<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, 1999
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 Numbers: 333-48283
333-48279
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
(Exact name of registrants as specified in their charters)
<TABLE>
<S> <C>
DELAWARE 13-3989167
TEXAS 74-1282680
(States or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation of organization)
4440 BRITTMOORE ROAD
HOUSTON, TX 77041-8004
(Address of principal executive offices) (Zip Code)
</TABLE>
(713) 335-7000
(Registrants' 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 [ ]
UNIVERSAL COMPRESSION, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q
WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1999 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 1,347
Accounts receivable, net 22,469 18,557
Inventories 10,272 8,498
Deferred tax assets 426 426
Other 938 1,323
----------- -----------
Total current assets 37,032 30,151
Property, plant and equipment
Rental equipment 296,049 326,309
Other 17,122 19,782
Less: accumulated depreciation (17,647) (25,342)
----------- -----------
Net property, plant, and equipment 295,524 320,749
Goodwill and intangibles, net of amortization 96,345 97,828
Other assets, net 8,632 8,371
Long-term deferred tax asset 458 458
----------- -----------
Total assets $ 437,991 $ 457,557
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,540 $ 15,139
Current portion of long-term debt 750 3,556
----------- -----------
Total current liabilities 13,290 18,695
Capital lease obligation -- 2,288
Long-term debt 343,927 358,633
----------- -----------
Total liabilities 357,217 379,616
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000,000
shares authorized, 1,320,144 and 1,320,128 shares
issued and outstanding at March 31, 1999 and
September 30, 1999, respectively, $50-per-share
liquidation value 13 13
Common stock, $.01 par value, 994,000 shares
authorized, 330,036 and 330,032 shares issued,
329,906 and 329,902 shares outstanding at
March 31, 1999 and September 30, 1999, respectively 3 3
Class A non-voting common stock, $.01 par value, 6,000
shares authorized, 4,120 shares issued, 4,080 and
3,730 shares outstanding at March 31,
1999 and September 30, 1999, respectively -- --
Treasury stock, 170 and 520 shares at cost at March 31,
1999 and September 30, 1999, respectively (9) (26)
Additional paid-in capital 82,698 82,698
Retained deficit (1,931) (4,747)
----------- -----------
Total stockholders' equity 80,774 77,941
----------- -----------
Total liabilities and stockholders' equity $ 437,991 $ 457,557
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 3
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,677 $ 23,675 $ 43,442 $ 46,863
Sales 11,057 11,255 18,855 21,874
Other 50 58 124 59
-------- -------- -------- --------
Total revenue 32,784 34,988 62,421 68,796
Costs and expenses
Rentals, exclusive of depreciation
and amortization 7,972 8,502 15,969 17,104
Cost of sales, exclusive of
depreciation and amortization 8,838 9,648 15,524 18,750
Depreciation and amortization 4,803 6,061 9,325 11,678
Selling, general and 4,216 4,116 8,024 8,654
administrative
Interest expense 7,158 8,500 14,141 16,446
-------- -------- -------- --------
Total costs and expenses 32,987 36,827 62,983 72,632
-------- -------- -------- --------
Loss before income taxes (203) (1,839) (562) (3,836)
Income tax benefit (80) (261) (212) (1,020)
-------- -------- -------- --------
Net loss $ (123) $ (1,578) $ (350) $ (2,816)
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 4
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (350) $ (2,816)
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 9,325 11,678
Gain on asset sales (52) (6)
Amortization of debt issuance costs 582 581
Accretion of discount notes 8,904 9,882
Change in working capital (11,398) 6,686
-------- --------
Net cash provided by operating activities 7,011 26,005
Cash flows from investing activities:
Additions to property, plant, and equipment, net (13,014) (33,125)
Capital lease-back of vehicles -- (4,062)
-------- --------
Net cash used in investing activities (13,014) (37,187)
Cash flows from financing activities:
Principal repayments of long-term debt (376) (376)
Net borrowing (repayment) on line of credit 3,800 (1,100)
Net proceeds from sale-lease-back of vehicles -- 3,689
Net proceeds from financing lease -- 7,406
Treasury stock -- (17)
-------- --------
Net cash provided by financing activities 3,424 9,602
Decrease in cash (2,579) (1,580)
Cash at beginning of period 2,383 2,927
-------- --------
Cash at end of period $ (196) $ 1,347
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 5
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
Universal Compression Holdings, Inc. (the "Company") was formed on December 12,
1997 for the purpose of acquiring Tidewater Compression Service, Inc. ("TCS")
from Tidewater Inc. ("Tidewater"). The Company formed an acquisition subsidiary,
TW Acquisition Corporation ("Acquisition Corp.") which acquired 100% of the
voting securities of TCS (the "Acquisition"). Immediately following the
Acquisition, Acquisition Corp. was merged with and into TCS, which changed its
name to Universal Compression, Inc. ("Universal"). The Company is a holding
company which conducts its operations through its wholly owned subsidiary,
Universal. Accordingly, the Company is dependent upon the distribution of
earnings from Universal whether in the form of dividends, advances or payments
on account of intercompany obligations, to service its debt obligations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements presented in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999. That report contains a more
comprehensive summary of the Company's major accounting policies. In the opinion
of management, the accompanying unaudited consolidated 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 operations and cash flows for the respective
periods. Operating results for the three and six month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending March 31, 2000.
The Company through its subsidiaries is a leading provider of natural gas
compressor rental, maintenance and operations services to the domestic oil and
gas industry, owning one of the largest domestic gas compressor fleets, and has
a growing presence in key international markets. The Company through its
subsidiaries has a broad base of over 500 customers and its 611,000 horsepower
("HP") gas compression rental fleet is comprised of over 2,700 units. Founded in
1954, Universal has an operating presence in all active domestic gas compression
markets. As a complement to its rental operations, the Company through its
subsidiaries designs and fabricates compression units for its own fleet as well
as for its global customer base.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the three and
six month periods ended September 30, 1998 and 1999, the effect of transactions
which would have given rise to further disclosure were not significant.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," and
subsequently delayed the effective date of this statement with the issuance of
SFAS No. 137 in June 1999. SFAS No. 133, which is now effective for the
Company's year ending March 31, 2002, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
analyzing SFAS No. 133 to determine what, if any, impact or additional
disclosure requirements this pronouncement will have.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH, 1999 SEPTEMBER, 1999
----------- ---------------
<S> <C> <C>
Work-in-progress $ 4,993 $ 3,797
Finished goods 5,279 4,701
------- -------
$10,272 $ 8,498
======= =======
</TABLE>
<PAGE> 6
4. INDUSTRY SEGMENTS
The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance Segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products Segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer specifications. The International
Rental and Maintenance Segment represents substantially all of the Company's
foreign activities.
The Company evaluates performance based on gross profit or loss from operations,
which represents total revenue less rental expenses and cost of sales. Revenues
include sales to external customers. Operating income represents revenues less
total costs and expenses, not including the effect of interest expense and
income taxes. The Corporate and Other segment represents primarily corporate
activities, part sales and services and all other items that could not be
allocated to an identifiable segment. The Corporate and Other segment
principally serves the oil and gas market, including sales of parts and
equipment utilized in the extraction of natural gas and the service that the
Company provides to customers' natural gas compression units.
The following table presents sales and other financial information by
industry segment for the three months ended September 30, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
September 30, 1999:
Revenues ..................... $20,351 $ 3,324 $ 8,909 $ 2,404 $34,988
Gross profit ................. $12,816 $ 2,358 $ 1,157 $ 507 $16,838
Operating income ............. $ 5,080 $ 805 $ 563 $ 213 $ 6,661
September 30, 1998:
Revenues ..................... $19,534 $ 1,764 $ 4,056 $ 7,430 $32,784
Gross profit ................. $12,443 $ 1,284 $ 787 $ 1,460 $15,974
Operating income ............. $ 5,122 $ 608 $ 268 $ 957 $ 6,955
</TABLE>
The following table presents sales and other financial information by industry
segment for the six months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
September 30, 1999:
Revenues ..................... $40,112 $ 6,751 $14,897 $ 7,036 $68,796
Gross profit ................. $24,834 $ 4,926 $ 1,733 $ 1,449 $32,942
Operating income ............. $ 9,326 $ 2,004 $ 464 $ 816 $12,610
September 30, 1998:
Revenues ..................... $39,158 $ 3,426 $ 6,870 $12,967 $62,421
Gross profit ................. $24,654 $ 2,505 $ 1,458 $ 2,311 $30,928
Operating income ............. $10,550 $ 1,238 $ 474 $ 1,317 $13,579
</TABLE>
5. FINANCING LEASE
On July 21, 1999, a wholly owned subsidiary of the Company received $7.8 million
as the first phase of a financing lease with Societe Generale Financial
Corporation regarding certain compression equipment. An additional $3.78 million
was received by the Company's subsidiary under the financing lease agreement in
October 1999. The financing lease has a term of 5 years and bears interest at a
rate of LIBOR plus 4.25%. The financing lease is related to the Company's
subsidiary's Colombia operations.
<PAGE> 7
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1999 1999
--------- ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 1,347
Accounts receivable, net 22,469 18,557
Inventories 10,272 8,498
Deferred tax assets 426 426
Other 916 1,286
--------- ---------
Total current assets 37,010 30,114
Property, plant and equipment
Rental equipment 296,049 326,309
Other 17,122 19,782
Less: accumulated depreciation (17,647) (25,342)
--------- ---------
Net property, plant, and equipment 295,524 320,749
Goodwill and intangibles, net of amortization 96,101 97,587
Other assets, net 7,852 7,635
--------- ---------
Total assets $ 436,487 $ 456,085
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,538 $ 15,770
Payable to parent 1,434 1,400
Current portion of long-term debt 750 3,556
--------- ---------
Total current liabilities 14,722 20,726
Deferred income taxes 859 859
Capital lease obligation -- 2,288
Long-term debt 315,598 328,688
--------- ---------
Total liabilities 331,179 352,561
Stockholder's 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 (deficit) 128 (1,656)
--------- ---------
Total stockholder's equity 105,308 103,524
--------- ---------
Total liabilities and stockholder's equity $ 436,487 $ 456,085
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 8
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,677 $ 23,675 $ 43,442 $ 46,863
Sales 11,057 11,255 18,855 21,874
Other 50 58 124 59
-------- -------- -------- --------
Total revenue 32,784 34,988 62,421 68,796
Costs and expenses
Rentals, exclusive of depreciation
and amortization 7,972 8,502 15,969 17,104
Cost of sales, exclusive of
depreciation and amortization 8,838 9,648 15,524 18,750
Depreciation and amortization 4,802 6,060 9,322 11,675
Selling, general and administrative 4,216 4,116 8,024 8,654
Interest expense 6,409 7,653 12,658 14,785
-------- -------- -------- --------
Total costs and expenses 32,237 35,979 61,497 70,968
-------- -------- -------- --------
Income (loss) before income taxes 547 (991) 924 (2,172)
Income taxes (benefit) 206 61 353 (388)
-------- -------- -------- --------
Net income (loss) $ 341 $ (1,052) $ 571 $ (1,784)
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 9
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 571 $ (1,784)
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 9,322 11,675
Gain on asset sales (52) (6)
Amortization of debt issuance costs 582 537
Accretion of discount notes 7,986 8,266
Change in working capital (11,398) 7,300
-------- --------
Net cash provided by operating activities 7,011 25,988
Cash flows from investing activities:
Additions to property, plant, and equipment, net (13,014) (33,125)
Capital lease-back of vehicles -- (4,062)
-------- --------
Net cash used in investing activities (13,014) (37,187)
Cash flows from financing activities:
Principal repayments of long-term debt (376) (376)
Net borrowing (repayment) on line of credit 3,800 (1,100)
Net proceeds from sale-lease-back of vehicles -- 3,689
Net proceeds from financing lease -- 7,406
-------- --------
Net cash provided by financing activities 3,424 9,619
Decrease in cash (2,579) (1,580)
Cash at beginning of period 2,383 2,927
-------- --------
Cash at end of period $ (196) $ 1,347
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE> 10
UNIVERSAL COMPRESSION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
Universal Compression, Inc., formerly Tidewater Compression Service, Inc.
("TCS") was formed in 1954. On February 20, 1998, TW Acquisition Corporation
("Acquisition Corp."), a wholly owned subsidiary of Universal Compression
Holdings, Inc. ("Holdings"), acquired 100% of the voting securities of 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 Holdings. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements presented in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999. That report contains a more comprehensive summary
of the Company's major accounting policies. In the opinion of management, the
accompanying unaudited consolidated 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
operations and cash flows for the respective periods. Operating results for the
three and six month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2000.
The Company is a leading provider of natural gas compressor rental, maintenance
and operations services to the domestic oil and gas industry, owning one of the
largest domestic gas compressor fleets, and has a growing presence in key
international markets. The Company has a broad base of over 500 customers and
its 611,000 horsepower ("HP") gas compression rental fleet is comprised of over
2,700 units. The Company has 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
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the three and
six month periods ended September 30, 1998 and 1999, the effect of transactions
which would have given rise to further disclosure were not significant.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," and
subsequently delayed the effective date of this statement with the issuance of
SFAS No. 137 in June 1999. SFAS No. 133, which is now effective for the
Company's year ending March 31, 2002, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
analyzing SFAS No. 133 to determine what, if any, impact or additional
disclosure requirements this pronouncement will have.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH, 1999 SEPTEMBER, 1999
----------- ---------------
<S> <C> <C>
Work-in-progress $ 4,993 $ 3,797
Finished goods 5,279 4,701
------- -------
$10,272 $ 8,498
======= =======
</TABLE>
<PAGE> 11
4. INDUSTRY SEGMENTS
The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance Segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products Segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer specifications. The International
Rental and Maintenance Segment represents substantially all of the Company's
foreign activities.
The Company evaluates performance based on gross profit or loss from operations,
which represents total revenue less rental expenses and cost of sales. Revenues
include sales to external customers. Operating income represents revenues less
total costs and expenses, not including the effect of interest expense and
income taxes. The Corporate and Other segment represents primarily corporate
activities, part sales and services and all other items that could not be
allocated to an identifiable segment. The Corporate and Other segment
principally serves the oil and gas market, including sales of parts and
equipment utilized in the extraction of natural gas and the service that the
Company provides to customers' natural gas compression units.
The following table presents sales and other financial information by
industry segment for the three months ended September 30, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
September 30, 1999:
Revenues ..................... $20,351 $ 3,324 $ 8,909 $ 2,404 $34,988
Gross profit ................. $12,816 $ 2,358 $ 1,157 $ 507 $16,838
Operating income ............. $ 5,080 $ 805 $ 563 $ 214 $ 6,662
September 30, 1998:
Revenues ..................... $19,534 $ 1,764 $ 4,056 $ 7,430 $32,784
Gross profit ................. $12,443 $ 1,284 $ 787 $ 1,460 $15,974
Operating income ............. $ 5,122 $ 608 $ 268 $ 958 $ 6,956
</TABLE>
The following table presents sales and other financial information by industry
segment for the six months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
September 30, 1999:
Revenues ..................... $40,112 $ 6,751 $14,897 $ 7,036 $68,796
Gross profit ................. $24,834 $ 4,926 $ 1,733 $ 1,449 $32,942
Operating income ............. $ 9,326 $ 2,004 $ 464 $ 819 $12,613
September 30, 1998:
Revenues ..................... $39,158 $ 3,426 $ 6,870 $12,967 $62,421
Gross profit ................. $24,654 $ 2,505 $ 1,458 $ 2,311 $30,928
Operating income ............. $10,550 $ 1,238 $ 474 $ 1,320 $13,582
</TABLE>
5. FINANCING LEASE
On July 21, 1999, a wholly owned subsidiary of the Company received $7.8 million
as the first phase of a financing lease with Societe Generale Financial
Corporation regarding certain compression equipment. An additional $3.78 million
was received by the Company's subsidiary under the financing lease agreement in
October 1999. The financing lease has a term of 5 years and bears interest at a
rate of LIBOR plus 4.25%. The financing lease is related to the Company's
subsidiary's Colombia operations.
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this document are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements 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. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated as of the date of
this report. 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. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
UNIVERSAL COMPRESSION HOLDINGS, INC.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenue. The Company's total revenues for the three months ended September
30, 1999 increased $2.2 million, or 7%, to $35.0 million compared to $32.8
million for the three months ended September 30, 1998 due to increases in both
rental revenue and revenue from fabrication and equipment sales. Rental revenue
increased by 2.0 million, or 9%, to $23.7 million during the three months ended
September 30, 1999 from $21.7 million during the three months ended September
30, 1998. Domestic rental revenue increased by $0.9 million, or 5%, to $20.4
million during the three months ended September 30, 1999 from $19.5 million
during the three months ended September 30, 1998. International rental revenue
increased by $1.5 million, or 83%, to $3.3 million during the three months ended
September 30, 1999 from $1.8 million during the three months ended September 30,
1998. The increase in both domestic and international rental revenue primarily
resulted from expansion of the Company's rental fleet. Domestic average rented
horsepower for the three months ended September 30, 1999 increased by 10% to
approximately 433,000 horsepower from approximately 395,000 horsepower for the
three months ended September 30, 1998. In addition, international average rented
horsepower doubled to approximately 42,000 horsepower for the three months ended
September 30, 1999 from approximately 21,000 horsepower for the three months
ended September 30, 1998 primarily through additional service in Argentina and
Colombia. Revenue from fabrication and sales increased to $11.3 million from
$11.1 million, an increase of 2%, due to a slightly higher level of fabrication
activity.
Gross Profit. Gross profit (defined as total revenue less rental expense and
cost of sales, exclusive of depreciation and amortization) for the three months
ended September 30, 1999 increased $0.8 million, or 5%, to $16.8 million from
gross profit of $16.0 million for the three months ended September 30, 1998. The
rental gross profit for the three months ended September 30, 1999 increased $1.5
million, or 11%, to $15.2 million compared to gross profit of $13.7 million for
the three months ended September 30, 1998. Gross profit increased primarily as
the result of the revenue growth discussed above while rental margins increased
to 64% for the three months ended September 30, 1999 from 63% for the three
months ended September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999 decreased
$0.1 million compared to the three months ended September 30, 1998. As a
percentage of revenue, selling, general and administrative expenses represented
12% of revenues for the three months ended September 30, 1999 compared to 13% of
revenues for the three months ended September 30, 1998. The decrease in selling,
general and administrative expenses is primarily the result of management's
emphasis on productivity programs initiated during the three months ended
September 30, 1999.
<PAGE> 13
EBITDA is defined as net income plus income taxes, interest expense, leasing
expense, depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to operating income or net income as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA for the three months ended September 30, 1999
increased 8% to $12.7 million from $11.8 million for the three months ended
September 30, 1998 primarily due to the increase in the Company's rental revenue
and a slight reduction in selling, general and administrative expenses for
reasons previously discussed.
Depreciation and Amortization. Depreciation and amortization increased by
$1.3 million to $6.1 million during the three months ended September 30, 1999
compared to $4.8 million during the three months ended September 30, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $1.3 million to $8.5 million
for the three months ended September 30, 1999 from $7.2 million for the three
months ended September 30, 1998 primarily as the result of increased borrowings
under the revolving credit facility and increased accretion of discount notes.
Net income. Primarily as a result of interest expense increasing from $7.2
million to $8.5 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $4.8 million to $6.1
million, offset by an increased income tax benefit and the factors discussed
above, the Company had a net loss of $1.6 million for the three months ended
September 30, 1999 compared to a net loss of $0.1 million for the three months
ended September 30, 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
Revenue. The Company's total revenues for the six months ended September 30,
1999 increased $6.4 million, or 10%, to $68.8 million compared to $62.4 million
for the six months ended September 30, 1998 due to increases in both rental
revenue and revenue from fabrication and equipment sales. Rental revenue
increased by 3.5 million, or 8%, to $46.9 million during the six months ended
September 30, 1999 from $43.4 million during the six months ended September 30,
1998. Domestic rental revenue increased by $0.9 million, or 2%, to $40.1 million
during the six months ended September 30, 1999 from $39.2 million during the six
months ended September 30, 1998. International rental revenue increased by $3.4
million, or 100%, to $6.8 million during the six months ended September 30, 1999
from $3.4 million during the six months ended September 30, 1998. The increase
in both domestic and international rental revenue primarily resulted from
expansion of the Company's rental fleet. Domestic average rented horsepower for
the six months ended September 30, 1999 increased by 6% to approximately 420,000
horsepower from approximately 395,000 horsepower for the six months ended
September 30, 1998. In addition, international average rented horsepower more
than doubled to approximately 41,000 horsepower for the six months ended
September 30, 1999 from approximately 20,000 horsepower for the six months ended
September 30, 1998 primarily through additional service in Argentina and
Colombia. Revenue from fabrication and sales increased to $21.9 million from
$18.9 million, an increase of 16%, due to a higher level of fabrication
activity.
Gross Profit. Gross profit (defined as total revenue less rental expense and
cost of sales, exclusive of depreciation and amortization) for the six months
ended September 30, 1999 increased $2.0 million, or 6%, to $32.9 million from
gross profit of $30.9 million for the six months ended September 30, 1998. The
rental gross profit for the six months ended September 30, 1999 increased $2.3
million, or 8%, to $29.8 million compared to gross profit of $27.5 million for
the six months ended September 30, 1998. Gross profit increased primarily as the
result of the revenue growth discussed above while rental margins increased to
64% for the six months ended September 30, 1999 from 63% for the six months
ended September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended September 30, 1999 increased
$0.7 million, or 9%, to $8.7 million compared to $8.0 million for the six months
ended September 30, 1998. As a percentage of revenue, selling, general and
administrative expenses represented 13% of revenues for the six months ended
September 30, 1999 and 1998.
EBITDA is defined as net income plus income taxes, interest expense, leasing
expense, depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to operating income or net income as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA for the six months ended September 30, 1999 increased
6% to $24.3 million from
<PAGE> 14
$22.9 million for the six months ended September 30, 1998 primarily due to the
increase in the Company's rental revenue for reasons previously discussed.
Depreciation and Amortization. Depreciation and amortization increased by
$2.4 million to $11.7 million during the six months ended September 30, 1999
compared to $9.3 million during the six months ended September 30, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $2.3 million to $16.4 million
for the six months ended September 30, 1999 from $14.1 million for the six
months ended September 30, 1998 primarily as the result of increased borrowings
under the revolving credit facility and increased accretion of discount notes.
Net income. Primarily as a result of interest expense increasing from $14.1
million to $16.4 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $9.3 million to
$11.7 million, offset by an increased income tax benefit and the factors
discussed above, the Company had a net loss of $2.8 million for the six months
ended September 30, 1999 compared to a net loss of $0.4 million for the six
months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at September 30, 1999 was $1.3
million compared to $2.9 million at March 31, 1999. For the six months ended
September 30, 1999, the Company generated cash flow from operations of $26.0
million, received $2.8 million from the sale of assets and obtained $11.8
million in additional financing. The Company used this cash flow to expend $39.9
million on equipment and inventory for its rental operations and make net
principal payments of $1.5 million under its established lines of credit.
The Company expects to expend between $65 to $70 million on capital projects
during fiscal 2000. The expected expenditures include approximately $50 million
for expansion of its domestic rental fleet, $9 million for additional expansion
into international markets and $8 million for maintaining and updating the
existing fleet. The Company's other principal uses of cash will be to fund
working capital needs and to meet required principal and interest payments on
debt obligations.
The Company anticipates that internally generated cash flow including
improvement in its working capital position, availability under the revolving
credit facility and permitted international borrowings, will be sufficient to
fund domestic and international operations, capital projects, and its
obligations for Fiscal 2000.
IMPACT OF THE YEAR 2000
Many existing computer programs, embedded systems and components use only two
digits to identify a year (for example, "98" is used to represent "1998"). Such
programs may read "00" as the year 1900, thus incorrectly recognizing dates
beginning with the Year 2000, or may otherwise produce erroneous results or
cease processing when dates after 1999 are encountered. Such failures could
cause disruptions in normal business operations.
State of Readiness. During 1998 the Company assembled a Year 2000 Committee
("Committee") to review the Year 2000 issues and manage the Company's compliance
initiative. The Committee has assessed the Company's 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. The
Committee has focused its efforts on both information technology (IT) systems
(primarily computer hardware and software) and non-information technology
(Non-IT) systems (embedded technology such as microcontrollers) in all aspects
of the Company's businesses and operations. Generally, the Company has
substantially completed the various modifications and testing of existing IT
systems to accommodate the problems associated with the Year 2000 issues.
Additionally the Company has substantially completed its evaluation of Non-IT
systems and believes that a failure, if any, of such systems would not
significantly impact the operations of the Company. The Company has also
evaluated the relationships with its vendors and customers and has determined
that the Company has no significant supplier or customer that directly
interfaces with the Company's information technology systems. However, there is
no assurance that the computer systems of the vendors and customers on which the
Company relies will be converted timely and will not have a material adverse
effect on the Company.
Cost of Addressing the Company's Year 2000 Issues. The aggregate cost of the
required modifications and testing has been approximately $100,000 and consists
primarily of the Company's internal costs for its information systems
<PAGE> 15
group. The costs for the required modifications and testing have been expensed
as incurred. The Company does not expect to incur significant additional costs
relating to the Company's Year 2000 issues.
Year 2000 Risks and Contingency Planning. The committee has substantially
completed its review of the problems and uncertainties associated with Year 2000
issues and the potential consequences on the Company's operations. The Company
has developed contingency plans which are intended to address the worst case
Year 2000 issues. The Company believes that the 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 uncertainties associated with a
failure of third party providers are mitigated by the following factors: (a)
significant supplies are in inventory and (b) there is a long lead-time in
ordering supplies. The Company believes that the modifications and testing of
critical systems have minimized the uncertainties associated with a failure of
its systems related to significant Year 2000 issues. 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.
The occurrence of an unexpected Year 2000 issue could result in the disruption
of the Company's business and operations and have a material adverse effect on
the Company's results of operations, liquidity or financial condition. However
based upon the Company's substantial completion of its compliance initiative,
the Company does not believe that such matters will have a material adverse
effect on its results of operations.
UNIVERSAL COMPRESSION, INC.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenue. The Company's total revenues for the three months ended September
30, 1999 increased $2.2 million, or 7%, to $35.0 million compared to $32.8
million for the three months ended September 30, 1998 due to increases in both
rental revenue and revenue from fabrication and equipment sales. Rental revenue
increased by 2.0 million, or 9%, to $23.7 million during the three months ended
September 30, 1999 from $21.7 million during the three months ended September
30, 1998. Domestic rental revenue increased by $0.9 million, or 5%, to $20.4
million during the three months ended September 30, 1999 from $19.5 million
during the three months ended September 30, 1998. International rental revenue
increased by $1.5 million, or 83%, to $3.3 million during the three months ended
September 30, 1999 from $1.8 million during the three months ended September 30,
1998. The increase in both domestic and international rental revenue primarily
resulted from expansion of the Company's rental fleet. Domestic average rented
horsepower for the three months ended September 30, 1999 increased by 10% to
approximately 433,000 horsepower from approximately 395,000 horsepower for the
three months ended September 30, 1998. In addition, international average rented
horsepower doubled to approximately 42,000 horsepower for the three months ended
September 30, 1999 from approximately 21,000 horsepower for the three months
ended September 30, 1998 primarily through additional service in Argentina and
Colombia. Revenue from fabrication and sales increased to $11.3 million from
$11.1 million, an increase of 2%, due to a slightly higher level of fabrication
activity.
Gross Profit. Gross profit (defined as total revenue less rental expense and
cost of sales, exclusive of depreciation and amortization) for the three months
ended September 30, 1999 increased $0.8 million, or 5%, to $16.8 million from
gross profit of $16.0 million for the three months ended September 30, 1998. The
rental gross profit for the three months ended September 30, 1999 increased $1.5
million, or 11%, to $15.2 million compared to gross profit of $13.7 million for
the three months ended September 30, 1998. Gross profit increased primarily as
the result of the revenue growth discussed above while rental margins increased
to 64% for the three months ended September 30, 1999 from 63% for the three
months ended September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999 decreased
$0.1 million compared to the three months ended September 30, 1998. As a
percentage of revenue, selling, general and administrative expenses represented
12% of revenues for the three months ended September 30, 1999 compared to 13% of
revenues for the three months ended September 30, 1998. The decrease in selling,
general and administrative expenses is primarily the result of management's
emphasis on productivity programs initiated during the three months ended
September 30, 1999.
EBITDA is defined as net income plus income taxes, interest expense, leasing
expense, depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to operating income or net income as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA for the three months ended September 30, 1999
increased 8% to $12.7 million from $11.8 million for the three months ended
September 30, 1998 primarily due to the increase in the Company's rental revenue
and a slight reduction in selling, general and administrative expenses for
reasons previously discussed.
<PAGE> 16
Depreciation and Amortization. Depreciation and amortization increased by
$1.3 million to $6.1 million during the three months ended September 30, 1999
compared to $4.8 million during the three months ended September 30, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $1.3 million to $7.7 million
for the three months ended September 30, 1999 from $6.4 million for the three
months ended September 30, 1998 primarily as the result of increased borrowings
under the revolving credit facility and increased accretion of discount notes.
Net income. Primarily as a result of interest expense increasing from $6.4
million to $7.7 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $4.8 million to $6.1
million, offset by decreased income taxes and the factors discussed above, the
Company had a net loss of $1.1 million for the three months ended September 30,
1999 compared to net income of $0.3 million for the three months ended September
30, 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
Revenue. The Company's total revenues for the six months ended September 30,
1999 increased $6.4 million, or 10%, to $68.8 million compared to $62.4 million
for the six months ended September 30, 1998 due to increases in both rental
revenue and revenue from fabrication and equipment sales. Rental revenue
increased by 3.5 million, or 8%, to $46.9 million during the six months ended
September 30, 1999 from $43.4 million during the six months ended September 30,
1998. Domestic rental revenue increased by $0.9 million, or 2%, to $40.1 million
during the six months ended September 30, 1999 from $39.2 million during the six
months ended September 30, 1998. International rental revenue increased by $3.4
million, or 100%, to $6.8 million during the six months ended September 30, 1999
from $3.4 million during the six months ended September 30, 1998. The increase
in both domestic and international rental revenue primarily resulted from
expansion of the Company's rental fleet. Domestic average rented horsepower for
the six months ended September 30, 1999 increased by 6% to approximately 420,000
horsepower from approximately 395,000 horsepower for the six months ended
September 30, 1998. In addition, international average rented horsepower more
than doubled to approximately 41,000 horsepower for the six months ended
September 30, 1999 from approximately 20,000 horsepower for the six months ended
September 30, 1998 primarily through additional service in Argentina and
Colombia. Revenue from fabrication and sales increased to $21.9 million from
$18.9 million, an increase of 16%, due to a higher level of fabrication
activity.
Gross Profit. Gross profit (defined as total revenue less rental expense and
cost of sales, exclusive of depreciation and amortization) for the six months
ended September 30, 1999 increased $2.0 million, or 6%, to $32.9 million from
gross profit of $30.9 million for the six months ended September 30, 1998. The
rental gross profit for the six months ended September 30, 1999 increased $2.3
million, or 8%, to $29.8 million compared to gross profit of $27.5 million for
the six months ended September 30, 1998. Gross profit increased primarily as the
result of the revenue growth discussed above while rental margins increased to
64% for the six months ended September 30, 1999 from 63% for the six months
ended September 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended September 30, 1999 increased
$0.7 million, or 9%, to $8.7 million compared to $8.0 million for the six months
ended September 30, 1998. As a percentage of revenue, selling, general and
administrative expenses represented 13% of revenues for the six months ended
September 30, 1999 and 1998.
EBITDA is defined as net income plus income taxes, interest expense, leasing
expense, depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA is not a measure
of financial performance under generally accepted accounting principles and
should not be considered an alternative to operating income or net income as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity. Additionally, the EBITDA
computation used herein may not be comparable to other similarly titled measures
of other companies. EBITDA for the six months ended September 30, 1999 increased
6% to $24.3 million from $22.9 million for the six months ended September 30,
1998 primarily due to the increase in the Company's rental revenue for reasons
previously discussed.
Depreciation and Amortization. Depreciation and amortization increased by
$2.4 million to $11.7 million during the six months ended September 30, 1999
compared to $9.3 million during the six months ended September 30, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $2.1 million to $14.8 million
for the six months ended September 30, 1999 from $12.7 million for the six
months ended September 30, 1998 primarily as the result of increased borrowings
under the revolving credit facility and increased accretion of discount notes.
Net income. Primarily as a result of interest expense increasing from $12.7
million to $14.8 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $9.3 million to
$11.7 million, offset by decreased income taxes and the factors discussed above,
the Company had a net loss of $1.8 million for the six months ended September
30, 1999 compared to net income of $0.6 million for the six months ended
September 30, 1998.
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to some market risk due to the floating interest rate
under the revolving credit facility, term loan and financing lease. The
revolving credit facility, term loan and financing lease bear interest at LIBOR
plus 2.25%, 2.5% and 4.25%, respectively, are due February 2005, February 2003
and October 2004, respectively, and have outstanding principal balances at
September 30, 1999 of $74.3 million, $73.7 million and $7.7 million,
respectively. The LIBOR rate at September 30, 1999 was 5.40%. A 1.0% increase in
interest rates could result in a $1.6 million annual increase in interest
expense on the existing principal balances. Additionally, there is no
significant foreign currency credit risk as substantially all transactions ,
after deducting in-country expenses, are denominated in U.S. dollars.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following documents have been included as Exhibits to this form:
10.1 - First Amendment to Executive Employment Agreement dated as of
September 30, 1999 by and among Universal Compression, Inc.,
Universal Compression Holdings, Inc. and Ernie L. Danner
10.2 - Executive Employment Agreement dated as of October 21, 1999 by
and among Universal Compression Holdings, Inc. and Valerie L.
Banner
10.3 - Stock Option Agreement between Universal Compression Holdings,
Inc. and Valerie Banner dated October 21, 1999
27.1 - Financial Data Schedule - Universal Compression Holdings, Inc.
27.2 - Financial Data Schedule - Universal Compression, Inc.
(b) Reports on Form 8-K.
Neither Holdings nor Universal filed any reports on Form 8-K during the three
month period ended September 30, 1999.
<PAGE> 18
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 HOLDINGS, INC.
Date: November 15, 1999 By: /s/ RICHARD FITZGERALD
----------------------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
<PAGE> 19
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 15, 1999 By: /s/ RICHARD FITZGERALD
----------------------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.1 - First Amendment to Executive Employment Agreement dated as of
September 30, 1999 by and among Universal Compression, Inc.,
Universal Compression Holdings, Inc. and Ernie L. Danner
10.2 - Executive Employment Agreement dated as of October 21, 1999 by
and among Universal Compression Holdings, Inc. and Valerie L.
Banner
10.3 - Stock Option Agreement between Universal Compression Holdings,
Inc. and Valerie Banner dated October 21, 1999
27.1 - Financial Data Schedule - Universal Compression Holdings, Inc.
27.2 - Financial Data Schedule - Universal Compression, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
================================================================================
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
ERNIE L. DANNER
================================================================================
EFFECTIVE AS OF MAY 15, 1999
<PAGE> 2
FIRST AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
First Amendment ("Amendment") to the Executive Employment Agreement
dated as of October 1, 1999, by and among Universal Compression, Inc., a Texas
corporation ("Company"), Universal Compression Holdings, Inc., a Delaware
corporation ("Holdings") and Ernie L. Danner (the "Executive"). All capitalized
terms used herein, but otherwise not defined herein shall have the respective
meanings provided such terms in the Executive Employment Agreement.
WITNESSETH:
WHEREAS, Company, Holdings and Executive are a party to the Executive
Employment Agreement dated as of February 20, 1998 (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement on the terms and
conditions set forth herein;
NOW THEREFORE, it is agreed as follows:
1. Section 1.1 shall be revised to delete the reference to "Chief
Financial Officer" on the fourth line thereof, and to delete the last
two sentences thereof.
2. Section 1.2 shall be revised to delete the reference to "Chief
Financial Officer" on the fourth line thereof.
3. Immediately following the first sentence of Section 3.1, the following
sentence should be inserted: "Effective May 15, 1999, as compensation
for all services rendered pursuant to this Agreement, the Company will
pay to the Executive an annual base salary of Twenty-four Thousand
Dollars ($24,000), payable in equal semi-monthly installments of
$1,000."
4. Section 3.2 is to be revised by inserting the following sentence at the
end of such section: "Effective May 15, 1999, the Executive shall be
entitled to receive from the Company an annual cash bonus on or before
sixty (60) days after the end of each of the Company's fiscal years in
an amount to be determined at the discretion of the Compensation
Committee of the Board of Directors."
5. This Amendment shall be effective as of May 15, 1999 (the "Amendment
Effective Date").
6. This Amendment is limited as specified herein and shall not constitute
a modification or waiver of any other provision of the Agreement.
7. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument.
8. This Amendment and the rights and obligations of the parties hereunder
shall be governed by and construed in accordance with the laws of the
state of Delaware.
2
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date hereof, but
effective as of May 15, 1999.
EXECUTIVE
/s/ Ernie L. Danner
--------------------------------------------
Ernie L. Danner
UNIVERSAL COMPRESSION, INC.
By: /s/ Stephen A. Snider
-----------------------------------------
Title: President
--------------------------------------
Date: 9/17/99
---------------------------------------
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ Stephen A. Snider
-----------------------------------------
Title: President
--------------------------------------
Date: 9/17/99
---------------------------------------
3
<PAGE> 1
EXHIBIT 10.2
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
================================================================================
EMPLOYMENT AGREEMENT
FOR
VALERIE L. BANNER
================================================================================
EFFECTIVE DATE
AS OF JUNE 1, 1999
<PAGE> 2
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") dated as of October 21, 1999, but
effective as of June 1, 1998, between Universal Compression, Inc., a Texas
corporation (the "Company"), Universal Compression Holdings, Inc., a Delaware
corporation ("Holdings") and VALERIE L. BANNER (the "Executive").
WHEREAS, Universal is a direct wholly-owned subsidiary of Holdings;
WHEREAS, the parties wish to establish the terms of Executive's future
employment with the Company.
Accordingly, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment by the Company. The Company shall employ the Executive
effective June 1, 1998, for itself and its affiliates. The Executive will serve
in the capacity of Senior Vice President and General Counsel of the Company. The
Executive will perform such duties as are imposed on the holder of that office
by the By-laws of the Company and such other duties as are customarily performed
by one holding such positions in the same or similar businesses or enterprises
as those of the Company. The Executive will perform such other duties,
consistent with her position as Senior Vice President and General Counsel, as
may be assigned to her from time to time by the Company's President. The
Executive will devote sufficient working-time and attention to the performance
of such duties and to the promotion of the business and interests of the
Company; however, Company recognizes and agrees that the Executive has family
responsibilities and that such responsibilities will require Executive to have
flexible hours and from time-to-time to perform duties outside the office, and
further, Company and Executive shall make good faith efforts to accommodate the
flexibility required by Executive and the business needs of the Company. This
provision, however, will not prevent the Executive from investing her funds or
assets in any form or manner, or from acting as a member of the board of
directors of any companies, businesses, or charitable organizations, so long as
such investments or companies do not compete with the Company and Holdings.
2
<PAGE> 3
1.2 Acceptance of Employment by the Executive. The Executive accepts
such employment and shall render the services described above. If requested, the
Executive agrees, in addition, to render, without additional compensation, the
services described above in the capacity of Senior Vice President of Holdings.
2. Duration of Employment.
This Agreement and the employment relationship hereunder will be for a
continually renewing term of one (1) year, without any further action by either
Executive or Company, until Employee reaches sixty-five (65) years of age.
Notwithstanding the foregoing, in the event that a "Change in Control" (as
herein defined) occurs during the original or any extended term of this
Agreement, this Agreement shall automatically be extended to a date which is the
first anniversary of such Change in Control. In addition, the provisions of
Section 7 relating to a Change in Control will, notwithstanding the expiration
of this Agreement, continue until the Board of Directors terminates said
provision. In the event of the Executive's termination of employment during the
term of this Agreement, the Company's obligation to continue to pay all base
salary, bonus and other benefits then accrued shall terminate except as may be
provided for in Sections 6.1, 6.2, 6.3, 6.4, and 7 of this Agreement.
3. Compensation by the Company.
3.1 Base Salary. As compensation for all services rendered pursuant to
this Agreement, the Company will pay to the Executive an annual base salary
("Base Salary") of ONE HUNDRED THOUSAND DOLLARS ($100,000), payable in equal
semi-monthly installments of $5,625. The Board of Directors in its sole
discretion may increase but not reduce the Base Salary. The Board of Directors
of the Company will review Executive's Base Salary within twelve (12) months
after the effective date hereof.
3.2. Bonuses. The Executive shall be entitled to receive from the
Company an annual cash bonus on or before 60 days after the end of each of the
Company's fiscal years (including partial years on a pro-rata basis) in a target
amount equal to 50% of Base Salary based upon awards or formulas determined by
the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") and the President of the Company (in the case of 1998,
within 90 days of the Closing Date). Such award or formula shall be based upon
the Company's results in relation to budget.
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<PAGE> 4
3.3 Grant of Stock Option. (a) The Executive is hereby granted an
option that will expire on the tenth anniversary date of the date hereof
pursuant to the Stock Option Agreement attached as Exhibit A hereto to purchase
from Holdings 2,206 shares of Holdings Common Stock at an exercise price of $50
per share.
(b) The Company and Holdings have adopted an Incentive Stock
Option Plan which provides for the grant of stock options which are "qualified"
or "Incentive Stock Options" under Section 422 of the Code as well as options
that are not so qualified. The Option as is granted to the Executive under
Section 3.3(a) shall become exercisable to the maximum extent permissible under
such Plan, such option shall be deemed an Incentive Stock Option and the
balance, if any, of such option shall be deemed a Non-Qualified Stock Option, in
each case, under such Plan.
3.4 Participation in Employee Benefit Plans. The Executive shall be
permitted, during the term of this Agreement, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan or similar benefit plan of the Company, which may
be available to other executives of the Company generally, on the same terms as
such other executives. Executive shall be entitled to all customary holidays
each year during the term of this Agreement and annual paid vacation in
accordance with the vacation practices in effect for the Company's officers (but
in no event less than available to the Executive immediately prior to the date
hereof). The Executive shall also be entitled to participate in the Company's
Supplemental Savings Plan.
3.5 Profit Sharing Plan. During the term of this Agreement, Executive
shall not participate in the Company's nonqualified cash profit sharing plan
applicable to employees generally.
3.6 Club Membership. During the term of this Agreement, the Company
shall pay or reimburse the Executive for the initiation fee and membership dues
of a private club selected by the Executive upon presentation of statements or
vouchers or such other supporting information as may be required.
4. Office. The Executive's principal office shall be in Houston, Texas, and the
Executive shall not be required to move her principal place of residence or
office without her consent, or to perform duties which would reasonably be
expected to require such move, and the Company agrees that no prejudice shall be
held against the Executive in the event the Company should request such move and
the Employee declines such request.
5. Purchase Rights. In consideration, in part, for Executive's agreement
hereunder to be employed by the Company and Holdings, Holdings hereby grants the
Executive the right on or prior to January 31, 2000 to purchase shares of
Holdings Series A
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<PAGE> 5
Preferred Stock and shares of Holdings Voting Common Stock (to be purchased in a
ratio of four (4) shares of Preferred Stock to one (1) share of Common Stock)
for a purchase price of $50 per share. In the event Executive purchases any of
such Stock, Holdings agrees to execute the attached form of Registration Rights
Agreement, which among other things, grants to Executive certain rights to
register such shares of Common Stock.
6. Termination.
6.1 Termination Upon Death. If the Executive dies during the term
hereof, the Executive's legal representatives shall be entitled to receive the
Executive's base salary and accrued bonus for the period ending on the last day
of the month in which the death of the Executive occurs. In the event of the
Executive's death during the term of this Agreement, the Company shall purchase
from the Executive's estate or legal representatives any and all shares of
Holdings stock which the Executive owned and for each share of Holdings stock
subject to an unexercised option shall pay an amount equal to the excess of the
per share amount determined pursuant to the next sentence over the exercise
price for such option. The Company shall purchase said stock within sixty (60)
days after the death of the Executive at a price based upon a formula to be
agreed upon within ninety (90) days of the Closing Date. Notwithstanding the
foregoing, the Company's obligation to purchase and/or pay shall be suspended
for any period that the Company or Holdings is precluded by any credit agreement
or similar facility to which either of them is a party from making such purchase
or payment. Such amount shall accrue interest until paid at the rate of 6% per
annum. The Company agrees that it will maintain insurance on the life of the
Executive in an amount reasonably determined by the Company to be sufficient to
avoid the suspension described in the preceding sentence.
6.2 Termination Upon Disability. If during the term of this Agreement
the Executive meets the requirements for physical or mental disability under the
Company's long-term disability plan and is eligible to receive benefits
thereunder, the Company may at any time prior to the Executive's recovery but
after the last day of the sixth consecutive month of such disability, by written
notice to the Executive, terminate the Executive's employment hereunder. In the
event that the Executive's employment is terminated due to disability, the
Company will offer to loan to the Executive an amount equal to the amount
necessary to exercise all unexercised options held by the Executive, with
interest accruing monthly at a rate equal to the prime rate, as published in the
Wall Street Journal
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<PAGE> 6
on the date the loan is made, plus 1%, and providing for a single payment of
principal and interest at a date three years from the date of the loan.
Additionally, in such event, Executive (or her legal representatives)
shall be entitled to receive the Executive's Base Salary and accrued bonus for
the period ending on the date such termination occurred. Nothing in this Section
6.2 shall be deemed to in any way affect the Executive's right to participate in
any disability plan maintained by the Company and for which the Executive is
otherwise eligible.
6.3 Termination for Cause. The Executive's employment hereunder may be
terminated by the Company for "Cause" (as herein defined) upon at least thirty
(30) days' prior written notice to the Executive. Termination for Cause shall
mean termination by reason of (a) the willful and continued failure by Executive
to substantially perform her duties with the Company (other than any such
failure resulting from her incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the President or Board of Directors, which demand specifically identifies the
manner in which the Executive is believed not to have substantially performed
her duties, (b) the Executive's willful engagement in conduct which is or is
likely to become demonstrably and materially injurious to the Company,
monetarily or otherwise, or (c) the Executive's breach of Section 10.12 hereof.
For purposes of this Section, no act, or failure to act, on the part of the
Executive shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that her action or
omission was in the best interests of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there has been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors at a meeting of the Board of Directors
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with her counsel, to be heard before
the Board of Directors), finding that in the good faith opinion of the Board of
Directors the Executive was guilty of conduct of the type set forth above in
this Section and specifying the particulars thereof in detail.
Upon termination for Cause hereunder the Executive shall be entitled to
receive the Executive's Base Salary through the date of termination.
6
<PAGE> 7
6.4 Voluntary Termination. The Executive may upon at least sixty (60)
days' prior written notice to the Company terminate employment hereunder. Upon a
voluntary termination the Executive shall be entitled to receive the Executive's
Base Salary through the date of termination.
7. Severance.
(a) If, prior to the expiration of this Agreement, the Company breaches
this Agreement by terminating the Executive's employment for any reason other
than Cause (a "Breach"), or during the one year period next following a "Change
in Control" (as herein defined) the Executive's employment with the Company is
terminated for reasons other than death, disability or Cause ("Termination Upon
Change in Control"), in lieu of additional salary payments to the Executive for
periods subsequent to the date of such termination, the Company shall pay a lump
sum severance payment (together with the payments provided in paragraph (c)
below, the "Severance Payments") to the Executive at the time of termination.
Such payment shall be an amount equal to the sum of (A) the Executive's annual
Base Salary as in effect as of the date of termination and (B) the average of
the bonus amounts awarded or due to the Executive pursuant to Section 3.2 of
this Agreement (provided that if the Executive's employment is terminated
hereunder prior to March 31, 2000, such bonus amounts shall be computed as if
Executive was a Senior Vice President of the Company during the entirety of the
fiscal year ended March 31, 1999). Payment of Severance Payments provided under
this Section 7 in the event of a termination which constitutes a Breach by the
Company will not prohibit Executive from seeking enforcement of the remaining
provisions of this Agreement or other remedies for breach of this Agreement.
(b) The Company shall pay the Executive all reasonable legal fees and
expenses incurred by the Executive as a result of such termination (including
all such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement), unless the decision-maker in any proceeding, contest or dispute
arising hereunder makes a formal
7
<PAGE> 8
finding that the Executive did not have a reasonable basis for instituting such
proceeding, contest or dispute, in which event the Executive shall pay to the
Company its reasonable legal fees and expenses incurred in the defense of such
proceeding, contest or dispute.
(c) For the period of twelve (12) months immediately following the date
of Executive's termination of employment pursuant to this Section 7, the Company
shall at its expense arrange to provide the Executive with life, disability,
accident and group health insurance benefits substantially similar to those
which the Executive was receiving immediately prior to the notice of
termination. Benefits otherwise receivable by the Executive pursuant to this
paragraph (c) shall be reduced to the extent comparable benefits are actually
received by the Executive during the period following the Executive's
termination, and any such benefits actually received by the Executive shall be
reported to the Company.
(d) Nothing contained in this Section 7 shall prevent the Executive
from receiving any and all benefits payable under any severance benefit plan or
program maintained by the Company to which the Executive is entitled.
8. Definition of Change in Control.
For purposes of this Agreement a "Change in Control" shall be deemed to
have occurred upon the first to occur of the following events:
(a) 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") (other than
(i) the Company, or (ii) any corporation owned, directly or indirectly, by the
stockholders of the Company or Holdings in substantially the same proportions as
their ownership of stock of the Company or Holdings, or (iii) Castle Harlan,
Inc. or its affiliates), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company or Holdings representing more than 50% of the combined voting power of
the Company's or Holdings' then outstanding securities; or
8
<PAGE> 9
(b) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Company's or Holdings' Board of
Directors, and any new director (other than a director designated by a person
who has entered into an agreement with the Company or Holdings to effect the
transaction described in clause (a) of this Section) whose election by the
Company's or Holdings' Board of Directors or nomination for election by the
Company's or Holdings' stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.
9. Restrictions and Obligations of the Executive.
(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the payments provided in this Agreement by the Company to Executive and the
grant to the Executive options to purchase common stock of the Company ("Common
Stock") is the Executive's compliance with the undertakings set forth in this
Section 9. Specifically, the Executive agrees to comply with the provisions of
this Section 9 irrespective of whether the Executive is entitled to receive any
such payments.
(b) Confidentiality. The confidential and proprietary information and,
in any material respect, trade secrets of the Company are among its most
valuable assets, including but not limited to, its customer and vendor lists,
database, engineering, computer programs, frameworks, models, its marketing
programs, its sales, financial, marketing, training and technical information,
and any other information, whether communicated orally, electronically, in
writing or in other tangible forms concerning how the Company creates, develops,
acquires or maintains its products and marketing plans, targets its potential
customers and operates its retail and other businesses. The Company invested,
and continues to invest, considerable amounts of time and money in its process,
technology, know-how, obtaining and developing the goodwill of its customers,
its other external relationships, its data systems and data bases, and all the
information described above (hereinafter collectively referred to as
"Confidential Information"), and any misappropriation or unauthorized disclosure
of Confidential Information in any form would irreparably harm the Company. The
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<PAGE> 10
Executive shall hold in a fiduciary capacity for the benefit of the Company all
Confidential Information relating to the Company and its business, which shall
have been obtained by the Executive during the Executive's employment by the
Company and which shall not be or become public knowledge (other than by acts by
the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate, divulge or use
any such information, knowledge or data to anyone other than the Company and
those designated by it.
(c) Non-Solicitation or Hire. During the stated term of this Agreement
(as set forth in Section 2) (the "Employment Period") and for a two-year period
following the termination of the Executive's employment for any reason, the
Executive shall not, directly or indirectly (i) employ or seek to employ any
person who is at the date of termination, or was at any time within the
six-month period preceding the date of termination, an officer, general manager
or director or equivalent or more senior level employee of the Company or any of
its subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such employee's
employment with the Company or such subsidiary for the employment of another
company (including for this purpose the contracting with any person who was an
independent contractor (excluding consultant) of the Company during such period)
or (ii) take any action that would interfere with the relationship of the
Company or its subsidiaries with their suppliers or customers without, in either
case, the prior written consent of the Company's Board of Directors, or engage
in any other action or business that would have a material adverse effect on the
Company.
(d) Non-Competition. (i) During the Employment Period and for a
two-year period (the "Restriction Period") following the termination of the
Executive's employment for any reason other than a termination by the Company
without Cause, the Executive shall not, directly or indirectly:
(x) engage in any managerial, administrative, advisory,
consulting, operational or sales activities in a Restricted Business anywhere in
the Restricted Area, including, without limitation, as a director or partner of
such Restricted Business, or
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<PAGE> 11
(y) organize, establish, operate, own, manage, control or
have a direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general), limited
liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and
(ii) Nothing contained in this Section 9 shall prohibit or
otherwise restrict the Executive from acquiring or owning, directly or
indirectly, for passive investment purposes not intended to circumvent this
Agreement, securities of any entity engaged, directly or indirectly, in a
Restricted Business if either (i) such entity is a public entity and the
Executive (A) is not a controlling Person of, or a member of a group that
controls, such entity and (B) owns, directly or indirectly, no more than 3% of
any class of equity securities of such entity or (ii) such entity is not a
public entity and the Executive (A) is not a controlling Person of, or a member
of a group that controls, such entity and (B) does not own, directly or
indirectly, more than 1% of any class of equity securities of such entity.
(e) Definitions. For purposes of this Section 9:
(i) "Restricted Business" means the business of designing,
manufacturing, servicing, operating, marketing, assembling, renting or leasing
of air or gas compressors or devices using comparable technologies or other
business in which Holdings or its subsidiaries may be engaged during the term of
Executive's employment with the Company. To the extent that any entity is
primarily engaged in a business other than a Restricted Business, the term
"Restricted Business" shall mean the operations, division, segment or subsidiary
of such entity that is engaged in any Restricted Business.
(ii) "Restricted Area" means any country in which Holdings or
its subsidiaries engages in any Restricted Business at any time during the term
of Executive's employment with the Company.
10. Other Provisions.
10.1. Mitigation. Except as provided in Section 7(d) hereof, the
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in Section 7 be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
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<PAGE> 12
10.2. Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed, or sent by facsimile transmission
or, if mailed, four days after the date of mailing, as follows:
(a) If the Company, to:
4440 Brittmoore Road
Houston, Texas 77041-8004
Attention: Board of Directors
With copies to:
Castle Harlan, Inc.
150 E. 58th Street
New York, New York 10155
Attention: Jeffrey M. Siegal
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
(b) If the Executive, to her home address set forth in the records
of the Company.
10.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
10.4 Waiver and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
10.5 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of Delaware.
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<PAGE> 13
10.6 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign this Agreement and its rights, together with its obligations, to any
other entity which will substantially carry on the business of the Company.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
10.8 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of terms
contained herein.
10.9 Remedies; Specific Performance. The parties hereto hereby
acknowledge that the provisions of Section 9 are reasonable and necessary for
the protection of the Company. In addition, the Executive further acknowledges
that the Company will be irrevocably damaged if such covenants are not
specifically enforced. Accordingly, the Executive agrees that, in addition to
any other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement of any
bond) from a court of competent jurisdiction for the purposes of restraining the
Executive from any actual or threatened breach of such covenants. In addition,
without limiting the Company's remedies for any breach of any restriction on the
Executive set forth in Section 9, except as required by law, the Executive shall
not be entitled to any payments set forth in Section 6 hereof if the Executive
breaches any of the covenants applicable to the Executive contained in Section
9, the Executive will immediately return to the Company any such payments
previously received under Section 7 upon such a breach, and, in the event of
such breach, the Company will have no obligation to pay any of the amounts that
remain payable by the Company under Section 6.
10.10 Severability. If any term, provision, covenant or restriction of
this Agreement, or any part thereof, is held by a court of competent
jurisdiction of any foreign, federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority to be
invalid, void, unenforceable or against public policy for any reason, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected or
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<PAGE> 14
impaired or invalidated. The Executive acknowledges that the restrictive
covenants contained in Section 9 are a condition of this Agreement and are
reasonable and valid in geographical and temporal scope and in all other
respects.
10.11 Judicial Modification. If any court or arbitrator determines that
any of the covenants in Section 9, or any part of any of them, is invalid or
unenforceable, the remainder of such covenants and parts thereof shall not
thereby be affected and shall be given full effect, without regard to the
invalid portion. If any court or arbitrator determines that any of such
covenants, or any part thereof, is invalid or unenforceable because of the
geographic or temporal scope of such provision, such court or arbitrator shall
reduce such scope to the minimum extent necessary to make such covenants valid
and enforceable.
11. Arbitration.
Any controversy or claim arising out of or in connection with this
Agreement (other than pursuant to Section 9) shall be settled by arbitration in
accordance with the rules then obtaining of the American Arbitration
Association. Such controversies shall be submitted to three arbitrators, one
arbitrator being selected by the Company, one arbitrator being selected by the
Executive, and the third being selected by the two so selected by the Company
and the Executive or, if they cannot agree upon a third, by the American
Arbitration Association. In the event that either the Company or the Executive,
within one month after any notification of any demand for arbitration hereunder,
shall not have selected its arbitrator and given notice thereof by registered or
certified mail to the other, such arbitrator shall be selected by the American
Arbitration Association. Confirmation of any award in any such arbitration may
be held in any court having jurisdiction of the person against whom such award
is rendered. Regardless of the circumstances giving rise to the need for
arbitration, until such arbitration shall be finally determined and ended, the
Base Salary of the Executive pursuant to Section 3.1, subject to the provisions
of Sections 6 and 7, shall be paid monthly until the expiration of the term of
this Agreement. If the results of such arbitration are more favorable to the
position taken by the Executive than that taken by the Company, in the opinion
of the arbitrators, then all costs and expenses incurred by the Executive in
connection with such arbitration shall be paid by the Company. In the event that
the arbitrators make a formal finding that
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<PAGE> 15
the Executive did not have a reasonable basis for instituting the proceeding,
contest or dispute giving rise to such arbitration, the Executive shall pay to
the Company its reasonable legal fees and expenses incurred in the defense of
the proceeding, contest or dispute giving rise to such arbitration.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed this Agreement as of the day and year first
above mentioned.
EXECUTIVE
/s/ Valerie L. Banner
--------------------------------------------
Valerie L. Banner
UNIVERSAL COMPRESSION, INC.
By: /s/ Stephen A. Snider
-----------------------------------------
Title: President
--------------------------------------
Date: 10/19/99
---------------------------------------
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ Stephen A. Snider
-----------------------------------------
Title: President
--------------------------------------
Date: 10/19/99
---------------------------------------
15
<PAGE> 1
EXHIBIT 10.3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of October 21, 1999, but
effective as of the 1st day of June, 1998, by and between UNIVERSAL COMPRESSION
HOLDINGS, INC., a Delaware corporation ("Holdings") and VALERIE L. BANNER (the
"Executive").
WHEREAS, Holdings has agreed to grant to the Executive an option to
purchase Holdings Common Stock, $.01 par value per share (the "Common Stock"),
pursuant to the terms and conditions of this Agreement in consideration for
services to Holdings and Universal Compression, Inc., ("Compression"), a
wholly-owned subsidiary of Holdings; and
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, all capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the Employment Agreement between Compression, Holdings and the Executive dated
as of the date hereof.
2. GRANT OF OPTION. Effective June 1, 1998, Holdings hereby grants
to the Executive an option (the "Option") to purchase 2,206 shares of Common
Stock at $50 per share. This Option is granted under Holdings' Incentive Stock
Option Plan and shall constitute, to the extent permissible, an Incentive Stock
Option under Section 422 of the Internal Revenue Code of 1986, as amended, and
otherwise shall be a Non-Qualified Stock Option.
3. OPTION TERMS AND CONDITIONS.
(a) Exercise of Option. The Option shall become
exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
Years from Grant Date Amount Exercisable
--------------------- ------------------
<S> <C>
1 Year 33 1/3%
2 Years 33 1/3%
3 Years 33 1/3%
</TABLE>
(b) Termination of Employment.
(i) Termination due to Death, Disability or
Retirement. In the event the Executive's employment with Compression terminates
on account of death, disability or retirement, the vested portion of the Option
shall be and remain exercisable for the balance of the term of the Option.
(ii) Termination of Employment Without Cause. In the
event the Executive's employment with Compression shall terminate without Cause,
the vested portion of the Option shall be and remain exercisable for the balance
of the term of the Option.
(iii) Termination of Employment for Cause. In the
event the Executive's employment with Compression shall terminate for Cause
pursuant to the Employment Agreement, the Option shall terminate on the date of
such termination.
<PAGE> 2
4. NON-ASSIGNABILITY. No Option granted hereby and no right
arising thereunder shall be transferable during the lifetime of the Executive or
by will or by the laws of descent and distribution. During the lifetime of the
Executive, the Option shall be exercisable only by the Executive. Any Option
which is exercisable at the date of the Executive's death shall be exercisable
in accordance with the terms of this Agreement by the executor or administrator,
as the case may be, of the Executive's estate for the next three (3) months
following the date of the Executive's death and shall then terminate.
5. MODE OF EXERCISE. The Option shall be exercised by giving to
Holdings written notice stating (a) the number of shares with respect to which
the Option is being exercised, (b) the aggregate Exercise Price for such shares,
and (c) the method of payment. At the option of the Executive, such aggregate
Exercise Price may be paid: (i) in cash; (ii) with the consent of the board of
directors of Holdings (the "Board"), by delivery of a promissory note to
Holdings payable over a three (3) year period and bearing interest at the prime
rate; (iii) by delivery of shares of Common Stock owned by the Executive having
a Market Price (as determined by Section 6 hereof) equal in amount to the
aggregate Exercise Price of the Option being exercised; (iv) by any combination
of (i), (ii) and (iii); or (v) by cancellation of any portion of the Option, in
which case the number of shares of Common Stock to be received shall be computed
using the following formula:
X = Y x (A - $50)
-------------
A
Where: X = the number of shares of Common Stock to be
issued pursuant to clause (v) above;
Y = the number of shares of Common Stock that
otherwise would have been issuable in respect of
that portion of the Option to be exercised
pursuant to clause (v) above if such exercise
had been pursuant to clause (i), (ii), (iii) or
(iv) above;
A = the Market Price of one share of Common Stock on
the date of exercise;
provided, however, that clauses (iii) and (v) shall be inapplicable if no Market
Price is applicable under clause (iv) of Section 6.
6. Market Price of Common Stock. The "Market Price" of the Common
Stock on any day shall be determined as follows: (i) if the Common Stock is
listed on a national securities exchange or quoted through the NASDAQ National
Market System, the Market Price on any day shall be the average of the high and
low reported Consolidated Trading sales prices, or if no such sale is made on
such day, the average of the closing bid and asked prices reported on the
Consolidated Trading listing for such day; (ii) if the Common Stock is quoted on
the NASDAQ inter-dealer quotation system, the Market Price on any day shall be
the average of the representative bid and asked prices at the close of business
for such day; (iii) if the Common Stock is not listed on a national stock
exchange or quoted on NASDAQ, the Market Price on any day shall be the average
of the high bid and low asked prices reported by the National Quotation Bureau,
Inc. for such day; or (iv) if none of clauses (i) - (iii) are applicable, the
Market Price as may be determined by the Board or any Committee thereof, there
being no obligation to make such determination.
7. TRANSFER RESTRICTIONS. The Executive understands that the
Common Stock issuable upon the exercise of this Option may not be registered
under the Securities Act of 1933, as amended (the "Act"). The Executive
acknowledges that the Common Stock will be purchased for investment only, and
that it may not be sold or transferred in the absence of either an effective
registration statement under the Act or an opinion of experienced securities
counsel, acceptable in form and content to Holdings in its sole discretion,
which states that registration is not required under the Act.
By executing this Agreement, the Executive agrees to refrain from
re-offering, reselling, or otherwise disposing of any of the Common Stock
acquired upon the exercise of the Option in any manner which would violate the
Act or any other Federal or state securities law.
All stock certificates representing shares of Common Stock acquired
pursuant to the exercise of an Option that are issued by Holdings shall contain
a legend substantially in the following form:
"SHARES OF UNIVERSAL COMPRESSION HOLDINGS, INC. ("HOLDINGS")
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 20, 1998, WHICH CONTAINS PROVISIONS
2
<PAGE> 3
REGARDING THE RESTRICTIONS ON THE TRANSFER OF SUCH SHARES AND OTHER
MATTERS. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF HOLDINGS. THE SHARES REPRESENTED BY THIS
CERTIFICATE WERE NOT REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT."
The shares of Common Stock acquired pursuant to the Option shall be
subject to the provisions regarding transfers of shares in the Stockholders
Agreement dated as of even date herewith (the "Stockholders Agreement"). At the
request of Holdings, the Executive shall become a party to the Stockholders
Agreement.
8. OPTION SUBJECT TO SECURITIES AND OTHER REGULATIONS. The Option
granted hereunder and the obligation of Holdings to sell and deliver shares
under such Option shall be subject to all applicable Federal and state laws,
rules and regulations and to such approvals by any government or regulatory
agency as may be required. Holdings, in its discretion, may postpone the
issuance or delivery of shares upon any exercise of the Option until completion
of any stock exchange listing, or other qualification of such shares under any
state or Federal law, rule or regulation as Holdings may consider appropriate,
and may require the Executive, his beneficiary or his legal representative to
make such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of the shares in
compliance with applicable laws, rules and regulations.
Upon demand by the Board, the Executive (or any person acting under
Section 4 of this Agreement) shall deliver to the Board at the time of exercise
of the Option a written representation that the shares to be acquired upon the
exercise of the Option are being acquired for his own account and not with a
view to, or for resale in connection with, any distribution in violation of
federal or state securities laws. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of the
Option shall be a condition precedent to the right of the Executive or such
other person to purchase any shares.
9. ANTI-DILUTION ADJUSTMENTS. In the event of any change in the
Common Stock by reason of any stock dividend, cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or of any similar change affecting the Common Stock, the number and kind
of shares subject to the Option and the Option price thereof shall be
appropriately adjusted consistent with such change in such manner as the Board
may deem equitable to prevent substantial dilution or enlargement of the rights
granted to, or available for, the Executive.
10. CALL RIGHT. Upon any termination of the employment of the
Executive prior to a public offering of Common Stock, Holdings may purchase
Common Stock acquired upon any exercise of the Option then held by the Executive
in accordance with the terms and provisions of the Management Stock Buyback
Agreement, dated as of the date hereof, by and between Holdings and certain
other purchasers of Holdings Common Stock signatory thereto.
11. RIGHTS PRIOR TO EXERCISE OF OPTION. The Participant shall not
have any rights as a stockholder with respect to any shares subject to the
Option prior to the date on which the Executive is recorded as the holder of
such shares on the records of Holdings.
12. TAXES. Holdings may make such provisions and take such steps as
it may deem necessary or appropriate for the withholding of all Federal, state,
local and other taxes required by law to be withheld with respect to the Option
including, but not limited to: (i) reducing the number of shares of Common Stock
otherwise deliverable, based upon their fair market value on the date of
exercise, to permit deduction of the amount of any such withholding taxes from
the amount otherwise payable under this Agreement; (ii) deducting the amount of
any such withholding taxes from any other amount then or thereafter payable to
the Executive; or (iii) requiring the Executive, his beneficiary or his legal
representative to pay to Holdings the amount required to be withheld or to
execute such documents as Holdings deems necessary or desirable to enable it to
satisfy its withholding obligations as a condition of releasing the Common
Stock.
13. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of Delaware.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement as of the day and year first above
mentioned.
EXECUTIVE
/s/ VALERIE L. BANNER
--------------------------------------------
Valerie L. Banner
Date: 10/21/99
--------------------------------------
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ STEPHEN A. SNIDER
-----------------------------------------
Title: President
--------------------------------------
Date: 10/21/99
---------------------------------------
4
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