<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ________ to ________
Commission File Number 333-48283
UNIVERSAL COMPRESSION HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989167
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
4430 BRITTMOORE ROAD
HOUSTON, TX 77041
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 713-466-4103
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] [No]
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1998 1998
- -------- --------------- ---------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,382 $ (196)
Accounts receivable, net 11,662 16,617
Inventories 8,678 17,516
Deferred tax assets 67 67
Other 3,121 1,716
--------------- ---------------
Total current assets 25,910 35,720
Property, plant and equipment
Rental equipment 237,795 248,487
Other 14,611 15,810
Less: accumulated depreciation (1,366) (9,443)
--------------- ---------------
Net property, plant, and equipment 251,040 254,854
Goodwill, net of amortization 93,550 92,379
Other assets, net 9,726 8,868
--------------- ---------------
Total assets $ 380,226 $ 391,821
=============== ===============
</TABLE>
See accompanying notes to unaudited financial statements
2
<PAGE> 3
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
--------------- ---------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities 11,278 $ 10,893
Current portion of long-term debt 750 750
--------------- ---------------
Total current liabilities 12,028 11,643
Deferred income taxes 406 406
Long-term debt 286,112 298,442
--------------- ---------------
Total liabilities 298,546 310,491
Stockholders' equity:
Series A preferred stock, $.01 par value,
5,000,000 shares authorized, 1,300,000
issued and outstanding and $50-per-share
liquidation value 13 13
Common stock, $.01 par value, 1,000,000 shares
authorized and 325,000 shares issued and
outstanding 3 3
Additional paid-in capital 81,234 $ 81,234
Retained earnings 430 80
--------------- ---------------
Total common stockholders' equity 81,680 81,330
--------------- ---------------
Total liabilities and equity $ 380,226 $ 391,821
=============== ===============
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE> 4
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Predecessor Predecessor
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1998 30, 1997 30, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 21,524 $ 21,677 $ 40,894 $ 43,442
Sales 6,617 11,107 13,628 18,979
------------ ------------ ------------ ------------
Total revenue 28,141 32,784 54,522 62,421
Costs and expenses
Rentals, exclusive of depreciation
and amortization 9,206 7,972 17,817 15,969
Cost of sales, exclusive of depreciation
and amortization 4,702 8,838 9,257 15,524
Depreciation and amortization 6,529 4,803 13,083 9,325
General and administrative 2,443 4,216 4,952 8,024
Interest expense 1 7,158 3 14,141
------------ ------------ ------------ ------------
Total costs and exp 22,881 32,987 45,112 62,983
------------ ------------ ------------ ------------
Income (loss) before income taxes 5,260 (203) 9,410 (562)
Income taxes 1,936 (80) 3,463 (212)
------------ ------------ ------------ ------------
Net income (loss) $ 3,324 $ (123) $ 5,947 $ (350)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE> 5
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,947 $ (350)
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 13,083 9,325
Amortization of debt issuance costs 0 582
Accretion of discount notes 0 8,904
Change in assets and liabilities (3,980) (11,450)
------------ ------------
Net cash provided by operating activities 15,050 7,011
Cash flows from investing activities:
Additions to property, plant, and equipment, net (5,101) (13,014)
------------ ------------
Net cash used in investing activities (5,101) (13,014)
Cash flows from financing activities:
Principal repayments of long-term debt 0 (376)
Net borrowing on line of credit 0 3,800
Intercompany payable (10,508) 0
------------ ------------
Net cash used in and provided by financing activities (10,508) 3,424
Increase (decrease) in cash (559) (2,579)
Cash at beginning of period 0 2,383
------------ ------------
Cash at end of period $ (559) $ (196)
============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
Universal Compression Holdings, Inc. (the "Company") was formed on December 12,
1997 for the purpose of acquiring Tidewater Compression Services, Inc. ("TCS")
from Tidewater Inc. (Tidewater"). The Company formed an acquisition subsidiary
("Acquisition Corp.") which acquired 100% of the voting securities of TCS.
Immediately following the acquisition (the "Acquisition"), Acquisition Corp. was
merged with and into TCS, which changed its name to Universal Compression, Inc.
The Company is a holding company which conducts is operations through its wholly
owned subsidiary, Universal Compression, Inc. ("Universal"). These financial
statements should be read in conjunction with the financial statements presented
in the Company's most recent annual report as of March 31, 1998. That report
contains a more comprehensive summary of the Company's major accounting
policies. In the opinion of management, the accompanying unaudited financial
statements contain all appropriate adjustments, all of which are normally
recurring adjustments unless otherwise noted, considered necessary to present
fairly its financial position, results of operation and cash flows for the
respective periods. Operating results for the three-and six-month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1999.
The Company is a leading provider of natural gas compressor rental, maintenance
and operations services to the domestic oil and gas industry, owning the second
largest domestic gas compressor fleet, and has a growing presence in key
international markets, including Argentina, Venezuela, Colombia, and the Pacific
Rim. The Company has a broad base of over 500 customers and its 525,000
horsepower ("HP") gas compression rental fleet is comprised of over 2,700 units.
Founded in 1954, Universal is the only compression rental company with an
operating presence in all active domestic gas compression markets. As a
complement to its rental operations, the Company designs and fabricates
compression units for its own fleet as well as for its global customer base.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, Report Comprehensive Income ("SFAS 130").
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosures of certain financial information that historically has not
been recognized in the presentation of net income. SFAS 130 requires the
reporting of comprehensive income in addition to net income from operations.
SFAS 130 is effective for periods beginning after December 15, 1997. At
September 31, 1998, the Company had no items of comprehensive income, and as a
result believes that the adoption of SFAS 130 will have no impact upon
implementation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 requires that companies report in their
financial statements financial and descriptive information about reportable
operating segments defined by reference to the way in which management reviews
its operations in order to assess performance and allocate resources. Management
is evaluating what, if any, additional disclosures may be required upon
implementation of SFAS 131.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March, 1998 September, 1998
--------------- ---------------
<S> <C> <C>
Work-in-progress $ 3,199 $ 11,959
Finished goods 5,479 5,557
--------------- ---------------
$ 8,678 $ 17,516
=============== ===============
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Set forth below is a discussion of the results of operations for the three- and
six-month periods ended September 30, 1998 as compared to the corresponding
period of the previous year. The results for the three- and six-month periods
ended September, 1997 are the results of the predecessor , TCS.
THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the quarter ended September, 1998 increased $4.6
million, or 16%, to $32.8 million compared to $28.2 million for the quarter
ended September, 1997 due to increases in both rental revenue and revenue from
fabrication and equipment sales. Rental revenue increased 1% to $21.7 million.
The increase in rental revenue was due to a 6% increase in utilized horsepower
while average rental pricing declined 1%. Additionally the company increased the
amount of HP rented in international markets by 27% through additional service
in Argentina. Revenue from fabrication and sales increased to $11.1 million from
$6.6 million, an increase of 67%, due to a relatively higher level of
fabrication activity.
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the quarter ended September
30, 1998 increased $1.7 million , or 12%, to $16.0 million from gross margin of
$14.3 million for the quarter ended September 30, 1997. The increase was due to
higher utilization and the resulting operating efficiencies related to the
rental fleet and the increased capitalization of overhaul expenses of $1.3
million. The rental gross margin for the quarter ended September 30, 1998
increased $1.4 million, or 11%, to $13.7 million compared to gross margin of
$12.3 million for the quarter ended September 30, 1997 due to the aforementioned
factors regarding utilization of the rental fleet and the capitalization of
overhaul expenses.
General and Administrative Expenses. General and administrative
expenses for the quarter ended September 30, 1998 increased $1.8 million
compared to the quarter ended September 30, 1997. The increase was due to the
management fee payable to Castle Harlan and increased sales and engineering
expense in the quarter ended September 30, 1998 as the Company added the
additional sales and engineering personnel necessary to manage and rent a larger
rental fleet.
Net loss. Primarily as a result of increased interest expense of $7.1
million related to the indebtedness incurred in the Acquisition, reduced income
taxes, and the factors discussed above, the Company had a net loss of $0.1
million for the quarter ended September 30, 1998 compared net income of $3.3
million for the quarter ended September 30, 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the six months ended September, 1998 increased
$7.9 million, or 14%, to $62.4 million compared to $54.5 million for the six
months ended September, 1997 due to increases in both rental revenue and revenue
from fabrication and equipment sales. Rental revenue increased 6% to $43.4
million. The increase in rental revenue was principally due to a 7% increase in
utilized horsepower while average rental pricing remained unchanged.
7
<PAGE> 8
Additionally the company increased the amount of HP rented in international
markets by 33% through additional service in Argentina. Revenue from fabrication
and sales increased to $19.0 million from $13.6 million, an increase of 39%, due
to a much higher level of fabrication activity in the most recent quarter.
Gross Margin. Gross margin (defined as total revenue less (i) rental
expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii)
gain on asset sales and (iv) interest income) for the six months ended September
30, 1998 increased $3.5 million , or 13%, to $30.9 million from gross margin of
$27.4 million for the six months ended September 30, 1997. The increase was due
to higher utilization and the resulting operating efficiencies related to the
rental fleet, the increased capitalization of overhaul expenses of $2.5 million,
and increased fabrication activity. The rental gross margin for the six months
ended September 30, 1998 increased $4.4 million, or 19%, to $27.5 million
compared to gross margin of $23.1 million for the six months ended September 30,
1997 due to the aforementioned factors regarding utilization of the rental fleet
and the capitalization of overhaul expenses.
General and Administrative Expenses. General and administrative
expenses for the six months ended September 30, 1998 increased $3.1 million
compared to the six months ended September 30, 1997. The increase was due to the
management fee payable to Castle Harlan and increased sales and engineering
expense in the six months ended September 30, 1998 as the Company incurred
additional sales and engineering costs necessary to manage and rent a larger
rental fleet and increased fabrication activities.
Net loss. Primarily as a result of increased interest expense of $14.1
million related to the indebtedness incurred in the Acquisition, reduced income
taxes, and the factors discussed above, the Company had a net loss of $.3
million for the six months ended September 30, 1998 compared net income of $5.9
million for the six months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended September 30, the Company generated cash flow from
operations of $7.0 million. The Company used this cash flow together with
borrowings of $3.4 under established lines of credit and cash on hand of $2.4
million to expend $13.0 million on equipment for its rental operations. During
the six months ended September 30, 1998 the Company had a sharp increase in its
fabrication activities and as a result has increased its use of working capital
for work-in-progress by $8.8 million.
The Company expects to expend approximately $50 million on capital projects
during fiscal 1999. Approximately $21 million is included for expansion of its
domestic rental fleet, $15 million is for additional expansion into
international markets, $10 million is for maintaining and updating the existing
fleet, with the balance of $4 million being for the expansion of the fabrication
shop in Houston and for new vehicles for service technicians and other capital
projects.
The Company anticipates that internally generated cash flow coupled with
availability under its established credit facilities will be sufficient to fund
domestic and international operations, capital investments, and its obligations
to its creditors. The Company's ability to borrow additional funds is limited by
its debt obligations.
IMPACT OF THE YEAR 2000
The Company has assessed its internal information and operating systems in order
to develop a comprehensive strategy to address the computer software and
hardware changes and facility upgrades that are required to remedy Year 2000
related deficiencies inherent in those systems. Generally, the Company is in the
process of installing various modifications to existing computer systems to
accommodate the problems associated with the Year 2000, and anticipates
completing Year 2000 modifications, and replacements and testing by mid-1999.
The aggregate cost of such modifications is estimated to be approximately
$100,000. The Company has evaluated its embedded technology systems in respect
of the Year 2000 problem, and believes that a failure, if any, of such systems
would not significantly impact operations.
8
<PAGE> 9
The Company has not conducted an assessment of Year 2000-related problems
originating with third parties outside the Company's control, including the
third parties with which the Company has a material relationship. However, the
Company has no significant supplier or customer that directly interfaces with
the Company's information technology systems. There is no assurance that the
computer systems of the suppliers and customers on which the Company relies will
be converted timely and will not have a material adverse effect on the Company.
The Company believes that its most reasonably likely worst case Year 2000
scenario would include these elements: (a) one or more of the Company's third
party providers will be unable to provide the supplies expected and (b) one or
more parts of the Company's internal systems will operate incorrectly. The
Company believes that the testing and replacement of its critical systems are
minimizing the uncertainties associated with a failure of its systems, which
will reveal any significant Year 2000 problems. Such problems will be capable of
remediation so that the Company's systems will perform substantially as planned
when Year 2000 processing begins. In the event of a systems failure, the Company
believes it is equipped to switch to manual processes until such failure is
remedied, without significantly impacting operations.
FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical facts, including
without limitation statements regarding the sufficiency of available cash flows
to fund its continuing operations, capital improvements and research and
development, and the expected amount of capital expenditures for the fiscal year
may be regarded as "forward looking statements" within the meaning of the
Securities Litigation Reform Act. Such forward looking statements are subject to
the impact of risks and uncertainties that could cause actual results to differ
materially from results expressed or implied in such forward looking statements.
The risks and uncertainties include, but are not limited to (1) conditions in
the oil and gas industry including the price of oil and natural gas and the
demand for natural gas, (2) competition among the various providers of contract
compression services, (3) changes in safety and environmental regulations
pertaining to the production and transportation of natural gas, and (4) changes
in economic or political conditions in the international markets in which the
Company competes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a. (1) Consent to Action by Majority Stockholders (the "August Consent")
Date of Consent: August 18, 1998
(2) Consent to Action by Majority Stockholders (the "September
Consent")
Date of Consent: September 18, 1998
b. Not applicable.
c. Matters Consent Upon:
(1) August Consent: Amendment to the Company's Restated Certificate
of Incorporation to create a class of non-voting common stock
Common Stock
Votes For: 195,000
Votes Against: --
Non-Votes: 130,000
(2) September Consent: Amendment to the Company's Restated
Certificate of Incorporation to change certain powers,
privileges, preferences and rights of the Company's
preferred stock
Common Stock Preferred Stock
Votes For: 195,000 780,000
Votes Against: -- --
Non-Votes: 130,000 520,000
d. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10 UNIVERSAL COMPRESSION HOLDINGS, INC.
INCENTIVE STOCK OPTION PLAN
27 FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month period
ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIVERSAL COMPRESSION HOLDINGS, INC.
Date: November , 1998 By: /s/ ERNIE L. DANNER
--------------------------- -----------------------------
Ernie L. Danner,
Executive Vice President
and Chief Financial Officer
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
10 UNIVERSAL COMPRESSION HOLDINGS, INC.
INCENTIVE STOCK OPTION PLAN
27 FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 10
UNIVERSAL COMPRESSION HOLDINGS, INC.
INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Universal Compression Holdings, Inc.
Incentive Stock Option Plan is to motivate and retain key executive employees of
Universal Compression Holdings, Inc. and its majority-owned subsidiaries who are
responsible for the attainment of the primary long-term performance goals of
Universal Compression Holdings, Inc.
2. Definitions. When used herein, the following terms shall have the
following meanings:
"Administrator" means the Board, or a committee of the Board, duly
appointed to administer the Plan.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to (a) vote fifty-one
percent (51%) or more of the securities having ordinary voting power for the
election of directors of such corporation, or (b) direct or cause the direction
of the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.
"Board" means the Board of Directors of the Corporation.
"Cause" means, with respect to a Participant, a finding by the
Administrator based upon reasonable evidence that the Participant engaged in (a)
any criminal act, (b) any misconduct (including, but not limited to, a positive
illegal drug test result) which is inconsistent with his or her employment
responsibilities or any contractual relationship, if any, with the Corporation
or any subsidiary thereof, (c) any nonperformance of his or her duties, (d) any
acts of insubordination, or (e) any acts of dishonesty .
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means Common Stock ($0.01 par value) of the Corporation.
"Corporation" means Universal Compression Holdings, Inc., a Delaware
corporation.
"Disability" means, with respect to a Participant, a determination by
the Administrator that such Participant was unable to perform his or her job,
including after reasonable accommodation by the Corporation, for three
consecutive months or for any 120 days in a 360-day period.
"Fair Market Value" means, as of any date, the value per share of the
Common Stock as determined by the Administrator in accordance with applicable
regulations issued under the Code. Notwithstanding the foregoing, Fair Market
Value on any day shall be determined as
<PAGE> 2
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 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, there being no obligation to make such
determination.
"Fully-Diluted Basis" means, without duplication, (a) all shares of
Common Stock outstanding at the time of determination, (b) all shares of Common
Stock issuable upon the exercise of any option, warrant or similar right
outstanding at the time of determination, whether or not currently exercisable,
and (c) all shares of Common Stock issuable upon the exercise of any conversion
or exchange right contained in any security convertible into or exchangeable for
shares of Common Stock.
"Grant Date" means the effective date of grant of any Option, which
effective date shall be determined in the sole discretion of the Administrator.
"Incentive Stock Option" means a right granted under the Plan to a
Participant to purchase a stated number of shares of Common Stock meeting the
requirements of Section 422 of the Code.
"Non-qualified Stock Option" means a right granted under the Plan to a
Participant to purchase a stated number of shares of Common Stock other than as
an Incentive Stock Option.
"Option" means Incentive Stock Options and Non-qualified Stock Options.
"Participant" means a key employee of the Corporation or a Subsidiary
who is selected to participate in the Plan in accordance with Section 4.
"Person" means any individual, partnership, firm, trust, corporation or
other similar entity. When two or more Persons act as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding or
disposing of securities of the Corporation, such partnership, limited
partnership, syndicate or group shall be deemed a "Person".
"Plan" means the Universal Compression Holdings, Inc. Incentive Stock
Option Plan, as amended from time to time.
"Stockholders Agreement" means the Stockholders Agreement, dated as of
February 20, 1998, among the Corporation and the parties named on the signature
pages thereto, as the same may be amended from time to time.
<PAGE> 3
"Subsidiary" means, with respect to any Person, any other Person
directly or indirectly controlled by, or under direct or indirect common control
with, such Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power (i) to vote fifty percent
(50%) or more of the securities having ordinary voting power for the election of
directors of such corporation, or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
3. Administration. The Plan shall be administered by the Administrator.
Subject to the provisions of the Plan, the Administrator shall have the
authority to:
(a) select the Participants;
(b) designate Options as Incentive Stock Options or Non-qualified Stock
Options;
(c) determine the number of shares of Common Stock to be optioned to
each Participant; and
(d) establish from time to time rules and regulations for the
administration of the Plan, interpret the Plan, delegate in writing
administrative matters to committees of the Board or to other
persons, and make such other determinations and take such other
action as it deems necessary or advisable for the administration of
the Plan.
All actions taken and interpretations and determinations made by the
Administrator in good faith shall be final and binding upon all parties.
4. Participation. Participants in the Plan shall be limited to those
key employees of the Corporation and its Subsidiaries who have been notified in
writing by the Administrator that they have been selected to participate in the
Plan. A member of the Board who is not an employee of the Corporation shall not
be eligible to participate in the Plan and shall not be eligible for the grant
of an Option.
5. Shares Subject to the Plan. Options may be granted under the Plan by
the Administrator to Participants from time to time. The shares issued upon the
exercise of Options granted under the Plan may be authorized and unissued
shares, shares held in the treasury of the Corporation, or, if available, shares
repurchased by the Corporation (at such time or times and in such manner as it
may determine). If any Option granted under the Plan shall be canceled or
expire, without the exercise thereof, new Options may thereafter be granted
covering such shares.
6. Maximum Shares Available. The maximum aggregate number of shares
available to be granted under the Plan is twelve percent (12%) of the
outstanding stock of the Corporation on a Fully-Diluted Basis, which is equal to
42,738 shares of Common Stock, and such shares shall be reserved for Options
granted under the Plan (subject to adjustment as provided in Section 10(h)).
<PAGE> 4
7. Grant of Options. Options may be granted under the Plan to
Participants for the purchase of shares of Common Stock, provided, however, that
no Incentive Stock Option may be granted more than ten (10) years after the date
the Plan is adopted or the date the Plan is approved by the Corporation's
shareholders, whichever is earlier. Options shall be granted in such form and
upon such terms and conditions as the Administrator shall determine from time to
time.
8. Designation as Non-qualified Stock Option or Incentive Stock Option.
In connection with any grant of Options, the Administrator shall designate in
the written agreement required pursuant to Section 10 hereof whether the Options
granted shall be Incentive Stock Options or Non-qualified Stock Options, or in
the case both are granted, the number of such shares that shall be Incentive
Stock Options and the number of such shares that shall be Non-qualified Stock
Options.
9. Limitation on Amount of Incentive Stock Options. In the case of
Incentive Stock Options, the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any optionee during any calendar year
shall not exceed $100,000.
10. Terms and Conditions of Options. Each Option granted under the Plan
shall be evidenced by a written agreement, in form approved by the Administrator
and executed by the Corporation, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the Administrator
may deem appropriate:
(a) Option Term. The term of each Option granted hereunder shall be
determined by the Administrator, provided, however, that,
notwithstanding any other provision of the Plan, in no event shall
an Option be exercisable after ten (10) years from the Grant Date.
Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to an employee owning (actually or constructively
under Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Corporation or of a Subsidiary (a "10% Stockholder"),
the Option shall not be exercisable after five (5) years from the
Grant Date.
(b) Option Price. The purchase price per share under each Option shall
be the Fair Market Value of the outstanding shares as of the Grant
Date. In the case of an Incentive Stock Option granted to a 10%
Stockholder, the option price shall not be less than one hundred
and ten percent (110%) of the Fair Market Value of the Common Stock
on the Grant Date.
(c) Exercise of Option. Unless otherwise set forth in the written
agreement evidencing the Option, each Option shall become
exercisable in accordance with the following schedule:
<PAGE> 5
<TABLE>
<CAPTION>
Years from Grant Date Amount Exercisable
<S> <C>
1 year 33 1/3%
2 years 33 1/3%
3 years 33 1/3%
</TABLE>
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., 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.
(d) Payment of Option Price Upon Exercise. The purchase price of
the shares of Common Stock as to which an Option shall be exercised
shall be paid to the Corporation at the time of exercise: (i) in
cash; (ii) with the consent of the Board, by delivery of a
promissory note to the Corporation 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 Participant having a Fair
Market Value (as defined and determined by Section 2 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 the
definition of "Fair Market Value" contained in Section 2 hereof.
<PAGE> 6
(e) Termination of Employment. Unless otherwise set forth in the
written agreement evidencing the Option, (i) in the event the
employment of a Participant terminates on account of death,
Disability or retirement after age 65, (A) the Options that have
been granted to such Participant and that are exercisable as of the
date of the Participant's termination of employment may be
exercised by such Participant, or his representative, within three
(3) months after termination of employment and shall then
terminate, and (B) the Options that have been granted to such
Participant and that are not exercisable as of the date of the
Participant's termination of employment shall terminate as of such
date; (ii) in the event the employment of a Participant terminates
for Cause, the Options granted to such Participant, whether or not
exercisable as of the date of the Participant's termination of
employment, shall terminate on the date of termination; and (iii)
in the event the employment of a Participant terminates for any
reason other than death, Disability, retirement after age 65 or for
Cause, (A) the Options that have been granted to such Participant
and that are exercisable as of the date of the Participant's
termination of employment may be exercised by such Participant, or
his representative, within thirty (30) days after termination of
employment and shall then terminate, and (B) the Options that have
been granted to such Participant and that are not exercisable as of
the date of the Participant's termination of employment shall
terminate as of such date.
(f) Transferability of Options. No Option granted under the Plan
and no right arising under such Option shall be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of the optionee, an Option shall be exercisable only by
him. Any Option exercisable at the date of the Participant's death
and transferred by will or by the laws of descent and distribution
shall be exercisable in accordance with the terms of such Option by
the executor or administrator, as the case may be, of the
Participant's estate for a period of three (3) months after the
date of the Participant's death and shall then terminate.
(g) Investment Representation. Each option agreement may contain an
undertaking that, upon demand by the Board for such a
representation, the optionee (or any person acting under Section
10(f)) shall deliver to the Board at the time of any exercise of an
Option a written representation that the shares to be acquired upon
such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof. Upon such demand,
delivery of such representation prior to the delivery of any shares
issued upon exercise of an Option shall be a condition precedent to
the right of the optionee or such other person to purchase any
shares.
(h) Adjustments in Event of Change in Common Stock. Notwithstanding
any other provision of the Plan, the Administrator may: (i) at any
time, make or provide for such adjustments to the Plan or to the
number and class of shares available thereunder or (ii) at the time
of grant of any Option,
<PAGE> 7
provide for such adjustments to such Option, in each case, as the
Administrator shall deem appropriate to prevent dilution or
enlargement of rights, including, without limitation, adjustments
in the event of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of shares,
separations, spin-offs, reorganizations, liquidations and the like.
(i) Optionees to Have No Rights as Stockholders. No optionee shall
have any rights as a stockholder with respect to any shares subject
to his Option prior to the date on which he is recorded as the
holder of such shares on the records of the Corporation.
(j) Plan and Option Not to Confer Rights with Respect to
Continuance of Employment. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee the right to
be retained in the employ of the Corporation or a Subsidiary, nor
shall it interfere in any way with the right of the Corporation or
a Subsidiary to terminate any Participant's employment at any time
for any reason, or for no reason at all, except as may be provided
in a written employment contract between the Corporation and such
employee.
(k) Stock Certificates. All stock certificates representing shares
of Common Stock acquired pursuant to the exercise of an Option that
are issued by the Corporation 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
<PAGE> 8
complies with the then applicable regulations, rules and procedures
and practices of the Securities and Exchange Commission, and are
registered and 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 Corporation, the
Corporation 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, the Corporation may issue new certificates
representing such shares omitting that portion of such restrictive
legend.
(l) Option Agreement. The form of option agreement authorized by
the Plan may contain such other provisions as the Administrator
may, from time to time, determine. In the event of any conflict
between a written agreement and the Plan, the terms of the written
agreement between the Corporation and the Participant shall govern.
11. No Claim or Right Under the Plan. No employee shall at any time
have the right to be selected as a Participant in the Plan nor, having been
selected as a Participant and granted an Option, to be granted any additional
option.
12. Listing and Qualification of Shares. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver shares under such Options, 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. The Corporation, in its
discretion, may postpone the issuance or delivery of shares upon any exercise of
an Option until completion of any stock exchange listing, or other qualification
of such shares under any state or federal law, rule or regulation as the
Corporation may consider appropriate, and may require any Participant,
beneficiary or 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.
13. Stockholders Agreement. A Participant, or its beneficiary or legal
representative, who acquires Common Stock of the Corporation pursuant to the
exercise of an Option granted under the Plan shall be subject to the provisions
regarding transfers of shares in the Stockholders Agreement, which provisions
shall be deemed to be incorporated herein by reference, and if the Corporation
shall so request, the Participant shall become a party to such provisions of the
Stockholders Agreement.
14. Taxes. The Corporation 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
Options under the Plan including, but not limited to (a) 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 the Plan, (b)
deducting the amount
<PAGE> 9
of any such withholding taxes from any other amount then or thereafter payable
to a Participant, or (c) requiring a Participant, beneficiary or legal
representative to pay to the Corporation the amount required to be withheld or
to execute such documents as the Corporation deems necessary or desirable to
enable it to satisfy its withholding obligations as a condition of releasing the
Common Stock.
15. No Liability of Board Members. No member of the Board or of any
committee of the Board acting as Administrator shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Board or of any committee of the Board
acting as Administrator nor for any mistake of judgment made in good faith, and
the Corporation shall indemnify and hold harmless each employee, officer or
director of the Corporation to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim with the approval of the Board) arising out of
any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
16. Non-Uniform Determinations. The Administrator's determinations
under the Plan (including, without limitation, determinations of the persons to
receive Options, the form, term, provisions, amount and the timing of the grant
of such Options and of the Agreements evidencing the same) need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, Options under the Plan, whether or not such persons are similarly
situated.
17. Amendment or Termination. The Board may, with prospective or
retroactive effect, amend, suspend or terminate the Plan or any portion thereof
at any time, provided, however, that no amendment, suspension or termination of
the Plan shall deprive any Participant of any right with respect to any Option
granted under the Plan without his written consent.
18. Captions. The captions preceding the sections of the Plan have been
inserted solely as a matter of convenience and shall not in any manner define or
limit the scope or intent of any provisions of the Plan.
19. Governing Law. The Plan and all rights thereunder shall be governed
by and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed entirely within such State.
20. Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
21. Effective Date. The Plan shall become effective as of February 20,
1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> (196)
<SECURITIES> 0
<RECEIVABLES> 16,799
<ALLOWANCES> 182
<INVENTORY> 17,516
<CURRENT-ASSETS> 35,720
<PP&E> 264,297
<DEPRECIATION> 9,443
<TOTAL-ASSETS> 391,821
<CURRENT-LIABILITIES> 11,643
<BONDS> 298,442
0
13
<COMMON> 3
<OTHER-SE> 81,314
<TOTAL-LIABILITY-AND-EQUITY> 391,821
<SALES> 18,979
<TOTAL-REVENUES> 62,421
<CGS> 15,524
<TOTAL-COSTS> 31,493
<OTHER-EXPENSES> 31,490
<LOSS-PROVISION> 115
<INTEREST-EXPENSE> 14,141
<INCOME-PRETAX> (562)
<INCOME-TAX> (212)
<INCOME-CONTINUING> (350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
