<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 DECEMBER 31, 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)
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)
(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, DECEMBER 31,
ASSETS 1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 2,627
Accounts receivable, net 22,469 15,504
Inventories 10,272 10,275
Deferred tax assets 426 426
Other 938 1,580
------------ ------------
Total current assets 37,032 30,412
Property, plant and equipment
Rental equipment 296,049 335,563
Other 17,122 20,144
Less: accumulated depreciation (17,647) (31,736)
------------ ------------
Net property, plant, and equipment 295,524 323,971
Goodwill and intangibles, net of amortization 96,345 97,153
Other assets, net 8,632 10,670
Long-term deferred tax asset 458 458
------------ ------------
Total assets $ 437,991 $ 462,664
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,540 $ 12,527
Current portion of long-term debt 750 4,206
------------ ------------
Total current liabilities 13,290 16,733
Capital lease obligation -- 2,091
Long-term debt 343,927 367,184
------------ ------------
Total liabilities 357,217 386,008
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 December 31, 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 329,862 shares
outstanding at March 31, 1999 and
December 31, 1999, respectively 3 3
Class A non-voting common stock, $.01 par value,
6,000 shares authorized, 4,120 shares issued,
4,080 and 3,590 shares outstanding at
March 31, 1999 and December 31, 1999,
respectively -- --
Treasury stock, 170 and 700 shares at cost at
March 31, 1999 and December 31, 1999,
respectively (9) (35)
Additional paid-in capital 82,698 82,698
Retained deficit (1,931) (6,023)
------------ ------------
Total stockholders' equity 80,774 76,656
------------ ------------
Total liabilities and stockholders' equity $ 437,991 $ 462,664
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 3
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,762 $ 25,311 $ 65,204 $ 72,174
Sales 11,722 8,349 30,577 30,223
Other 75 69 199 128
------------ ------------ ------------ ------------
Total revenue 33,559 33,729 95,980 102,525
Costs and expenses
Rentals, exclusive of
depreciation and
amortization 7,633 9,049 23,602 26,153
Cost of sales, exclusive of
depreciation and amortization 9,993 6,900 25,517 25,650
Depreciation and amortization 4,930 7,001 14,255 18,679
Selling, general and administrative 4,162 4,004 12,186 12,658
Interest expense 7,274 8,832 21,415 25,278
------------ ------------ ------------ ------------
Total costs and expenses 33,992 35,786 96,975 108,418
------------ ------------ ------------ ------------
Loss before income taxes (433) (2,057) (995) (5,893)
Income tax benefit (165) (781) (377) (1,801)
------------ ------------ ------------ ------------
Net loss $ (268) $ (1,276) $ (618) $ (4,092)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (618) $ (4,092)
Adjustments to reconcile net income to cash provided
from operating activities:
Depreciation and amortization 14,255 18,679
Gain on asset sales -- (83)
Amortization of debt issuance costs 872 872
Accretion of discount notes 13,594 15,035
Change in working capital (10,798) 2,705
---------- ----------
Net cash provided by operating activities 17,305 33,116
Cash flows from investing activities:
Additions to property, plant, and equipment, net (35,764) (42,505)
Capital lease-back of vehicles -- (4,354)
---------- ----------
Net cash used in investing activities (35,764) (46,859)
Cash flows from financing activities:
Principal repayments of long-term debt (563) (376)
Net borrowing (repayment) on line of credit 17,250 (400)
Net proceeds from sale-lease-back of vehicles -- 3,491
Net proceeds from financing lease -- 10,754
Treasury stock -- (26)
---------- ----------
Net cash provided by financing activities 16,687 13,443
Decrease in cash (1,772) (300)
Cash at beginning of period 2,382 2,927
---------- ----------
Cash at end of period $ 610 $ 2,627
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 nine month periods ended December
31, 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. As of December 31, 1999, the
Company through its subsidiaries has a broad base of over 500 customers and
operates a fleet of over 2,700 compression rental units with an aggregate
capacity of approximately 663,000 horsepower. 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
nine month periods ended December 31, 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 DECEMBER, 1999
----------- --------------
<S> <C> <C>
Work-in-progress $ 4,993 $ 3,906
Finished goods 5,279 6,369
--------- --------
$ 10,272 $ 10,275
========= ========
</TABLE>
5
<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 based operations.
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 December 31, 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>
December 31, 1999:
Revenues ........... $ 21,416 $ 3,896 $ 4,977 $ 3,440 $ 33,729
Gross profit ....... $ 13,735 $ 2,528 $ 725 $ 792 $ 17,780
Operating income ... $ 5,385 $ 723 $ 158 $ 509 $ 6,775
December 31, 1998:
Revenues ........... $ 19,623 $ 1,677 $ 7,893 $ 4,366 $ 33,559
Gross profit ....... $ 12,670 $ 1,199 $ 1,095 $ 969 $ 15,933
Operating income ... $ 5,214 $ 586 $ 492 $ 549 $ 6,841
</TABLE>
The following table presents sales and other financial information by industry
segment for the nine months ended December 31, 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>
December 31, 1999:
Revenues................ $ 61,528 $ 10,647 $ 19,874 $ 10,476 $102,525
Gross profit............ $ 38,569 $ 7,454 $ 2,458 $ 2,241 $ 50,722
Operating income........ $ 14,711 $ 2,727 $ 622 $ 1,325 $ 19,385
December 31, 1998:
Revenues................ $ 58,781 $ 5,103 $ 14,763 $ 17,333 $ 95,980
Gross profit............ $ 37,324 $ 3,704 $ 2,553 $ 3,280 $ 46,861
Operating income........ $ 15,764 $ 1,824 $ 966 $ 1,866 $ 20,420
</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.
6
<PAGE> 7
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,927 $ 2,627
Accounts receivable, net 22,469 15,504
Inventories 10,272 10,275
Deferred tax assets 426 426
Other 916 1,537
------------ ------------
Total current assets 37,010 30,369
Property, plant and equipment
Rental equipment 296,049 335,563
Other 17,122 20,144
Less: accumulated depreciation (17,647) (31,736)
------------ ------------
Net property, plant, and equipment 295,524 323,971
Goodwill and intangibles, net of amortization 96,101 96,914
Other assets, net 7,852 9,956
------------ ------------
Total assets $ 436,487 $ 461,210
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,538 $ 13,490
Payable to parent 1,434 1,386
Current portion of long-term debt 750 4,206
------------ ------------
Total current liabilities 14,722 19,082
Deferred income taxes 859 859
Capital lease obligation -- 2,091
Long-term debt 315,598 336,392
------------ ------------
Total liabilities 331,179 358,424
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 (2,394)
------------ ------------
Total stockholder's equity 105,308 102,786
------------ ------------
Total liabilities and stockholder's equity $ 436,487 $ 461,210
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
8
<PAGE> 8
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,762 $ 25,311 $ 65,204 $ 72,174
Sales 11,722 8,349 30,577 30,223
Other 75 69 199 128
------------ ------------ ------------ ------------
Total revenue 33,559 33,729 95,980 102,525
Costs and expenses
Rentals, exclusive of
depreciation and amortization 7,633 9,049 23,602 26,153
Cost of sales, exclusive of
depreciation and amortization 9,993 6,900 25,517 25,650
Depreciation and amortization 4,929 6,999 14,251 18,674
Selling, general and administrative 4,162 4,004 12,186 12,658
Interest expense 6,500 7,965 19,158 22,750
------------ ------------ ------------ ------------
Total costs and expenses 33,217 34,917 94,714 105,885
------------ ------------ ------------ ------------
Income (loss) before income taxes 342 (1,188) 1,266 (3,360)
Income taxes (benefit) 128 (450) 481 (838)
------------ ------------ ------------ ------------
Net income (loss) $ 214 $ (738) $ 785 $ (2,522)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
9
<PAGE> 9
UNIVERSAL COMPRESSION, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 785 $ (2,522)
Adjustments to reconcile net income to cash provided
from operating activities:
Depreciation and amortization 14,251 18,674
Gain on asset sales -- (83)
Amortization of debt issuance costs 807 806
Accretion of discount notes 11,350 12,573
Change in working capital (9,888) 3,642
---------- ----------
Net cash provided by operating activities 17,305 33,090
Cash flows from investing activities:
Additions to property, plant, and equipment, net (35,764) (42,505)
Capital lease-back of vehicles -- (4,354)
---------- ----------
Net cash used in investing activities (35,764) (46,859)
Cash flows from financing activities:
Principal repayments of long-term debt (563) (376)
Net borrowing (repayment) on line of credit 17,250 (400)
Net proceeds from sale-lease-back of vehicles -- 3,491
Net proceeds from financing lease -- 10,754
---------- ----------
Net cash provided by financing activities 16,687 13,469
Decrease in cash (1,772) (300)
Cash at beginning of period 2,382 2,927
---------- ----------
Cash at end of period $ 610 $ 2,627
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
10
<PAGE> 10
UNIVERSAL COMPRESSION, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 nine month periods ended December 31, 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. As of December 31, 1999, the Company has a broad base of
over 500 customers and operates a fleet of over 2,700 compression rental units
with an aggregate capacity of approximately 663,000 horsepower. 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
nine month periods ended December 31, 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 DECEMBER, 1999
------------- --------------
<S> <C> <C>
Work-in-progress $ 4,993 $ 3,906
Finished goods 5,279 6,369
-------- --------
$ 10,272 $ 10,275
======== ========
</TABLE>
11
<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 based operations.
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 December 31, 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>
December 31, 1999:
Revenues $ 21,416 $ 3,896 $ 4,977 $ 3,440 $ 33,729
Gross profit $ 13,735 $ 2,528 $ 725 $ 792 $ 17,780
Operating income $ 5,385 $ 723 $ 158 $ 511 $ 6,777
December 31, 1998:
Revenues $ 19,623 $ 1,677 $ 7,893 $ 4,366 $ 33,559
Gross profit $ 12,670 $ 1,199 $ 1,095 $ 969 $ 15,933
Operating income $ 5,214 $ 586 $ 492 $ 550 $ 6,842
</TABLE>
The following table presents sales and other financial information by industry
segment for the nine months ended December 31, 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>
December 31, 1999:
Revenues $ 61,528 $ 10,647 $ 19,874 $ 10,476 $ 102,525
Gross profit $ 38,569 $ 7,454 $ 2,458 $ 2,241 $ 50,722
Operating income $ 14,711 $ 2,727 $ 622 $ 1,330 $ 19,390
December 31, 1998:
Revenues $ 58,781 $ 5,103 $ 14,763 $ 17,333 $ 95,980
Gross profit $ 37,324 $ 3,704 $ 2,553 $ 3,280 $ 46,861
Operating income $ 15,764 $ 1,824 $ 966 $ 1,870 $ 20,424
</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.
12
<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 DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
Revenue. The Company's total revenues for the three months ended December
31, 1999 increased $0.1 million to $33.7 million compared to $33.6 million for
the three months ended December 31, 1998. Rental revenue increased by $3.5
million, or 16%, to $25.3 million during the three months ended December 31,
1999 from $21.8 million during the three months ended December 31, 1998.
Domestic rental revenue increased by $1.8 million, or 9%, to $21.4 million
during the three months ended December 31, 1999 from $19.6 million during the
three months ended December 31, 1998. International rental revenue increased by
$2.2 million, or 129%, to $3.9 million during the three months ended December
31, 1999 from $1.7 million during the three months ended December 31, 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 December 31, 1999 increased by 16% to approximately
461,000 horsepower from approximately 397,000 horsepower for the three months
ended December 31, 1998. In addition, international average rented horsepower
more than doubled to approximately 49,000 horsepower for the three months ended
December 31, 1999 from approximately 21,000 horsepower for the three months
ended December 31, 1998 primarily through additional service in Argentina and
Colombia. Revenue from fabrication and sales decreased to $8.3 million from
$11.7 million, a decrease of 29%, due to a lower 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 December 31, 1999 increased $1.9 million, or 12%, to $17.8 million
from gross profit of $15.9 million for the three months ended December 31, 1998.
The rental gross profit for the three months ended December 31, 1999 increased
$2.2 million, or 16%, to $16.3 million compared to gross profit of $14.1 million
for the three months ended December 31, 1998. Gross profit increased primarily
as the result of the rental revenue growth discussed above while rental margins
remained constant at approximately 65% for the three months ended December 31,
1999 and 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 1999 decreased
$0.2 million compared to the three months ended December 31, 1998. As a
percentage of revenue, selling, general and administrative expenses represented
12% of revenues for the three months ended December 31, 1999 and 1998.
EBITDA is defined as net income plus income taxes, interest expense,
leasing expense, management fees, 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 December 31, 1999 increased 16% to $14.6 million from
$12.6 million for the three months ended December 31, 1998 primarily due to
increases in horsepower and utilization of the compression rental fleet.
14
<PAGE> 13
Depreciation and Amortization. Depreciation and amortization increased by
$2.1 million to $7.0 million during the three months ended December 31, 1999
compared to $4.9 million during the three months ended December 31, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $1.5 million to $8.8 million
for the three months ended December 31, 1999 from $7.3 million for the three
months ended December 31, 1998 primarily as the result of increased borrowings
under the revolving credit facility, increased accretion of discount notes, the
financing lease and increased interest rates.
Net income. Primarily as a result of interest expense increasing from $7.3
million to $8.8 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $4.9 million to $7.0
million, offset by an increased income tax benefit and the factors discussed
above, the Company had a net loss of $1.3 million for the three months ended
December 31, 1999 compared to a net loss of $0.3 million for the three months
ended December 31, 1998.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Revenue. The Company's total revenues for the nine months ended December
31, 1999 increased $6.5 million, or 7%, to $102.5 million compared to $96.0
million for the nine months ended December 31, 1998 due to an increase in rental
revenues. Rental revenue increased by $7.0 million, or 11%, to $72.2 million
during the nine months ended December 31, 1999 from $65.2 million during the
nine months ended December 31, 1998. Domestic rental revenue increased by $2.7
million, or 5%, to $61.5 million during the nine months ended December 31, 1999
from $58.8 million during the nine months ended December 31, 1998. International
rental revenue increased by $5.6 million, or 110%, to $10.7 million during the
nine months ended December 31, 1999 from $5.1 million during the nine months
ended December 31, 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 nine months ended December 31, 1999
increased by 10% to approximately 434,000 horsepower from approximately 396,000
horsepower for the nine months ended December 31, 1998. In addition,
international average rented horsepower more than doubled to approximately
44,000 horsepower for the nine months ended December 31, 1999 from approximately
20,000 horsepower for the nine months ended December 31, 1998 primarily through
additional service in Argentina and Colombia. Revenue from fabrication and sales
decreased to $30.2 million from $30.6 million, a decrease of 1%, due to a lower
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 nine
months ended December 31, 1999 increased $3.8 million, or 8%, to $50.7 million
from gross profit of $46.9 million for the nine months ended December 31, 1998.
The rental gross profit for the nine months ended December 31, 1999 increased
$4.4 million, or 11%, to $46.0 million compared to gross profit of $41.6 million
for the nine months ended December 31, 1998. Gross profit increased primarily as
the result of the revenue growth discussed above while rental margins remained
constant at 64% for the nine months ended December 31, 1999 and 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 1999 increased
$0.5 million, or 4%, to $12.7 million compared to $12.2 million for the nine
months ended December 31, 1998. As a percentage of revenue, selling, general and
administrative expenses represented 12% of revenues for the nine months ended
December 31, 1999 compared to 13% of revenues for the nine months ended December
31, 1998.
EBITDA is defined as net income plus income taxes, interest expense,
leasing expense, management fees, 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 nine months ended December 31, 1999 increased 9% to $40.5 million from
$37.1 million for the nine months ended December 31, 1998 primarily due to
increases in horsepower and utilization of the compression rental fleet.
Depreciation and Amortization. Depreciation and amortization increased by
$4.4 million to $18.7 million during the nine months ended December 31, 1999
compared to $14.3 million during the nine months ended December 31, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
15
<PAGE> 14
Interest Expense. Interest expense increased $3.9 million to $25.3 million
for the nine months ended December 31, 1999 from $21.4 million for the nine
months ended December 31, 1998 primarily as the result of increased borrowings
under the revolving credit facility, increased accretion of discount notes, the
financing lease and increased interest rates.
Net income. Primarily as a result of interest expense increasing from $21.4
million to $25.3 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $14.3 million to
$18.7 million, offset by an increased income tax benefit and the factors
discussed above, the Company had a net loss of $4.1 million for the nine months
ended December 31, 1999 compared to a net loss of $0.6 million for the nine
months ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at December 31, 1999 was $2.6
million compared to $2.9 million at March 31, 1999. For the nine months ended
December 31, 1999, the Company generated cash flow from operations of $33.1
million, received $3.2 million from the sale of assets and obtained $15.6
million in additional financing. The Company primarily used this cash flow to
expend $50.1 million on equipment and inventory for its rental operations and
make net principal payments of $0.8 million under its established lines of
credit.
The Company expects to expend approximately $60 million on capital projects
during fiscal 2000. The Company continues to emphasize its investment in larger
horsepower compression rental units and the acquisition leaseback of customer
owned equipment. 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.
Included in other assets is a $2.8 million receivable relating to a tax matter
stemming from the Acquisition. The Company is pursuing its legal remedies
in connection with the collection of this receivable. The Company believes that
this matter will be favorably resolved.
YEAR 2000 ISSUES UPDATE
The Company began to address Year 2000 compliance issues in 1998 when it formed
a Year 2000 Committee ("Committee") to manage the Company's Year 2000 compliance
initiative. The Committee 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.
The Company did not experience any serious Year 2000 problems as the clock
rolled over to 2000, and no disruption of normal business activities or
operations occurred which could have had a material adverse effect on the
Company's results of operations, liquidity or financial condition. However, the
Company is continuing to monitor, on an ongoing basis, any future uncertainties
arising from the Year 2000 problem. The Company does not believe that any future
problems, primarily computer system problems in nature, could have a material
adverse effect on its results of operations.
The aggregate cost of the required modifications and testing was approximately
$100,000 and consisted primarily of the Company's internal costs for its
information systems group. The costs for the required modifications and testing
were expensed as incurred.
UNIVERSAL COMPRESSION, INC.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
Revenue. The Company's total revenues for the three months ended December
31, 1999 increased $0.1 million to $33.7 million compared to $33.6 million for
the three months ended December 31, 1998. Rental revenue increased by $3.5
million, or 16%, to $25.3 million during the three months ended December 31,
1999 from $21.8 million during the three months ended December 31, 1998.
Domestic rental revenue increased by $1.8 million, or 9%, to $21.4 million
during the three months ended December 31, 1999 from $19.6 million during the
three months ended December 31, 1998. International rental revenue increased by
$2.2 million, or 129%, to $3.9 million during the three months ended December
31, 1999 from $1.7 million during the three months ended December 31, 1998. The
increase in both domestic and international rental revenue primarily resulted
from expansion of the Company's rental
16
<PAGE> 15
fleet. Domestic average rented horsepower for the three months ended December
31, 1999 increased by 16% to approximately 461,000 horsepower from approximately
397,000 horsepower for the three months ended December 31, 1998. In addition,
international average rented horsepower more than doubled to approximately
49,000 horsepower for the three months ended December 31, 1999 from
approximately 21,000 horsepower for the three months ended December 31, 1998
primarily through additional service in Argentina and Colombia. Revenue from
fabrication and sales decreased to $8.3 million from $11.7 million, a decrease
of 29%, due to a lower 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 December 31, 1999 increased $1.9 million, or 12%, to $17.8 million
from gross profit of $15.9 million for the three months ended December 31, 1998.
The rental gross profit for the three months ended December 31, 1999 increased
$2.2 million, or 16%, to $16.3 million compared to gross profit of $14.1 million
for the three months ended December 31, 1998. Gross profit increased primarily
as the result of the rental revenue growth discussed above while rental margins
remained constant at approximately 65% for the three months ended December 31,
1999 and 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 1999 decreased
$0.2 million compared to the three months ended December 31, 1998. As a
percentage of revenue, selling, general and administrative expenses represented
12% of revenues for the three months ended December 31, 1999 and 1998.
EBITDA is defined as net income plus income taxes, interest expense,
leasing expense, management fees, 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 December 31, 1999 increased 16% to $14.6 million from
$12.6 million for the three months ended December 31, 1998 primarily due to
increases in horsepower and utilization of the compression rental fleet.
Depreciation and Amortization. Depreciation and amortization increased by
$2.1 million to $7.0 million during the three months ended December 31, 1999
compared to $4.9 million during the three months ended December 31, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $1.5 million to $8.0 million
for the three months ended December 31, 1999 from $6.5 million for the three
months ended December 31, 1998 primarily as the result of increased borrowings
under the revolving credit facility, increased accretion of discount notes, the
financing lease and increased interest rates.
Net income. Primarily as a result of interest expense increasing from $6.5
million to $8.0 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $4.9 million to $7.0
million, offset by decreased income taxes and the factors discussed above, the
Company had a net loss of $0.7 million for the three months ended December 31,
1999 compared to net income of $0.2 million for the three months ended December
31, 1998.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Revenue. The Company's total revenues for the nine months ended December
31, 1999 increased $6.5 million, or 7%, to $102.5 million compared to $96.0
million for the nine months ended December 31, 1998 due to an increase in rental
revenues. Rental revenue increased by $7.0 million, or 11%, to $72.2 million
during the nine months ended December 31, 1999 from $65.2 million during the
nine months ended December 31, 1998. Domestic rental revenue increased by $2.7
million, or 5%, to $61.5 million during the nine months ended December 31, 1999
from $58.8 million during the nine months ended December 31, 1998. International
rental revenue increased by $5.6 million, or 110%, to $10.7 million during the
nine months ended December 31, 1999 from $5.1 million during the nine months
ended December 31, 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 nine months ended December 31, 1999
increased by 10% to approximately 434,000 horsepower from approximately 396,000
horsepower for the nine months ended December 31, 1998. In addition,
international average rented horsepower more than doubled to approximately
44,000 horsepower for the nine months ended December 31, 1999 from approximately
20,000 horsepower for the nine months ended December 31, 1998 primarily through
additional service in Argentina and Colombia. Revenue from fabrication and sales
decreased to $30.2 million from $30.6 million, a decrease of 1%, due to a lower
level of fabrication activity.
17
<PAGE> 16
Gross Profit. Gross profit (defined as total revenue less rental expense
and cost of sales, exclusive of depreciation and amortization) for the nine
months ended December 31, 1999 increased $3.8 million, or 8%, to $50.7 million
from gross profit of $46.9 million for the nine months ended December 31, 1998.
The rental gross profit for the nine months ended December 31, 1999 increased
$4.4 million, or 11%, to $46.0 million compared to gross profit of $41.6 million
for the nine months ended December 31, 1998. Gross profit increased primarily as
the result of the revenue growth discussed above while rental margins remained
constant at 64% for the nine months ended December 31, 1999 and 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 1999 increased
$0.5 million, or 4%, to $12.7 million compared to $12.2 million for the nine
months ended December 31, 1998. As a percentage of revenue, selling, general and
administrative expenses represented 12% of revenues for the nine months ended
December 31, 1999 compared to 13% of revenues for the nine months ended December
31, 1998.
EBITDA is defined as net income plus income taxes, interest expense,
leasing expense, management fees, 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 nine months ended December 31, 1999 increased 9% to $40.5 million from
$37.1 million for the nine months ended December 31, 1998 primarily due to
increases in horsepower and utilization of the compression rental fleet.
Depreciation and Amortization. Depreciation and amortization increased by
$4.4 million to $18.7 million during the nine months ended December 31, 1999
compared to $14.3 million during the nine months ended December 31, 1998. The
increase resulted primarily from the expansion of the Company's rental fleet.
Interest Expense. Interest expense increased $3.6 million to $22.8 million
for the nine months ended December 31, 1999 from $19.2 million for the nine
months ended December 31, 1998 primarily as the result of increased borrowings
under the revolving credit facility, increased accretion of discount notes, the
financing lease and increased interest rates.
Net income. Primarily as a result of interest expense increasing from $19.2
million to $22.8 million and depreciation and amortization related to the
continued expansion of the Company's assets increasing from $14.3 million to
$18.7 million, offset by decreased income taxes and the factors discussed above,
the Company had a net loss of $2.5 million for the nine months ended December
31, 1999 compared to net income of $0.8 million for the nine months ended
December 31, 1998.
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
December 31, 1999 of $75.0 million, $73.7 million and $11.1 million,
respectively. The LIBOR rate at December 31, 1999 was 5.83%. 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.
18
<PAGE> 17
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 -- Executive Employment Agreement dated as of October 29, 1999
between Universal Compression, Inc. and Richard W. FitzGerald
10.2 -- Stock Option Agreement between Universal Compression Holdings,
Inc. and Richard FitzGerald effective April 12, 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 December 31, 1999.
19
<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: February 11, 2000 By: /s/ RICHARD FITZGERALD
---------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
20
<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: February 11, 2000 By: /s/ RICHARD FITZGERALD
-------------------------
Richard FitzGerald,
Chief Financial Officer and
Senior Vice President
21
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 -- Executive Employment Agreement dated as of October 29, 1999
between Universal Compression, Inc. and Richard W. FitzGerald
10.2 -- Stock Option Agreement between Universal Compression Holdings,
Inc. and Richard FitzGerald effective April 12, 1999
27.1 -- Financial Data Schedule - Universal Compression Holdings, Inc.
27.2 -- Financial Data Schedule - Universal Compression, Inc.
</TABLE>
<PAGE> 1
Exhibit 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") dated as of October 29, 1999,
but effective as of April 12, 1999, between Universal Compression, Inc., a Texas
corporation (the "Company") and RICHARD W. FITZGERALD (the "Executive").
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 April 12, 1999, for itself and its affiliates, to render
exclusive and full-time services to the Company. The Executive will serve in the
capacity of Senior Vice President - Chief Financial Officer 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 as may be
assigned to him from time to time by the Company's Board of Directors or
President. The Executive will devote all his full working-time and attention to
the performance of such duties and to the promotion of the business and
interests of the Company. This provision, however, will not prevent the
Executive from investing his 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.
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 - Chief Financial Officer of Holdings, the Company's parent company.
1
<PAGE> 2
2. Duration of Employment.
This Agreement and the employment relationship
hereunder will continue in effect for three (3) years from April 12, 1999
through the third anniversary date thereof. It may be extended by mutual,
written agreement at any time. 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 second 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 FIFTY THOUSAND DOLLARS
($150,000), payable in equal semi-monthly installments of $6,250. The Board of
Directors in its sole discretion may increase but not reduce the Base Salary
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"). Such award or formula shall be based
upon the Company's results in relation to budget.
3.3 Grant of Stock Option. (a) The Company has
heretofore granted an option ("Option") to Executive entitling Executive to
purchase from Holdings 2,206 shares of Holdings Common Stock at an exercise
price of $50 per share.
2
<PAGE> 3
(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 granted to the Executive
referred to in 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 paid
vacation and all customary holidays each year during the term of this Agreement
in accordance with the Company's policies as the same may be established from
time to time. 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.
3
<PAGE> 4
4. [INTENTIONALLY OMITTED]
5. Purchase Rights. In consideration, in part, for
Executive's agreement hereunder to be employed by the Company, Holdings hereby
grants the Executive the right on or prior to January 31, 2000 to purchase
shares of Holdings Series A 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 60
days after the death of the Executive at a price based upon a formula to be
agreed upon within 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
4
<PAGE> 5
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 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 his 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 his duties with the Company (other
than any such failure resulting from his incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board of Directors, which demand specifically identifies the
manner in which the Executive is believed not to have substantially performed
his 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 his 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 his counsel, to be heard
5
<PAGE> 6
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.
6.4 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 two 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 number of
years, including fractional years, remaining until this Agreement would expire
but for such termination (in any event however, the period shall be not less
than two years nor more than the number of years, including the fractional
years, from the date of such termination until the Executive's attainment of age
65) multiplied by the sum of (A) the Executive's Base Salary rate 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.
6
<PAGE> 7
(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 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 length of the period for which severance
benefits are provided after any termination 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
7
<PAGE> 8
(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 Executive shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information relating to
the Company
8
<PAGE> 9
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 (x) a a four-year period following the termination of the Executive's
employment for any reason other than a termination by the Company without Cause
and, (y) a two-year period following the termination of the Executive's
employment by the Company without Cause, (the "Restriction Period"), 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
9
<PAGE> 10
(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
10
<PAGE> 11
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
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
Houston, Texas 7041-8004
Attention: General Counsel
With copies to:
Castle Harlan, Inc.
150 E. 58th Street
New York, New York 10155
Attention: Jeffrey M. Siegal
Schulte, Roth & Zabel, L.L.P.
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
(b) If the Executive, to his 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.
11
<PAGE> 12
10.5 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of Delaware.
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
12
<PAGE> 13
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
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 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
13
<PAGE> 14
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/ RICHARD W. FITZGERALD
--------------------------
Richard W. FitzGerald
UNIVERSAL COMPRESSION, INC.
By: /s/ STEPHEN A. SNIDER
---------------------
Stephen A. Snider
President and Chief Executive Officer
14
<PAGE> 1
EXHIBIT 10.2
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, executed and effective this 12th day of
April, 1999, by and between UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware
corporation ("Holdings") and RICHARD FITZGERALD (the "Employee"), who is an
Employee of Universal Compression, Inc. ("Universal"), a wholly owned and
subsidiary of Holdings.
WHEREAS, Holdings has agreed to grant to the Employee 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 Universal; 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. GRANT OF OPTION. Holdings hereby grants to the Employee an option
(the "Option") to purchase 2,206 shares of Common Stock at $50 per share. This
Option shall become effective on the effective date of this Agreement as set
forth above ("Date of Grant") and unless sooner terminated under the provisions
hereof, shall expire at 12:00 midnight on April 11, 2009 (the "Expiration
Date"). This Option is granted under Holdings' Incentive Stock Option Plan (the
"Plan"), a copy of which is attached hereto as Exhibit "A" and is incorporated
herein by reference, 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.
2. OPTION TERMS AND CONDITIONS.
(a) Exercise of Option. The Option shall become exercisable in
accordance with the following schedule:
Date Aggregate Amount Exercisable
April 12, 2000 33 1/3%
April 12, 2001 66 2/3%
April 12, 2002 100%
Notwithstanding the foregoing, Options shall become immediately
exercisable upon: (i) a public offering of Common Stock of the Corporation; (ii)
the acquisition by any Person other than an affiliate of Castle Harlan Partners
III, L.P.(as defined in the Plan), of fifty one percent (51%) or more of the
Common Stock of the Corporation; or (iii) a sale of all or substantially all of
the assets of the Corporation.
(b) Termination of Employment.
(i) Termination due to Death, Disability of Retirement. In
the event the Employee's employment with Universal terminates on account of
death, Disability (as defined in the Plan) or retirement after age 65, the
Option shall terminate as of the date of Employee's termination of employment,
except for the portion of the Option which is exercisable as of the date of
termination of employment, which shall terminate unless exercised by Employee
within three months following the date of Employee's death, disability or
retirement after age 65.
1
<PAGE> 2
(ii) Termination of Employment Without Cause. In the event the
Employee's employment with Universal shall terminate without cause, the Option
shall terminate as of the date of Employee's termination of employment except
for the portion of the Option which is exercisable as of the date of termination
of employment, which shall terminate unless exercised by Employee within 30 days
following the date of such termination of employment.
(iii) Termination of Employment for Cause. In the event the
Employee's employment with Universal shall terminate for Cause (as defined in
the Plan), the Option, whether or not exercisable as of the date of termination
of employment, shall terminate in its entirety on the date of termination.
3. NON-TRANSFERABILITY. No Option granted hereby and no right arising
thereunder shall be transferable other than by will or by the laws of descent
and distribution. During the lifetime of the Employee, the Option shall be
exercisable only by the Employee. If the Option is exercisable at the date of
the Employee's death and is transferred by will or by the laws of descent and
distribution, the Option shall be exercisable in accordance with the terms of
such Option by the executor or administrator, as the case may be, of the
Employee's estate for a period of three (3) months after the date of the
Employee's death and shall then terminate.
4. 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 Employee, such aggregate
Exercise Price may be paid: (i) in cash; (ii) with the consent of the Board of
Directors of Holdings (the "Board"), which consent may be given or withheld in
its sole discretion, 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 Employee having a Fair Market Value (as
determined by Section 5 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 Fair Market Value of one share of Common Stock on the
date of exercise;
provided, however, that clauses (iii) and (v) shall be inapplicable if no Fair
Market Value is applicable under clause (iv) of Section 5.
5. FAIR MARKET VALUE OF COMMON STOCK. The "Fair Market Value" of the
Common Stock on any day shall be determined by the Holdings Board as follows:
(i) if the Common Stock is listed on a national securities exchange or quoted
through the NASDAQ National Market System, the Fair Market Value on any day
shall be the average of
2
<PAGE> 3
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 Fair Market Value 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 Fair Market Value 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 Fair Market Value as may be determined by the Board
or the Administrator of the Plan, there being no obligation to make such
determination.
6. STOCK CERTIFICATES. 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, AS MAY BE AMENDED, WHICH CONTAINS PROVISIONS 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."
In the event that the shares of Common Stock issued pursuant to the
Option are (i) registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to an effective registration statement which
complies with the then applicable regulations, rules and procedures and
practices of the Securities and Exchange Commission, and are registered and/or
qualified in accordance with any applicable state laws, regulations, rules and
administrative procedures practices, or (ii) transferred pursuant to an
exemption from registration under the Securities Act and, at the request of
Holdings, Holdings has received an executed legal opinion, satisfactory to its
counsel, as to the availability of and compliance with such exemption and that
such shares need not bear the restrictive legend stating that such shares have
not been registered under the Securities Act, Holdings may issue new
certificates representing such shares omitting that portion of such restrictive
legend.
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 February 20, 1998, among Holdings and the partners named
on the signature pages thereto, as amended from time to time (the "Stockholders
Agreement"). At the request of Holdings, the Employee shall become a party to
the Stockholders Agreement prior to the issuance of any shares under this
Agreement.
7. 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
3
<PAGE> 4
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 Employee, 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 Employee (or any person acting under
Section 3 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 Employee or such other
person to purchase any shares.
8. ANTI-DILUTION ADJUSTMENTS. In the event of any change in the Common
Stock by reason of any stock dividend, stock split, recapitalization, merger,
consolidation, combination or exchange of shares, separation, spin-off,
reorganization, liquidation, 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 Administrator of the Plan may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
the Employee.
9. BUYBACK RIGHT. Upon any termination of the employment of the
Employee prior to a public offering of Common Stock, Holdings or its designee
may at its option purchase all Common Stock acquired upon any exercise of the
Option then held by the Employee for a purchase price equal to the determined
value of such stock at the time of purchase. For purposes of this Section 9,
"determined value" shall mean the determined value of the shares of Common Stock
being purchased by Holdings pursuant to this Section 9, such value to be
determined annually as of March 31 of each year by a nationally recognized
investment banking or appraisal firm selected by Holdings. This valuation will
serve as the determined value for the shares until the next valuation unless the
Board determines that a significant change in Holdings performance or prospects
requires a revaluation of the shares.
The purchase by Holdings pursuant to this Section 9 shall be paid for in
cash, to the extent permitted under the loan agreements and debt instruments
relating to Holdings or any of its subsidiaries, or, to the extent cash payments
are not permitted thereunder, by means of a subordinated payment-in-kind
promissory note issued by Holdings bearing interest, payable annually, at the
lowest interest rate required to avoid imputed interest, which note shall be
repaid as soon as permitted.
10. NO RIGHTS AS STOCKHOLDER 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 Employee is recorded
as the holder of such shares on the records of Holdings.
11. NO RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Neither the
grant of the Option nor any action taken with respect thereto shall be construed
as giving the Employee the right to be retained in the employ of Universal or
any subsidiary or affiliate, nor shall it interfere in any way with the
right of Universal or any such subsidiary or affiliate to terminate any
Employees's employment at any time for any reason, or for no reason at all.
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)
4
<PAGE> 5
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 Employee; or (iii) requiring
the Employee, his beneficiary or his legal representative to pay 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 the State of Delaware applicable to contract made
and to be performed entirely within such state.
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.
15. NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telecopied with confirmed receipt, sent by certified, registered, or express
mail, postage prepaid, or sent by a national next-day delivery service to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice, and shall be deemed given when so
delivered personally or telecopied, or if mailed, 2 days after the date of
mailing, or, if by national next-day delivery service, on the day after delivery
to such service as follows:
(i) if to Holdings, at:
Universal Compression Holdings, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004
Attention: Ernie Danner
Telecopier No.: (713) 466-6720
with a copy to:
Universal Compression, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004
Attention: Valerie L. Banner
Telecopier No.: (713) 466-6720
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
5
<PAGE> 6
(ii) if to Employee, to him or her at:
Universal Compression, Inc.
4440 Brittmoore
Houston, Texas 77041-8004
16. HEADINGS. The headings, in this Agreement are for convenience of
reference only and shall not in any manner define or limit the scope or intent
of any provisions of this Agreement.
17. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement, or any part thereof, is held by a court of competent
jurisdiction or 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, impaired
or invalidated.
18. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party would be irreparably harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto shall and do hereby
waive the defense in any action for specific performance that a remedy at law
would be adequate and that the parties hereto, in addition to any other remedy
to which they may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement in any action instituted in the Supreme
Court of the State of New York or the United States District Court for the
Southern District of New York, or, in the event such courts shall not have
jurisdiction of such action, in any court of the United States or any state
thereof having subject matter jurisdiction of such action.
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.
EMPLOYEE
By: /s/ RICHARD FITZGERALD
------------------------------
Richard FitzGerald
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ STEPHEN A. SNIDER
------------------------------
Stephen A. Snider
President and
Chief Executive Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0001057234
<NAME> UNIVERSAL COMPRESSION HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,627
<SECURITIES> 0
<RECEIVABLES> 15,757
<ALLOWANCES> 253
<INVENTORY> 10,275
<CURRENT-ASSETS> 30,412
<PP&E> 355,707
<DEPRECIATION> 31,736
<TOTAL-ASSETS> 462,664
<CURRENT-LIABILITIES> 16,733
<BONDS> 367,184
0
13
<COMMON> 3
<OTHER-SE> 76,640
<TOTAL-LIABILITY-AND-EQUITY> 462,664
<SALES> 30,223
<TOTAL-REVENUES> 102,525
<CGS> 25,650
<TOTAL-COSTS> 51,803
<OTHER-EXPENSES> 56,615
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 25,278
<INCOME-PRETAX> (5,893)
<INCOME-TAX> (1,801)
<INCOME-CONTINUING> (4,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,092)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057233
<NAME> UNIVERSAL COMPRESSION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,627
<SECURITIES> 0
<RECEIVABLES> 15,757
<ALLOWANCES> 253
<INVENTORY> 10,275
<CURRENT-ASSETS> 30,369
<PP&E> 355,707
<DEPRECIATION> 31,736
<TOTAL-ASSETS> 461,210
<CURRENT-LIABILITIES> 19,082
<BONDS> 336,392
0
0
<COMMON> 49
<OTHER-SE> 102,737
<TOTAL-LIABILITY-AND-EQUITY> 461,210
<SALES> 30,223
<TOTAL-REVENUES> 102,525
<CGS> 25,650
<TOTAL-COSTS> 51,803
<OTHER-EXPENSES> 54,082
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 22,750
<INCOME-PRETAX> (3,360)
<INCOME-TAX> (838)
<INCOME-CONTINUING> (2,522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,522)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
