current location, (iv) a reduction in
Employee's compensation, or (v) the Company otherwise commits a breach of this
Agreement.
(e) As used in this Agreement, a "change of control" shall be
deemed to have occurred if (I) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing more than 30% of the combined voting power of the Company's then
outstanding securities, or (ii) at any time during the 24-month period after a
tender offer, merger, consolidation, sale of assets or contested election, or
any combination of such transactions, at least a majority of the Company's Board
of Directors shall cease to consist of "continuing directors" (meaning directors
of the Company who either were directors prior to such transaction or who
subsequently became directors and whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least two-thirds of the
directors then still in office who were directors prior to such transaction), or
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation that
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 60% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement of sale or disposition by
the Company of all or substantially all of the Company's assets.
(f) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
or any of its affiliates to or for the benefit of Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions being individually referred to
herein as a "Payment," and any two or more of such payments or distributions
being referred to herein as "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties, additions to tax
or additional amounts, being collectively referred herein to as the "Excise
Tax"), then Employee shall be entitled to receive an additional payment or
payments (individually referred to herein as a "Gross-Up Payment" and any two or
more of such additional payments being referred to herein as "Gross-Up
Payments") in an amount such that after payment by Employee of all taxes (as
defined in paragraph (p) below) imposed upon the Gross-Up Payment, Employee
retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(g) Subject to the provisions of paragraph (h) through (n) below,
any determination (individually, a "Determination") required to be made under
this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and Employee
within 15 business days of the termination of Employee's employment, if
applicable, or such other time or times as is reasonably requested by the
Company or Employee. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute") within
15 business days after delivery of Tax
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<PAGE> 7
Counsel's opinion with respect to such Determination. The Gross-Up Payment, if
any, as determined pursuant to such Determination shall, at the Company's
expense, be paid by the Company to Employee within five business days of
Employee's receipt of such Determination. The existence of a Dispute shall not
in any way affect Employee's right to receive the Gross-Up Payment in accordance
with such Determination. If there is no Dispute, such Determination shall be
binding, final and conclusive upon the Company and Employee, subject in all
respects, however, to the provisions of paragraph (h) through (n) below. As a
result of the uncertainty in the application of Sections 4999 and 280G of the
Code, it is possible that Gross-Up Payments (or portions thereof) which will not
have been made by the Company should have been made ("Underpayment"), and if
upon any reasonable written request from Employee or the Company to Tax Counsel,
or upon Tax Counsel's own initiative, Tax Counsel, at the Company's expense,
thereafter determines that Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at the
Company's expense, determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Employee resulting from any Final Determination (as defined in
paragraph (o) below) that any Payment is subject to the Excise Tax.
(I) If a party hereto receives any written or oral communication
with respect to any question, adjustment, assessment or pending or threatened
audit, examination, investigation or administrative, court or other proceeding
which, if pursued successfully, could result in or give rise to a claim by
Employee against the Company under this paragraph (I) ("Claim"), including, but
not limited to, a claim for indemnification of Employee by the Company under
paragraph (h) above, then such party shall promptly notify the other party
hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee Claim"),
Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(I) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes
claimed is due from Employee, but in no event sooner than five calendar
days after the Company receives or delivers such Tax Claim Notice), the
Company shall have notified Employee in writing ("Election Notice")
that the Company does not dispute its obligations (including, but not
limited to, its indemnity obligations) under this Agreement and that
the Company elects to contest, and to control the defense or
prosecution of, such Employee Claim at the Company's sole risk and sole
cost and expense; and
(ii) the Company shall have advanced to Employee on
an interest-free basis, the total amount of the tax claimed in order
for Employee, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the
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<PAGE> 8
Company shall only be entitled to sue for a refund and the Company
shall not be entitled to initiate any proceeding in, for example,
United States Tax Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax basis, from any tax imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and
(iii) the Company shall reimburse Employee for any and all
costs and expenses resulting from any such request by the Company and
shall indemnify and hold Employee harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such
reimbursement.
(k) Subject to the provisions of paragraph (j) above, the Company
shall have the right to defend or prosecute, at the sole cost, expense and risk
of the Company, such Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a Final
Determination; provided, however, that (I) the Company shall not, without
Employee's prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect Employee, (ii) any request from
the Company to Employee regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the taxable year of
Employee with respect to which the contested issues involved in, and amount of,
the Employee Claim relate is limited solely to such contested issues and amount,
and (iii) the Company's control of any contest or proceeding shall be limited to
issues with respect to the Employee Claim and Employee shall be entitled to
settle or contest, in his sole and absolute discretion, any other issue raised
by the Internal Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such Employee Claim, Employee
shall provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Employee Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Employee Claim. The Company shall keep
Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all
written materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee's expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails to
deliver an Election Notice to Employee within the period provided in paragraph
(j)(I) above or, after delivery of such Election Notice, the Company fails to
comply with the provisions of paragraph (j)(ii) above and (iii) and (k) above,
then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any
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<PAGE> 9
settlement or compromise thereof. If requested by Employee, the Company shall
cooperate, and shall cause its affiliates to cooperate, in good faith with
Employee and his authorized representatives in order to contest effectively such
Employee Claim. The Company may attend, but not participate in or control, any
defense, prosecution, settlement or compromise of any Employee Claim controlled
by Employee pursuant to this paragraph (m) and shall bear its own costs and
expenses with respect thereto. In the case of any Employee Claim that is
defended or prosecuted by Employee, Employee shall, from time to time, be
entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by Employee in connection
with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph (n),
the Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final Determination"
shall mean (I) a decision, judgment, decree or other order by a court or other
tribunal with appropriate jurisdiction, which has become final and
non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (iii) any disallowance
of a claim for refund or credit in respect to an overpayment of tax unless a
suit is filed on a timely basis; or (iv) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and "taxes"
mean any and all taxes of any kind whatsoever (including, but not limited to,
any and all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to direct
or cause the direction of the management and policies of such entity or other
person, whether through the ownership of voting securities, by contract or
otherwise.
(r) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
costs and expenses (including reasonable attorneys', accountants' and experts'
fees and expenses) incurred by Employee from time to time as a result of any
contest (regardless of the outcome) by the Company or others contesting the
validity or enforcement of, or liability
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<PAGE> 10
under, any term or provision of this Agreement, plus in each case interest at
the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.
Notwithstanding the provision of Section 7.9 to the contrary, the
Company shall pay any attorney's fees incurred by Employee in reasonably seeking
to enforce the terms of this Section 4.6.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NON-COMPETITION
5.1 NON-DISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information or proprietary data of the Company (or any of its subsidiaries),
except as required by applicable law or legal process; provided, however, that
confidential information shall not include any information known generally to
the public or ascertainable from public or published information (other than as
a result of unauthorized disclosure by Employee) or any information of a type
not otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company (or any of its
subsidiaries).
5.2 NON-COMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. Employee hereby
agrees that, during the term of this Agreement and for a period of twelve months
thereafter, he shall not (except in the course of his employment under this
Agreement and in furtherance of the business of the Company (or any of its
subsidiaries)) (I) engage in as principal, consultant or employee in any segment
of a business of a company, partnership or firm ("Business Segment") that is
directly competitive with any significant business of the Company in one of its
major commercial or geographic markets or (ii) hold an interest (except as a
holder of less than 5% interest in a publicly traded firm or mutual funds, or as
a minority stockholder or unitholder in a form not publicly traded) in a
company, partnership or firm with a Business Segment that is directly
competitive, without the prior written consent of the Company.
5.3 VALIDITY OF NON-COMPETITION. The foregoing provisions of Section
5.2 shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NON-COMPETITION COVENANTS INDEPENDENT. The covenants of the
Employee contained in Section 5.2 will be construed as independent of any other
provision in this Agreement; and the existence of any claim or cause of action
by the Employee against the Company will not constitute a defense to the
enforcement by the Company of said covenants. The Employee understands that the
covenants contained in Section 5.2 are essential elements of the transaction
contemplated by this Agreement and, but for the
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<PAGE> 11
agreement of the Employee to Section 5.2, the Company would not have agreed to
enter into such transaction. The Employee has been advised to consult with
counsel in order to be informed in all respects concerning the reasonableness
and propriety of Section 5.2 and its provisions with specific regard to the
nature of the business conducted by the Company and the Employee acknowledges
that Section 5.2 and its provisions are reasonable in all respects.
5.5 REMEDIES. In the event of a breach or threatened breach by the
Employee of Section 5.2 or its provisions, the Company shall be entitled to a
temporary restraining order and an injunction restraining the Employee from the
commission of such breach. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to it for such breach or
threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Any controversy of any nature whatsoever, including but not limited to
tort claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. ss.ss.1-15, as amended. Each
of the parties to this Agreement shall appoint one person as an arbitrator to
hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
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<PAGE> 12
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter in to this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement and that its execution and performance of this Agreement is not a
violation or breach of any other agreements between Company and any other person
or entity. The Company represents and warrants that this Agreement is a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose
any obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such other
relief which a court of competent jurisdiction may deem appropriate.
7.10 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by either personal
delivery, overnight delivery, or first class mail, certified or registered with
return receipt requested, with postage or delivery charges prepaid, and shall be
deemed to have been duly given when delivered personally, upon actual receipt,
and on the next business day when sent via overnight delivery, or three days
after mailing first class, certified or registered with return receipt
requested, to the respective persons named below:
If to the Company: Ponder Industries, Inc.
5005 Riverway, Suite 550
Houston, Texas 77056
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If to the Employee: Eugene L. Butler
5005 Riverway, Suite 510
Houston, Texas 77056
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: PONDER INDUSTRIES, INC.
By: /s/
---------------------------------
Eugene L. Butler
EMPLOYEE:
/s/
---------------------------------
Gerald A. Slaughter
Senior Vice President and
Chief Financial Officer
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EXHIBIT 11
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
Three Months
Ended November 30
-----------------------------
1998 1997
----------- ------------
<S> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE:
Net loss $ (960) $ (424)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING 9,273,096 5,005,960
=========== ===========
BASIC LOSS PER COMMON SHARE $ (.10) $ (.08)
=========== ===========
COMPUTATION OF DILUTED LOSS PER SHARE:
Net loss $ (960) $ (424)
Interest and debt issue cost amortization expense not incurred upon assumed
conversion of Senior Notes -- 24
----------- -----------
Net loss applicable to common stockholders used for computation $ (960) $ (400)
=========== ===========
Weighted average number of shares of common stock outstanding 9,273,096 5,005,960
Weighted average incremental shares outstanding upon assumed conversion
of options and warrants -- 740,977
Weighted average incremental shares outstanding upon assumed conversion
of Senior Notes -- 263,736
----------- -----------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS USED FOR COMPUTATION 9,273,096 6,010,673
=========== ===========
DILUTED LOSS PER COMMON SHARE AND COMMON SHARE
EQUIVALENT $ (.10) $ (.07)(a)
=========== ===========
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K although it is not required by SFAS No. 128 because it
is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PONDER
INDUSTRIES, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1998,
AND ITS CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 168
<SECURITIES> 220
<RECEIVABLES> 6,012
<ALLOWANCES> 635
<INVENTORY> 4,390
<CURRENT-ASSETS> 10,733
<PP&E> 41,377
<DEPRECIATION> 17,397
<TOTAL-ASSETS> 36,431
<CURRENT-LIABILITIES> 16,654
<BONDS> 468
0
0
<COMMON> 93
<OTHER-SE> 18,299
<TOTAL-LIABILITY-AND-EQUITY> 36,431
<SALES> 5,126
<TOTAL-REVENUES> 5,126
<CGS> 2,190
<TOTAL-COSTS> 5,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> (960)
<INCOME-TAX> 0
<INCOME-CONTINUING> (960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (960)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
