<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 333-48279
UNIVERSAL COMPRESSION, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1282680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
4430 BRITTMOORE ROAD
HOUSTON, TX 77041
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 713-466-4103
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 [ ]
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIVERSAL COMPRESSION, INC.
UNAUDITED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1998 1998
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,382 ($196)
Accounts receivable, net 11,662 16,617
Inventories 8,678 17,516
Deferred tax assets 67 67
Other 3,121 1,716
-------- --------
Total current assets 25,910 35,720
Property, plant and equipment
Rental equipment 237,795 248,487
Other 14,611 15,810
Less: accumulated depreciation (1,366) (9,443)
-------- --------
Net property, plant, and equipment 251,040 254,854
Goodwill, net of amortization 93,300 92,132
Other assets, net 8,858 8,044
-------- --------
Total assets $379,108 $390,750
======== ========
</TABLE>
See accompanying notes to unaudited financial statements
2
<PAGE> 3
UNIVERSAL COMPRESSION, INC.
UNAUDITED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
- ------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities 11,278 $ 11,458
Current portion of long-term debt 750 750
-------- --------
Total current liabilities 12,028 12,208
Deferred income taxes 525 525
Long-term debt 260,758 271,649
-------- --------
Total liabilities 273,311 284,382
Stockholders' equity:
Common stock, $10 par value, 5,000 shares
authorized and 4,910 shares issued and
outstanding 49 49
Additional paid-in capital 105,131 $105,131
Retained earnings 617 1,188
-------- --------
Total common stockholders' equity 105,797 106,368
-------- --------
Total liabilities and equity $379,108 $390,750
======== ========
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE> 4
UNIVERSAL COMPRESSION, INC.
UNAUDITED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Predecessor Predecessor
----------- -----------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,524 $ 21,677 $ 40,894 $ 43,442
Sales 6,617 11,107 13,628 18,979
-------- -------- -------- --------
Total revenue 28,141 32,784 54,522 62,421
Costs and expenses
Rentals, exclusive of depreciation
and amortization 9,206 7,972 17,817 15,969
Cost of sales, exclusive of
depreciation and amortization 4,702 8,838 9,257 15,524
Depreciation and amortization 6,529 4,802 13,083 9,322
General and administrative 2,443 4,216 4,952 8,024
Interest expense 1 6,409 3 12,658
-------- -------- -------- --------
Total costs and expenses 22,881 32,237 45,112 61,497
-------- -------- -------- --------
Income before income taxes 5,260 547 9,410 924
Income taxes 1,936 206 3,463 353
-------- -------- -------- --------
Net income $ 3,324 $ 341 $ 5,947 $ 571
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE> 5
UNIVERSAL COMPRESSION, INC.
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
-----------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,947 $ 571
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 13,083 9,322
Amortization of debt issuance costs 0 582
Accretion of discount notes 0 7,986
Change in assets and liabilities (3,980) (11,450)
------- -------
Net cash provided by operating activities 15,050 7,011
Cash flows from investing activities:
Additions to property, plant, and equipment, net (5,101) (13,014)
------- -------
Net cash used in investing activities (5,101) (13,014)
Cash flows from financing activities:
Principal repayments of long-term debt 0 (376)
Net borrowing on line of credit 0 3,800
Intercompany payable (10,508) 0
------- -------
Net cash used in and provided by financing activities (10,508) 3,424
Increase (decrease) in cash (559) (2,579)
Cash at beginning of period 0 2,383
------- -------
Cash at end of period ($559) ($196)
======= =======
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE> 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
Universal Compression, Inc., formerly the TW Acquisition Corporation,
("Acquisition Corp.") was formed on December 12, 1997. On February 20, 1998,
Acquisition Corp acquired 100% of the voting securities of Tidewater Compression
Service, Inc. ("TCS"). Immediately following the acquisition, Acquisition Corp
was merged with and into TCS, which changed its name to Universal Compression,
Inc. (the "Company"). The Company is a wholly owned subsidiary of Universal
Compression Holdings, Inc. These financial statements should be read in
conjunction with the financial statements presented in the Company's most recent
annual report as of March 31, 1998. That report contains a more comprehensive
summary of the Company's major accounting policies. In the opinion of
management, the accompanying unaudited financial statements contain all
appropriate adjustments, all of which are normally recurring adjustments unless
otherwise noted, considered necessary to present fairly its financial position,
results of operation and cash flows for the respective periods. Operating
results for the three-and six-month periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1999.
The Company is a leading provider of natural gas compressor rental, maintenance
and operations services to the domestic oil and gas industry, owning the second
largest domestic gas compressor fleet, and has a growing presence in key
international markets, including Argentina, Venezuela, Colombia and the Pacific
Rim. The Company has a broad base of over 500 customers and its 525,000
horsepower ("HP") gas compression rental fleet is comprised of over 2,700 units.
Founded in 1954, Universal Compression is the only compression rental company
with an operating presence in all active domestic gas compression markets. As a
complement to its rental operations, the Company designs and fabricates
compression units for its own fleet as well as for its global customer base.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, Report Comprehensive Income ("SFAS 130").
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosures of certain financial information that historically has not
been recognized in the presentation of net income. SFAS 130 requires the
reporting of comprehensive income in addition to net income from operations.
SFAS 130 is effective for periods beginning after December 15, 1997. At
September 31, 1998, the Company had no items of comprehensive income, and as a
result believes that the adoption of SFAS 130 will have no impact upon
implementation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 requires that companies report in their
financial statements financial and descriptive information about reportable
operating segments defined by reference to the way in which management reviews
its operations in order to assess performance and allocate resources. Management
is evaluating what, if any, additional disclosures may be required upon
implementation of SFAS 131.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March, 1998 September, 1998
----------- ---------------
<S> <C> <C>
Work-in-progress $ 3,199 $ 11,959
Finished goods 5,479 5,557
------- --------
$ 8,678 $ 17,516
======= ========
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Set forth below is a discussion of the results of operations for the three- and
six-month periods ended September 30, 1998 as compared to the corresponding
period of the previous year. The results for the three- and six-month periods
ended September, 1997 are the results of the predecessor , TCS.
THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the quarter ended September, 1998 increased $4.6
million, or 16%, to $32.8 million compared to $28.2 million for the quarter
ended September, 1997 due to increases in both rental revenue and revenue from
fabrication and equipment sales. Rental revenue increased 1% to $21.7 million.
The increase in rental revenue was due to a 6% increase in utilized horsepower
while average rental pricing declined 1%. Additionally the company increased the
amount of HP rented in international markets by 27% through additional service
in Argentina. Revenue from fabrication and sales increased to $11.1 million from
$6.6 million, an increase of 67%, due to a relatively higher level of
fabrication activity.
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the quarter ended September
30, 1998 increased $1.7 million, or 12%, to $16.0 million from gross margin of
$14.3 million for the quarter ended September 30, 1997. The increase was due to
higher utilization and the resulting operating efficiencies related to the
rental fleet and the increased capitalization of overhaul expenses of $1.3
million. The rental gross margin for the quarter ended September 30, 1998
increased $1.4 million, or 11%, to $13.7 million compared to gross margin of
$12.3 million for the quarter ended September 30, 1997 due to the aforementioned
factors regarding utilization of the rental fleet and the capitalization of
overhaul expenses.
General and Administrative Expenses. General and administrative
expenses for the quarter ended September 30, 1998 increased $1.8 million
compared to the quarter ended September 30, 1997. The increase was due to the
management fee payable to Castle Harlan and increased sales and engineering
expense in the quarter ended September 30, 1998 as the Company added the
additional sales and engineering personnel necessary to manage and rent a larger
rental fleet.
Net income. Primarily as a result of increased interest expense of $6.4
million related to the indebtedness incurred in the Acquisition, reduced income
taxes, and the factors discussed above, the Company had net income of $0.3
million for the quarter ended September 30, 1998 compared net income of $3.3
million for the quarter ended September 30, 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the six months ended September, 1998 increased
$7.9 million, or 14%, to $62.4 million compared to $54.5 million for the six
months ended September, 1997 due to increases in both rental revenue and revenue
from fabrication and equipment sales. Rental revenue increased 6% to $43.4
million. The increase in rental revenue was principally due to a 7% increase in
utilized horsepower while average rental pricing remained unchanged.
Additionally the company increased the amount of HP rented in international
markets by 33% through additional service in Argentina. Revenue from fabrication
and sales increased to $19.0 million from $13.6 million, an increase of 39%, due
to a much higher level of fabrication activity in the most recent quarter.
7
<PAGE> 8
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the six months ended September
30, 1998 increased $3.5 million , or 13%, to $30.9 million from gross margin of
$27.4 million for the six months ended September 30, 1997. The increase was due
to higher utilization and the resulting operating efficiencies related to the
rental fleet, the increased capitalization of overhaul expenses of $2.5 million,
and increased fabrication activity. The rental gross margin for the six months
ended September 30, 1998 increased $4.4 million, or 19%, to $27.5 million
compared to gross margin of $23.1 million for the six months ended September 30,
1997 due to the aforementioned factors regarding utilization of the rental fleet
and the capitalization of overhaul expenses.
General and Administrative Expenses. General and administrative
expenses for the six months ended September 30, 1998 increased $3.1 million
compared to the six months ended September 30, 1997. The increase was due to the
management fee payable to Castle Harlan and increased sales and engineering
expense in the six months ended September 30, 1998 as the Company incurred
additional sales and engineering costs necessary to manage and rent a larger
rental fleet and increased fabrication activities.
Net income. Primarily as a result of increased interest expense of
$12.7 million related to the indebtedness incurred in the Acquisition, reduced
income taxes, and the factors discussed above, the Company had net income of $.6
million for the six months ended September 30, 1998 compared net income of $5.9
million for the six months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended September 30, the Company generated cash flow from
operations of $7.0 million. The Company used this cash flow together with
borrowings of $3.4 under established lines of credit and cash on hand of $2.4
million to expend $13.0 million on equipment for its rental operations. During
the six months ended September 30, 1998 the Company had a sharp increase in its
fabrication activities and as a result has increased its use of working capital
for work-in-progress by $8.8 million.
The Company expects to expend approximately $50 million on capital projects
during fiscal 1999. Approximately $21 million is included for expansion of its
domestic rental fleet, $15 million is for additional expansion into
international markets, $10 million is for maintaining and updating the existing
fleet, with the balance of $4 million being for the expansion of the fabrication
shop in Houston and for new vehicles for service technicians and other capital
projects.
The Company anticipates that internally generated cash flow coupled with
availability under its established credit facilities will be sufficient to fund
domestic and international operations, capital investments, and its obligations
to its creditors. The Company's ability to borrow additional funds is limited by
its debt obligations.
IMPACT OF THE YEAR 2000
The Company has assessed its internal information and operating systems in order
to develop a comprehensive strategy to address the computer software and
hardware changes and facility upgrades that are required to remedy Year 2000
related deficiencies inherent in those systems. Generally, the Company is in the
process of installing various modifications to existing computer systems to
accommodate the problems associated with the Year 2000, and anticipates
completing Year 2000 modifications, and replacements and testing by mid-1999.
The aggregate cost of such modifications is estimated to be approximately
$100,000. The Company has evaluated its embedded technology systems in respect
of the Year 2000 problem, and believes that a failure, if any, of such systems
would not significantly impact operations.
8
<PAGE> 9
The Company has not conducted an assessment of Year 2000-related problems
originating with third parties outside the Company's control, including the
third parties with which the Company has a material relationship. However, the
Company has no significant supplier or customer that directly interfaces with
the Company's information technology systems. There is no assurance that the
computer systems of the suppliers and customers on which the Company relies will
be converted timely and will not have a material adverse effect on the Company.
The Company believes that its most reasonably likely worst case Year 2000
scenario would include these elements: (a) one or more of the Company's third
party providers will be unable to provide the supplies expected and (b) one or
more parts of the Company's internal systems will operate incorrectly. The
Company believes that the testing and replacement of its critical systems are
minimizing the uncertainties associated with a failure of its systems, which
will reveal any significant Year 2000 problems. Such problems will be capable of
remediation so that the Company's systems will perform substantially as planned
when Year 2000 processing begins. In the event of a systems failure, the Company
believes it is equipped to switch to manual processes until such failure is
remedied, without significantly impacting operations.
FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical facts, including
without limitation statements regarding the sufficiency of available cash flows
to fund its continuing operations, capital improvements and research and
development, and the expected amount of capital expenditures for the fiscal year
may be regarded as "forward looking statements" within the meaning of the
Securities Litigation Reform Act. Such forward looking statements are subject to
the impact of risks and uncertainties that could cause actual results to differ
materially from results expressed or implied in such forward looking statements.
The risks and uncertainties include, but are not limited to (1) conditions in
the oil and gas industry including the price of oil and natural gas and the
demand for natural gas, (2) competition among the various providers of contract
compression services, (3) changes in safety and environmental regulations
pertaining to the production and transportation of natural gas, and (4) changes
in economic or political conditions in the international markets in which the
Company competes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3 Restated By-Laws of Universal Compression, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three month period
ended September 30, 1998.
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.
UNIVERSAL COMPRESSION, INC.
Date: November , 1998 By: /s/ ERNIE L. DANNER
---------------- -----------------------------
Ernie L. Danner,
Executive Vice President and
Chief Financial Officer
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
<S> <C>
3 RESTATED BY-LAWS OF UNIVERSAL COMPRESSION, INC.
27 FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 3
RESTATED
BY-LAWS
OF
UNIVERSAL COMPRESSION, INC.
ARTICLE I
Offices
Section 1. The registered office of Universal Compression,
Inc. (the "Corporation") shall be in the City of Houston, County of Harris,
State of Texas. The Corporation also may have offices at such other places,
within or without the State of Texas, as the Board of Directors determines from
time to time or the business of the Corporation requires.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. Except as otherwise provided in
these By-laws, all meetings of the shareholders shall be held on such dates and
at such times and places, within or without the State of Texas, as shall be
determined by the Board of Directors or the President and as shall be stated in
the notice of the meeting or in waivers of notice thereof. If the place of any
meeting is not so fixed, it shall be held at the registered office of the
Corporation in the State of Texas.
Section 2. Annual Meeting. The annual meeting of shareholders
for the election of directors and the transaction of such other proper business
as may be brought before the
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meeting shall be held on such date after the close of the Corporation's fiscal
year, and at such time, as the Board of Directors may from time to time
determine.
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, may be called by the Board of
Directors or the President and shall be called by the President or the Secretary
upon the written request of a majority of the directors. The request shall state
the date, time, place and purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Except as otherwise required or
permitted by law, whenever the shareholders are required or permitted to take
any action at a meeting, written notice thereof shall be given, stating the
place, date and hour of the meeting and, unless it is the annual meeting, by or
at whose direction it is being issued. The notice also shall designate the place
where the shareholders list is available for examination, unless the list is
kept at the place where the meeting is to be held. Notice of a special meeting
also shall state the purpose or purposes for which the meeting is called. A copy
of the notice of any meeting shall be delivered personally or shall be mailed,
not less than 10 and not more than 60 days before the date of the meeting, to
each shareholder entitled to vote at the meeting. If mailed, the notice shall be
deemed given when deposited in the United States mail, postage prepaid, directed
to each shareholder at such shareholder's address as it appears on the records
of the Corporation, unless such shareholder shall have filed with the Secretary
of the Corporation a written request that such notices be mailed to some other
address, in which case it shall be directed to such other address. Notice of any
meeting of shareholders need not be given to any shareholder who shall attend
the meeting, other than for the express purpose of objecting at the beginning
thereof to the transaction of any business because the meeting is not lawfully
called or convened, or who shall submit, either before or after the time stated
therein, a signed waiver of notice. Unless the Board
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of Directors, after an adjournment is taken, shall fix a new record date for an
adjourned meeting or unless the adjournment is for more than 30 days, notice of
an adjourned meeting need not be given if the place, date and time to which the
meeting shall be adjourned are announced at the meeting at which the adjournment
is taken.
Section 5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation of the Corporation, at all meetings of
shareholders, the holders of a majority of the shares of the Corporation
entitled to vote, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
Section 6. Voting. Except as otherwise provided by law or by
the Certificate of Incorporation of the Corporation, at any meeting of the
shareholders, every shareholder of record having the right to vote thereat shall
be entitled to one vote for every share of stock registered in his name as of
the record date and entitling him to so vote. A shareholder may vote in person
or by proxy. Except as otherwise provided by law or by the Certificate of
Incorporation, any corporate action to be taken by a vote of the shareholders,
other than the election of directors, shall be authorized by the affirmative
vote of a majority of the shares present or represented by proxy at the meeting
and entitled to vote on the subject matter. Directors shall be elected as
provided in Section 2 of Article III of these By-laws. Written ballots shall not
be required for voting on any matter unless ordered by the chairman of the
meeting, except that, unless otherwise provided in the Certificate of
Incorporation of the Corporation, all elections of directors shall be by written
ballot.
Section 7. Proxies. Every proxy shall be executed in writing
by the shareholder or by his authorized representative, or otherwise as provided
in the Business Corporation Act of the State of Texas (the "Business Corporation
Act").
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Section 8. List of Shareholders. At least 10 days before every
meeting of shareholders, a complete list of the shareholders entitled to vote at
the meeting, arranged in alphabetical order, and showing their addresses and the
number of shares registered in their names as of the record date shall be open
to the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at the registered officer's principal place of business of the
Corporation. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
shareholder who is present.
Section 9. Conduct of Meetings. At each meeting of the
shareholders, the President or, in his absence, any Vice-President, in their
order of seniority, shall act as chairman of the meeting. The Secretary or, in
his absence, any person appointed by the chairman of the meeting shall act as
secretary of the meeting and shall keep the minutes thereof. The order of
business at all meetings of the shareholders shall be as determined by the
chairman of the meeting.
Section 10. Consent of Shareholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation of the Corporation, any
action required to be taken or which may be taken at any annual or special
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed, in person or by proxy, by the holder or holders of all
of the outstanding shares entitled to vote with respect to the action that is
the subject of the consent.
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ARTICLE III
Board of Directors
Section 1. Number of Directors. Except as otherwise provided
in the Certificate of Incorporation of the Corporation, until such time as the
Board of Directors determines otherwise, the number of directors shall be three.
The number of directors may be reduced or increased from time to time by action
of a majority of the whole Board, but no decrease may shorten the term of an
incumbent director. When used in these By-laws, the term "whole Board" means the
total number of directors which the Corporation would have if there were no
vacancies.
Section 2. Election and Term. Except as otherwise provided by
law, by the Certificate of Incorporation of the Corporation or by these By-laws,
the directors shall be elected at the annual meeting of the shareholders and the
persons receiving a plurality of the votes cast shall be so elected. Subject to
his earlier death, resignation or removal as provided in Section 3 of this
Article III, each director shall hold office until his successor shall have been
elected and shall have qualified.
Section 3. Removal. A director may be removed at any time,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
Section 4. Resignations. Any director may resign at any time
by giving written notice of his resignation to the Corporation. A resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt,
and, unless otherwise specified therein, the acceptance of a resignation shall
not be necessary to make it effective.
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Section 5. Vacancies. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, any vacancy in the Board of
Directors arising from an increase in the number of directors or otherwise may
be filled by the vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
Section 6. Place of Meetings. Except as otherwise provided in
these By-laws, all meetings of the Board of Directors shall be held at such
places, within or without the State of Texas, as the Board determines from time
to time.
Section 7. Annual Meeting. The annual meeting of the Board of
Directors shall be held either without notice immediately after the annual
meeting of shareholders and in the same place, or as soon as practicable after
the annual meeting of shareholders on such date and at such time and place as
the Board determines from time to time.
Section 8. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such dates and at such times and places as the Board
determines from time to time. Notice of regular meetings need not be given,
except as otherwise required by law.
Section 9. Special Meetings. Special meetings of the Board of
Directors, for any purpose or purposes, may be called by the President and shall
be called by the President or the Secretary upon the written request of a
majority of the directors. The request shall state the date, time, place and
purpose or purposes of the proposed meeting.
Section 10. Notice of Meetings. Notice of each special meeting
of the Board (and of each annual meeting which is not held immediately after,
and in the same place as, the annual meeting of shareholders) shall be given,
not later than 24 hours before the meeting is scheduled to commence, by the
President or the Secretary and shall state the place, date and time and the
purpose or purposes, of the meeting. Notice of each meeting may be delivered to
a
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director by hand or given to a director orally (either by telephone or in
person) or mailed, telegraphed or sent by facsimile transmission to a director
at his residence or usual place of business, provided, however, that if notice
of less than 72 hours is given it may not be mailed. If mailed, the notice shall
be deemed given when deposited in the United States mail, postage prepaid; if
telegraphed, the notice shall be deemed given when the contents of the telegram
are transmitted to the telegraph service with instructions that the telegram
immediately be dispatched; and if sent by facsimile transmission, the notice
shall be deemed given when transmitted with transmission confirmed. Notice of
any meeting need not be given to any director who shall submit, either before or
after the time stated therein, a signed waiver of notice or who shall attend the
meeting, other than for the express purpose of objecting at the beginning
thereof to the transaction of any business because the meeting is not lawfully
called or convened. Notice of an adjourned meeting, including the place, date
and time of the new meeting, shall be given to all directors not present at the
time of the adjournment, and also to the other directors unless the place, date
and time of the new meeting are announced at the meeting at the time at which
the adjournment is taken.
Section 11. Quorum. Except as otherwise provided by law or in
these By-laws, at all meetings of the Board of Directors, a majority of the
whole Board shall constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another place,
date and time.
Section 12. Conduct of Meetings. At each meeting of the Board
of Directors, the President or, in his absence, a director chosen by a majority
of the directors present shall act as chairman of the meeting. The Secretary or,
in his absence, any person appointed by the chairman
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<PAGE> 8
of the meeting shall act as secretary of the meeting and keep the minutes
thereof. The order of business at all meetings of the Board shall be as
determined by the chairman of the meeting.
Section 13. Committees of the Board. The Board of Directors,
may designate an executive committee and other committees, each consisting of
one or more directors. Each committee (including the members thereof) shall
serve at the pleasure of the Board of Directors and shall keep minutes of its
meetings and report the same to the Board. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member or members at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, if no
alternate member has been designated by the Board of Directors, the member or
members present at any meeting and not disqualified from voting, whether or not
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member. Except as limited by the Business Corporation Act, each committee, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, except that no such
Committee may (i) approve, adopt or recommend to the shareholders any action or
matter expressly required by law to be submitted to shareholders for approval,
or (ii) adopt, amend or repeal any of these By-laws.
Section 14. Operation of Committees. A majority of all the
members of a committee shall constitute a quorum for the transaction of
business, and the vote of a majority of all the members of a committee present
at a meeting at which a quorum is present shall be the act of the committee.
Each committee shall adopt whatever other rules of procedure it determines for
the conduct of its activities.
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<PAGE> 9
Section 15. Consent to Action. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 16. Attendance Other Than in Person. Members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board or committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation shall constitute
presence in person at the meeting.
ARTICLE IV
Officers
Section 1. Executive and Other Officers. The officers of the
Corporation shall be a President and a Secretary. The Board of Directors also
may elect or appoint one or more Vice Presidents (any of whom may be designated
as Executive Vice Presidents, Senior Vice Presidents or otherwise), a Treasurer,
and any other officers it deems necessary or desirable for the conduct of the
business of the Corporation, each of whom shall have such powers and duties as
the Board determines. Any officer may devote less than all of his working time
to his activities as such if the Board so approves.
Section 2. Duties.
(a) The President. The President shall be
the chief executive officer and chief operating officer of the Corporation, and
shall preside at all meetings of the shareholders and of the Board of Directors,
and he shall be ex officio a member of all
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<PAGE> 10
committees established by the Board. The President shall have general management
of the business and affairs of the Corporation, subject to the control of the
Board of Directors, and he shall have such other powers and duties as the Board
assigns to him.
(b) The Vice President. The Vice
President, if any, or if there shall be more than one, the Vice Presidents, in
the order of their seniority or in any other order determined by the Board of
Directors, shall perform, in the absence or disability of the President, the
duties and exercise the powers of the President, and shall have such other
powers and duties as the Board or the President assigns to him or them.
(c) The Secretary. Except as otherwise
provided in these By-laws or as directed by the Board of Directors, the
Secretary shall attend all meetings of the shareholders and the Board; he shall
record the minutes of all proceedings in books to be kept for that purpose; he
shall give notice of all meetings of the shareholders and special meetings of
the Board; and he shall keep in safe custody the seal of the Corporation and,
when authorized by the Board, he shall affix the same to any corporate
instrument. The Secretary shall have such other powers and duties as the Board
or the President assigns to him.
(d) The Treasurer. Subject to the control
of the Board, the Treasurer, if any, shall have the care and custody of the
corporate funds and the books relating thereto; and he shall perform all other
duties incident to the office of Treasurer. The Treasurer shall have such other
powers and duties as the Board or the President assigns to him.
Section 3. Term; Removal. Subject to his earlier death,
resignation or removal, each officer shall hold his office until his successor
shall have been elected or appointed and shall have qualified, or until his
earlier death, resignation or removal. Any officer may be removed at any time,
with or without cause, by the Board of Directors.
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<PAGE> 11
Section 4. Resignations. Any officer may resign at any time by
giving written notice of his resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any
reason, the Board of Directors or the shareholders may fill the vacancy, and
each officer so elected or appointed shall serve for the remainder of his
predecessor's term and until his successor shall have been elected or appointed
and shall have qualified.
ARTICLE V
Provisions Relating to Certificates
Representing Shares and Shareholders
Section 1. Certificates. Certificates for the Corporation's
shares of capital stock shall be in such form as required by law and as approved
by the Board of Directors. Each certificate shall be signed in the name of the
Corporation by the President or any Vice President and by the Secretary, any
Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of the
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who shall have signed or whose facsimile signature shall have
been placed on any certificate shall have ceased to be such officer, transfer
agent or registrar before the certificate shall be issued, the certificate may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Replacement Certificates. The Corporation may issue
a new certificate of representing shares in place of any certificate theretofore
issued by it, alleged to have been
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<PAGE> 12
lost, stolen or destroyed, and the Board of Directors may require the owner of
the lost, stolen or destroyed certificate, or such person's legal
representative, to make an affidavit of that fact and to give the Corporation a
bond sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of the
certificate or the issuance of such new certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor, appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 or less than 10 days before the date of any such
meeting, shall not be more than 10 days after the date on which the Board fixes
a record date for any such consent in writing, and shall not be more than 60
days prior to any other action.
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<PAGE> 13
ARTICLE VI
Indemnification
Section 1. Indemnification. Unless otherwise determined by the
Board of Directors, the Corporation shall, to the fullest extent permitted by
the Business Corporation Act (including, without limitation, Article 2.02-1
thereof) or other provisions of the laws of Delaware relating to indemnification
of directors, officers and employees and agents, as the same may be amended and
supplemented from time to time, indemnify any and all such persons whom it shall
have power to indemnify under the Business Corporation Act or such other
provisions of law.
Section 2. Statutory Indemnification.Without limiting the
generality of Section 1 of this Article VI, to the fullest extent permitted, and
subject to the conditions imposed by law and pursuant to Article 2.02-1 of the
Business Corporation Act:
(i) the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; and
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<PAGE> 14
(ii) the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, except as otherwise
provided by law.
Section 3. Indemnification by Resolution of Shareholders or
Directors or Agreement. Without limiting the generality of Section 1 or Section
2 of this Article VI, to the fullest extent permitted by law, indemnification
may be granted, and expenses may be advanced, to the persons described in
Article 2.02-1 of the Business Corporation Act or other provisions of the laws
of Texas relating to indemnification and advancement of expenses, as from time
to time may be in effect, by (i) a resolution of shareholders, (ii) a resolution
of the Board of Directors, or (iii) an agreement providing for such
indemnification and advancement of expenses, provided that no indemnification
may be made to or on behalf of any person if a judgment or other final
adjudication adverse to the person establishes that such person's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that such person
personally gained in fact a financial profit or other advantage to which such
person was not legally entitled.
Section 4. General. It is the intent of this Article VI to
require the Corporation unless otherwise determined by the Board of Directors,
to indemnify the persons referred to
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<PAGE> 15
herein for judgments, fines, penalties, amounts paid in settlement and expenses
(including attorneys' fees), and to advance expenses to such persons, in each
and every circumstance in which such indemnification and such advancement of
expenses could lawfully be permitted by express provision of by-laws, and the
indemnification and expense advancement provided by this Article VI shall not be
limited by the absence of an express recital of such circumstances. The
indemnification and advancement of expenses provided by, or granted pursuant to,
these By-laws shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled,
whether as a matter of law, under any provision of the Certificate of
Incorporation of the Corporation, these By-laws, by agreement, by vote of
shareholders or disinterested directors of the Corporation or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 5. Indemnification Benefits. Indemnification pursuant
to these By-laws shall inure to the benefit of the heirs, executors,
administrators and personal representatives of those entitled to
indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends. To the extent permitted by law, the
Board of Directors shall have full power and discretion, subject to the
provisions of the Certificate of Incorporation of the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such
form as is required by law and as shall be approved by the Board of Directors.
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<PAGE> 16
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 4. Voting Shares in Other Corporations. Unless
otherwise directed by the Board of Directors, shares in other corporations which
are held by the Corporation shall be represented and voted only by the President
or by a proxy or proxies appointed by him.
ARTICLE VIII
Amendments
Section 1. By-Laws may be adopted, amended or repealed by the
Board of Directors, provided the conferral of such power on the Board shall not
divest the shareholders of the power, or limit their power, to adopt, amend or
repeal By-laws.
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