<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000,
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 1-13926
NATCO GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-2906892
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2950 NORTH LOOP WEST,
7TH FLOOR,
HOUSTON, TEXAS 77092
(Address of principal executive offices) (Zip Code)
</TABLE>
713-683-9292
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of May 8, 2000 Class A, $0.01 par value per share 14,302,373 shares
Class B, $0.01 par value per share 421,739
shares
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<PAGE> 2
NATCO GROUP INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Unaudited Condensed Consolidated Balance Sheets -- March 31,
2000 and December 31, 1999. ................................ 1
Unaudited Condensed Consolidated Statements of
Operations -- Three Months ended March 31, 2000 and
1999. ...................................................... 2
Unaudited Condensed Consolidated Statements of Cash
Flows -- Three Months ended March 31, 2000 and 1999. ....... 3
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... 16
Item 3. Defaults Upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,365 $ 1,747
Trade accounts receivable, net............................ 43,142 33,720
Inventories............................................... 22,558 20,414
Notes receivable from director............................ 391 1,890
Prepaid expenses and other current assets................. 2,869 3,459
-------- --------
Total current assets................................ 71,325 61,230
Property, plant and equipment, net.......................... 19,383 17,806
Goodwill, net............................................... 26,552 19,083
Deferred income tax assets, net............................. 6,650 6,517
Other assets, net........................................... 1,401 2,194
-------- --------
Total assets........................................ $125,311 $106,830
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ -- $ 4,643
Notes payable............................................. 1,026 --
Accounts payable.......................................... 17,722 15,127
Accrued expenses and other................................ 10,278 10,900
Customer advances......................................... 3,616 5,256
-------- --------
Total current liabilities........................... 32,642 35,926
Long-term debt, excluding current installments.............. 2,279 26,537
Postretirement benefit liability............................ 15,880 15,853
-------- --------
Total liabilities................................... 50,801 78,316
-------- --------
Stockholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; no shares issued and outstanding at March 31,
2000 and December 31, 1999.............................. -- --
Class A Common stock, $.01 par value. Authorized
45,000,000 shares; issued and outstanding 14,152,373 and
8,787,520 shares as of March 31, 2000, and December 31,
1999, respectively...................................... 142 88
Class B Common stock, $.01 par value. Authorized 5,000,000
shares; issued and outstanding 471,739 and 825,836
shares as of March 31, 2000, and December 31, 1999,
respectively............................................ 5 8
Additional paid-in capital................................ 90,088 43,273
Accumulated deficit....................................... (7,983) (8,177)
Treasury stock, 643,238 and 470,188 shares at cost as of
March 31, 2000 and December 31, 1999, respectively...... (6,075) (4,550)
Accumulated other comprehensive loss...................... (1,077) (886)
Note receivable from officer and stockholder.............. (590) (1,242)
-------- --------
Total stockholders' equity.......................... 74,510 28,514
-------- --------
Commitments and contingencies
Total liabilities and stockholders' equity.......... $125,311 $106,830
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $51,855 $42,142
Cost of goods sold.......................................... 38,737 33,023
------- -------
Gross profit...................................... 13,118 9,119
Selling, general and administrative expense................. 9,409 7,395
Depreciation and amortization expense....................... 1,280 986
Unusual charges............................................. 1,528 --
Interest expense............................................ 336 850
Interest cost on postretirement benefit liability........... 321 262
Interest income............................................. (96) (49)
------- -------
Income (loss) before income taxes................. 340 (325)
Income tax provision (benefit).............................. 146 (111)
------- -------
Net income (loss)................................. $ 194 $ (214)
======= =======
EARNINGS (LOSS) PER SHARE:
Basic..................................................... $ 0.01 $ (0.02)
Diluted................................................... $ 0.01 $ (0.02)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic..................................................... 13,093 9,151
Diluted................................................... 13,791 9,151
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
NATCO GROUP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 194 $ (214)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Deferred income tax provision.......................... (188) (139)
Depreciation and amortization expense.................. 1,280 986
Non-cash interest income............................... (39) (42)
Interest cost on postretirement benefit liability...... 321 245
Gain on the sale of property, plant and equipment...... -- (44)
Change in assets and liabilities, net of acquisitions:
Decrease in restricted cash.......................... -- 883
(Increase) decrease in trade accounts receivable..... (3,436) 7,254
(Increase) decrease in inventories................... (1,603) 1,049
Decrease in long-term assets......................... 704 --
Increase (decrease) in accounts payable.............. 1,332 (3,338)
Decrease in accrued expenses and other............... (2,062) (2,124)
Decrease in customer advances........................ (1,635) (2,334)
Other, net........................................... (117) 141
-------- -------
Net cash provided by (used in) operating
activities....................................... (5,249) 2,323
-------- -------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment.... (1,852) (676)
Acquisitions, net of cash acquired........................ (8,692) --
Proceeds of note receivable............................... 665 --
Other, net................................................ -- 44
-------- -------
Net cash used in investing activities............. (9,879) (632)
-------- -------
Cash flows from financing activities:
Change in bank overdrafts................................. 319 (1,303)
Repayments of long-term debt.............................. (31,741) (1,220)
Issuance of common stock, net............................. 46,867 --
Receipt from affiliate of remainder of net present value
of postretirement benefit liability.................... 600 --
Other, net................................................ (146) (17)
-------- -------
Net cash provided by (used in) financing
activities....................................... 15,899 (2,540)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (153) (9)
-------- -------
Increase (decrease) in cash and cash equivalents............ 618 (858)
Cash and cash equivalents at beginning of period............ 1,747 2,380
-------- -------
Cash and cash equivalents at end of period.................. $ 2,365 $ 1,522
======== =======
Cash payments for:
Interest.................................................. $ 288 $ 552
Income taxes.............................................. $ -- $ 9
Significant non-cash investing and financing activities:
Promissory notes issued for business acquisition.......... $ 1,026 $ --
Cost to reacquire treasury shares as partial settlement of
a note arrangement..................................... $ 1,525 $ --
Debt assumed in acquisition............................... $ 2,862 $ --
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements and
related disclosures are unaudited and have been prepared by NATCO Group Inc.,
("the Company") pursuant to generally accepted accounting principles for interim
financial statements and the rules and regulations of the Securities and
Exchange Commission. As permitted by these regulations, certain information and
footnote disclosures that would typically be required in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. However, the Company's management believes that these
statements reflect all the normal recurring adjustments necessary for a fair
presentation, in all material respects, of the results of operations for the
periods presented, so that these interim financial statements are not
misleading. These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K filing for the year ended December 31, 1999.
To prepare financial statements in accordance with generally accepted
accounting principles, the Company's management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses incurred during the
reporting period. Actual results could differ from those estimates. Furthermore,
certain reclassifications have been made to fiscal year 1999 amounts in order to
present these results on a comparable basis with amounts for fiscal year 2000.
References to "NATCO" and "the Company" are used throughout this document
and relate collectively to NATCO Group Inc. and its consolidated subsidiaries.
(2) CAPITAL STOCK
On January 27, 2000, the Company completed an initial public offering of
7,500,000 shares of Class A common stock at a price of $10.00 per share
(4,053,807 shares issued by the Company and 3,446,193 shares issued by selling
stockholders). The proceeds to the Company, less underwriting fees, were $37.7
million. These funds were used to retire debt of $27.9 million under the term
loan facility, to repay borrowings of $3.0 million under the revolving credit
facility used to acquire Porta-Test International, Inc., ("Porta-Test") to
retire $2.2 million of Porta-Test debt acquired, to pay offering costs of $1.4
million and to fund other working capital needs. On February 3, 2000, the
underwriter exercised its over-allotment option which resulted in the issuance
of 1,125,000 additional shares of Class A common stock and proceeds of $10.5
million, net of underwriter's fees. Proceeds from the over-allotment were used
to complete the acquisition of Modular Production Equipment, Inc., including the
repayment of $685,000 of debt acquired, and for other working capital needs.
During 1997, the Company provided a loan of $1.5 million (at an interest
rate of 10% per annum) to a director of the Company who is also an affiliate of
Capricorn Holdings, Inc. ("Capricorn"). In March 1998, the related promissory
note was amended to change the interest rate to 11% per annum. The principal was
to be due on the date on which Capricorn distributed its holdings of NATCO's
common stock to its partners. During 1998, the Company acquired an option at a
cost of approximately $200,000 to purchase 173,050 shares of NATCO's common
stock from the director at a price of $8.81 per share. At the Company's option,
the note provided that the obligation could be repaid with shares of the common
stock of NATCO. The cost to acquire this option was recorded as treasury stock
in the accompanying consolidated balance sheet. During February 2000, the
Company exercised its option to acquire 173,050 shares of NATCO's Class A common
stock from the director for $1.5 million, which reduced the note due from the
director by this amount. The shares were recorded as treasury stock at cost as
of March 31, 2000. The balance of the note due from the director at March 31,
2000, was $391,000.
4
<PAGE> 7
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares outstanding for the period. Diluted earnings per common
and common equivalent share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding for the
period. For purposes of this calculation, outstanding employee stock options are
considered common stock equivalents. Included in diluted shares are common stock
equivalents related to employee stock options of 698,098 shares for the quarter
ended March 31, 2000. No diluted shares related to employee stock options have
been included in the weighted average shares for the quarter ended March 31,
1999, as the effect of these shares was anti-dilutive.
(4) ACQUISITIONS
The Company acquired all the outstanding common stock of Porta-Test on
January 24, 2000, for approximately $6.3 million in cash, net of cash acquired,
which included payment of specific accrued liabilities of the former company and
the purchase of certain proprietary intellectual property of a U.S. sister
company, and the issuance of a one-year promissory note for $1.0 million,
denominated in Canadian dollars. This acquisition has been accounted for using
the purchase method of accounting, and results of operations for Porta-Test have
been included in NATCO's consolidated financial statements since the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired is being amortized over a twenty-year period. Goodwill and
accumulated amortization related to the Porta-Test acquisition was $5.1 million
and approximately $57,000 at March 31, 2000.
The Company acquired all the outstanding common stock of Modular Production
Equipment, Inc. ("MPE") on February 8, 2000, for approximately $2.4 million in
cash, net of cash acquired, and the issuance of a one-year promissory note for
$338,000. This acquisition has been accounted for using the purchase method of
accounting, and results of operations for MPE have been included in NATCO's
consolidated financial statements since the date of acquisition. The excess of
the purchase price over the fair values of the net assets acquired is being
amortized over a twenty-year period. Goodwill and accumulated amortization
related to the MPE acquisition was $2.6 million and approximately $22,000 at
March 31, 2000.
Purchase price allocations have not yet been finalized for the Porta-Test
and MPE acquisitions, but NATCO's management does not believe that the final
purchase price allocation will differ materially from that as of March 31, 2000.
(5) UNUSUAL CHARGES
Pursuant to an employment agreement, an executive officer was entitled to a
bonus upon the occurrence of any sale or public offering of the Company. Such
bonus was to equal one and one-half percent (1.5%) of the value of all
securities owned by stockholders of the Company prior to the sale or offering,
including common stock valued at the price per share received in either the sale
or public offering, and any debt held by such stockholders. In July 1999, the
Company amended the agreement to eliminate the bonus and agreed to lend the
officer $1.2 million to purchase 136,832 shares of common stock. The loan
accrues interest at 6% annually. Per the agreement, the officer would receive a
bonus equal to the outstanding principal and interest of the note upon the sale
or public offering of the Company. During February 2000, after the Company
completed an initial public offering of its Class A common stock, NATCO recorded
expense of $1.3 million in settlement of its obligation under this agreement.
The officer used the proceeds, net of tax, to repay the Company approximately
$665,000. The outstanding balance of this note at March 31, 2000, was
approximately $590,000.
5
<PAGE> 8
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
During the first quarter of 2000, NATCO incurred relocation charges of
approximately $208,000 associated with the consolidation of an existing Company
facility with a facility that was acquired in connection with the acquisition of
Porta-Test.
(6) INVENTORIES
Inventories consisted of the following amounts:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 6,141 $ 6,828
Work-in-process............................................. 6,953 4,745
Raw materials and supplies.................................. 9,729 9,106
------- -------
Inventories at FIFO....................................... 22,823 20,679
Excess of FIFO over LIFO cost............................... (265) (265)
------- -------
$22,558 $20,414
======= =======
</TABLE>
(7) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Cost and estimated earnings on uncompleted contracts were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cost incurred on uncompleted contracts...................... $48,349 $47,533
Estimated earnings.......................................... 18,778 15,625
------- -------
67,127 63,158
Less billings to date....................................... 65,400 64,656
------- -------
$ 1,727 $(1,498)
======= =======
Included in accompanying balance sheets under the following
captions:
Trade accounts receivable................................. $ 1,727 $ 866
Customer advances......................................... -- (2,364)
------- -------
$ 1,727 $(1,498)
======= =======
</TABLE>
(8) SHORT-TERM DEBT
In conjunction with the purchase of Porta-Test during January 2000, the
Company issued a one-year promissory note denominated in Canadian dollars for
$1.0 million, which accrues interest at 15% per annum. The note is payable,
along with accrued interest, on January 24, 2001.
During February 2000, the Company issued a one-year promissory note, face
value of $338,000, with interest payable per annum at 10%, in conjunction with
the acquisition of MPE. This note is payable, along with accrued interest, on
February 8, 2001.
6
<PAGE> 9
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(9) LONG-TERM DEBT
The consolidated borrowings of the Company were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BANK DEBT
Term loan with variable interest rate (8.98% at December 31,
1999) and quarterly payments of principal ($1,161) and
interest, due November 30, 2003........................... $ -- $27,858
Revolving credit bank loans with variable interest rate
(8.00% and 7.75% at March 31, 2000 and December 31, 1999,
respectively) and quarterly payment of interest, due
November 30, 2001......................................... $2,279 $ 3,322
Less current installments......................... -- (4,643)
------ -------
Long-term debt.................................... $2,279 $26,537
====== =======
</TABLE>
The Company maintains a credit facility that provides a $32.0 million
revolving credit line ($22.0 million available in the U.S., $10.0 million
available in Canada) to finance eligible accounts receivable and inventories,
and a $32.5 million term loan. Indebtedness under the credit facility bears
interest at a floating rate based (at the Company's option) upon (i) the Base
Rate, or Canadian prime rate with respect to Base Rate Loans, plus the Margin
Percentage or (ii) the London Interbank Offered Rate for one, two, three or six
months, plus the Margin Percentage. The Margin Percentage for Base Rate and
Canadian prime rate loans varies from 1.00% to 0.00% depending on the Company's
debt to capitalization ratio; and the Margin Percentage for Eurodollar loans
varies from 2.50% to 1.00% depending on the Company's debt to capitalization
ratio. These agreements contain affirmative covenants including financial
requirements related to minimum net worth, debt to capitalization ratio, and
fixed charge coverage ratio, as well as restrictions on NATCO making any
distributions of any property or cash to the Company in excess of an agreed sum
without prior lender approval, and requires commitment fees in accordance with
standard banking practices. The loan is collateralized by substantially all the
assets of the Company and its subsidiaries, as well as a guarantee by the
Company. As of March 31, 2000, the Company was in compliance with all
restrictive covenants. NATCO had letters of credit outstanding under the
revolving credit facilities totaling $2.8 million at March 31, 2000. These
letters of credit constitute contract performance and warranty collateral and
expire at various dates through September 2002.
The Company maintains a working capital facility for export sales that
provides for aggregate borrowings of $10.0 million, subject to borrowing base
limitations, of which no borrowings were outstanding as of March 31, 2000.
However, the Company had issued letters of credit under this facility that
totaled $7.4 million as of March 31, 2000. The export sales credit facility is
secured by specific project inventory and receivables, and is partially
guaranteed by the EXIM Bank. The export sales credit facility loans mature in
July 2002.
During the first quarter of 2000, NATCO retired all outstanding debt under
the term loan facility utilizing the proceeds from the initial public offering
of the Company's Class A common stock. In addition, the Company borrowed $3.0
million under the revolving credit facility to finance the acquisition of
Porta-Test, which was repaid during February 2000. Net repayments under the
revolving credit facility for the quarter ended March 31, 2000, totaled
approximately $1.0 million.
7
<PAGE> 10
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
NATCO's effective income tax rate for the quarter ended March 31, 2000, was
42.8%, which exceeds the amount that would have resulted from applying the U.S.
federal statutory tax rate, and was due primarily to non-deductible goodwill
amortization expense of $294,000.
(11) INDUSTRY SEGMENTS
The accounting policies of the reportable segments are consistent with the
policies used to prepare the Company's condensed consolidated financial
statements for the respective periods presented. The Company evaluates the
performance of its operating segments based on income before net interest
expense, income taxes, depreciation and amortization expense, accounting
changes, and nonrecurring items. Summarized financial information concerning the
Company's reportable segments is shown in the following table.
<TABLE>
<CAPTION>
TRADITIONAL
PRODUCTION
ENGINEERED EQUIPMENT & INSTRUMENTATION & NATCO CORPORATE &
SYSTEMS SERVICES ELECTRICAL SYSTEMS CANADA ELIMINATIONS CONSOLIDATED
---------- ----------- ------------------ ------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH
31, 2000
Revenues from unaffiliated
customers............... $18,024 $15,600 $ 8,753 $ 9,478 $ -- $ 51,855
Revenues from
affiliates.............. -- 157 892 1,212 (2,261) --
Segment profit (loss)..... 3,170 (91) 657 657 (684) 3,709
Total assets.............. 44,843 24,250 17,869 26,884 11,465 125,311
Capital expenditures...... 1,183 387 91 138 53 1,852
Depreciation and
amortization............ 726 203 136 148 67 1,280
THREE MONTHS ENDED MARCH
31, 1999
Revenues from unaffiliated
customers............... $13,984 $12,444 $ 9,293 $ 6,421 $ -- $ 42,142
Revenues from
affiliates.............. 146 121 481 -- (748) --
Segment profit (loss)..... 874 208 806 210 (374) 1,724
Total assets.............. 32,659 23,796 21,483 14,758 15,632 108,328
Capital expenditures...... 423 178 92 -- (17) 676
Depreciation and
amortization............ 603 129 137 42 75 986
</TABLE>
(12) SUBSEQUENT EVENTS
The Company acquired all the outstanding common stock of Engineering
Specialties, Inc. ("ESI"), on April 4, 2000. The purchase price was $7.5
million, net of cash and cash equivalents acquired of $2.2 million. This
transaction has been accounted for using the purchase method of accounting. The
excess of the purchase price over the fair values of the net assets acquired is
being amortized over twenty-years. The purchase price allocation for this
acquisition has not been finalized.
The ESI acquisition was financed with borrowings of $7.1 million under the
existing revolving credit facility and borrowings of $2.6 million under the
existing export sales facility. Subsequent to the acquisition, the Company
redeemed the cash equivalents owned by ESI totaling $2.2 million, and used the
funds to reduce borrowings under the revolving credit facility.
8
<PAGE> 11
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (each a
"Forward-Looking Statement"). The words "believe," "expect," "plan," "intend,"
"estimate," "project," "will," "could," "may" and similar expressions are
intended to identify Forward-Looking Statements. The Company's expectations
about its business outlook, customer spending, oil and gas prices and the
business environment for the Company and the industry in general are only its
expectations regarding these matters. No assurance can be given that actual
results may not differ materially from those in the Forward-Looking Statements
herein for reasons including, but not limited to: market factors such as pricing
and demand for petroleum related products, the level of petroleum industry
exploration and production expenditures, the effects of competition, world
economic conditions, the level of drilling activity, the legislative environment
in the United States and other countries, policies of the Organization of
Petroleum Exporting Countries (OPEC), conflict in major petroleum producing or
consuming regions, the development of technology which could lower overall
finding and development costs, weather patterns and the overall condition of
capital and equity markets for countries in which the Company operates.
The following discussion should be read in conjunction with the financial
statements, related notes and other financial information appearing elsewhere in
this Form 10-Q. Readers are also urged to carefully review and consider the
various disclosures advising interested parties of the factors that affect the
Company, including without limitation, the disclosures made under the caption
"Risk Factors," and the factors and risks discussed in the Company's
Registration Statement on Form S-1/A and subsequent reports filed with the
Securities and Exchange Commission.
OVERVIEW
References to "NATCO" and "the Company" are used throughout this document
and relate collectively to NATCO Group Inc. and its consolidated subsidiaries.
NATCO's operations are organized into four separate business segments:
traditional production equipment and services, a segment which primarily
provides standardized components, replacement parts and used components and
equipment servicing; engineered systems, a segment which primarily provides
customized, large scale integrated oil and gas production systems; Canadian
operations, a segment which combines traditional production equipment and
services and engineered systems; and instrumentation and electrical control
systems, a segment which provides control panels and systems that monitor and
control oil and gas production.
NATCO recognizes revenues from significant contracts (contracts greater
than $250,000 and longer than four months in duration) and all instrumentation
and electrical contracts and orders on the percentage of completion method. The
Company records revenues and profits on other sales as shipments are made.
Earned revenue is based on the percentage that costs incurred to date bear to
total estimated costs. If estimated total costs on any contract or
work-in-process indicate a loss, the Company recognizes the entire loss
immediately. NATCO generally recognizes revenue and earnings to which the
percentage of completion method applies over a period of two to six quarters.
Customers typically retain an interest in uncompleted projects.
ACQUISITIONS
On January 24, 2000, the Company acquired all the outstanding common stock
of Porta-Test International Inc. ("Porta-Test") for $6.3 million in cash, net of
cash acquired, which included payment of specific accrued liabilities of the
former company and the purchase of certain proprietary intellectual property of
a U.S. sister company, and the issuance of a one-year promissory note for $1.0
million, denominated in Canadian dollars. The acquisition, which has been
accounted for using the purchase method of accounting, was financed with
borrowings under the existing revolving credit agreement and cash on-hand.
Borrowings for the Porta-Test acquisition and debt acquired during the
acquisition, were retired during February 2000 with
9
<PAGE> 12
the proceeds of the Company's initial public offering of its Class A common
stock. Results of operations for Porta-Test have been included in NATCO's
consolidated financial statements since the date of acquisition. Goodwill is
being amortized over a twenty-year period. NATCO's management believes that this
acquisition will allow the Company to provide oil and gas producers smaller,
more efficient production facilities.
On February 8, 2000, the Company acquired all the outstanding common stock
of Modular Production Equipment, Inc. ("MPE"), for $2.4 million in cash, net of
cash acquired, and the issuance of a one-year promissory note for $338,000. This
acquisition has been accounted for using the purchase method of accounting, and
was financed with the proceeds of the Company's initial public offering of its
Class A common stock. Results of operations for MPE have been included in
NATCO's consolidated financial statements since the date of acquisition.
Goodwill is being amortized over a twenty-year period. The Company's management
believes that the water treatment technology and expertise of MPE will allow
NATCO to offer its customers an advanced and complete turnkey process solution.
On April 4, 2000, the Company acquired all the outstanding common stock of
Engineering Specialties, Inc., ("ESI"), a company that has proprietary water
technologies for oily water treatment and heavy metals removal from production
at or near the wellhead, for $7.5 million in cash, net of cash and cash
equivalents acquired of $2.2 million. The acquisition has been accounted for
using the purchase method of accounting, and was financed through borrowings
under the existing revolving credit agreement and export sales facility.
Goodwill will be amortized over twenty-years. The purchase price allocation has
not been finalized.
INDUSTRY AND BUSINESS ENVIRONMENT
NATCO is a provider of oilfield service equipment for the oil and gas
industry. Throughout 1999, the industry suffered a downturn that resulted in a
significant decline in overall drilling and production expenditures by oil and
gas operators due to low hydrocarbon prices. Since NATCO's business is closely
linked to the market conditions of its customers, lower production results in
fewer purchases by NATCO's customers. The traditional production equipment and
services business segment was affected most significantly as this business line
primarily provides replacement parts used during the oil and gas drilling and
extraction processes. Since mid-1999, energy prices rose steadily as production
cuts by OPEC and other oil producing countries reduced excess inventory levels.
In the spring of 2000, these same producers elected to increase production to
bring energy prices down to more reasonable levels. As a result, price stability
appears to be causing an improvement in overall industry conditions that should
cause NATCO's customers to increase their exploration and development efforts.
For example, the price of West Texas Intermediate crude oil has increased to
approximately $26.00 per barrel for March 2000, as compared to $10.00 per barrel
at March 1999. This increase in oil prices has had a positive effect on NATCO's
overall sales for the first quarter of 2000, as compared to the respective
period in 1999. Market indicators suggest that this price stabilization will
continue in the short-term. On April 24, 2000, crude oil futures on the New York
Mercantile Exchange were trading at $27.35 per barrel for May 2000 delivery.
Although these crude oil price increases are indicators that additional oil and
gas production may occur during 2000, there can be no assurance that overall
production will increase or that an increase in production trends will continue
throughout 2000 or that such an increase in production would result in an
increase in revenues for the Company.
The following discussion of NATCO's historical results of operations and
financial condition should be read in conjunction with the Company's condensed
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Revenues. Revenues of $51.9 million for the three months ended March 31,
2000, increased $9.7 million, or 23%, from $42.1 million for the first quarter
of 1999. This increase in revenue was primarily due to: (1) the contribution of
a large contract in Southeast Asia which was awarded in the second quarter of
1999, partially offset by a decline in revenues for other engineered systems
projects, (2) improved sales of traditional production equipment as a result of
higher drilling activity, (3) the acquisitions of Porta-Test and MPE, and (4)
improved activity in Canada.
10
<PAGE> 13
The following table summarizes revenues by business segment for the three
months ended March 31, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------- PERCENTAGE
2000 1999 CHANGE CHANGE
-------- -------- ------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C>
Engineered Systems............................ $18,024 $14,130 $ 3,894 27.6%
Traditional Equipment and Services............ 15,757 12,565 3,192 25.4
Instrumentation and Electrical Systems........ 9,645 9,774 (129) (1.3)
NATCO Canada.................................. 10,690 6,421 4,269 66.5
Corporate and Other........................... (2,261) (748) (1,513) (202.3)
------- ------- -------
Total............................... $51,855 $42,142 $ 9,713 23.0%
------- ------- -------
</TABLE>
Revenues for the engineered systems segment increased $3.9 million, or 28%,
for the quarter ended March 31, 2000. This increase was due primarily to a $10.0
million contribution from one customer, Carigali-Triton Operating Company SDN
BHD (CTOC), pursuant to a $73.0 million contract awarded in June 1999. See
"-- Liquidity and Capital Resources." The revenue from this contract offsets a
$4.9 million decline in sales for other domestic engineered systems and a $1.5
million decline in sales for international engineered systems. These results for
the engineered systems business segment were consistent with a decrease in
project awards by the Company's customers throughout 1999, as engineered systems
projects typically require a lead time of several months. Engineered systems
revenues of $18.0 million for the three months ended March 31, 2000, include no
affiliated revenues, as compared to approximately $100,000 of affiliated
revenues for the quarter ended March 31, 1999.
Traditional equipment and service revenues increased $3.2 million, or 25%,
due to an increase in oilfield activity resulting from an overall increase in
oil and gas prices for the first quarter of 2000, as compared to the first
quarter of 1999. This increase in revenue was consistent with an increase in the
number of drilling rigs operating in the United States; operating rigs increased
from an average of 570 for the first quarter of 1999 to an average of 770 for
the first quarter of 2000. Affiliated revenues for this business segment were
approximately $200,000 and $100,000 for the quarters ended March 31, 2000 and
1999, respectively.
Revenues for instrumentation and electrical systems decreased approximately
$100,000, or 1%, for the quarter ended March 31, 2000, as compared to the
respective period in 1999. Affiliate revenues of approximately $900,000 and
$500,000, were included in the results for March 31, 2000 and 1999,
respectively.
NATCO Canada revenues increased $4.3 million for the quarter ended March
31, 2000, as compared to the quarter ended March 31, 1999. This increase was due
to the acquisition of Porta-Test, which contributed revenues of $1.0 million
since the date of acquisition, January 24, 2000, and an increase in affiliated
revenues of $1.2 million associated with the CTOC project. No affiliated
revenues were included in the results for the three months ended March 31, 1999.
The NATCO Canada business segment results include two significant gas plant
projects for Chevron Canada, one completed and the other in progress as of March
31, 2000. Overall industry market conditions in Canada improved, which was
consistent with an increase in Canadian rig count over the past six months.
The change in revenues for corporate and other represents the elimination
of revenues of affiliates as discussed above.
Gross Profit. Gross profit for the quarter ended March 31, 2000, increased
$4.0 million, or 44%, to $13.1 million, compared to $9.1 million for the quarter
ended March 31, 1999. As a percentage of revenue, gross margins improved to 25%,
as compared to 22% for the quarters ended March 31, 2000 and 1999, respectively.
This margin improvement was attributable primarily to an increase in revenue
from higher-margin projects, partially offset by an increase in sales of
traditional production equipment that historically
11
<PAGE> 14
provided lower margins. In addition, Porta-Test provided $351,000 of margin for
the quarter ended March 31, 2000.
The following table summarizes gross profit by business segment for the
three months ended March 31, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------ PERCENTAGE
2000 1999 CHANGE CHANGE
-------- ------- ------ ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGE CHANGE)
<S> <C> <C> <C> <C>
Engineered Systems.............................. $ 5,984 $3,004 $2,980 99.2%
Traditional Equipment and Services.............. 3,433 3,197 236 7.4
Instrumentation and Electrical Systems.......... 1,719 1,966 (247) (12.6)
NATCO Canada.................................... 1,982 952 1,030 108.2
------- ------ ------
Total................................. $13,118 $9,119 $3,999 43.9%
------- ------ ------
</TABLE>
Gross profit for engineered systems for the quarter ended March 31, 2000,
increased $3.0 million, or 99%. This increase was due to increased revenues of
28% for the business segment, as well as higher margin projects included in the
sales mix for the first quarter of 2000, as compared to the respective period in
1999. Two large projects, Petroquimica and BP Northstar, recorded higher margins
during the quarter ended March 31, 2000, due to favorable project performance.
Gross margin for engineered systems represented 33% and 21% of the segment's
sales for the quarters ended March 31, 2000 and 1999, respectively.
Gross profit for the traditional equipment and services business segment
increased $236,000, or 7%, for the quarter ended March 31, 2000, as compared to
the respective period in 1999. This increase was due to a 25% increase in
revenues, partially offset by higher sales of lower margin products within this
business segment and a reduction in export parts sales which carry generally
higher margins. As a percentage of revenue, gross margins were 22% and 25%,
respectively, for the quarters then ended.
Gross profit for the instrumentation and electrical systems business
segment decreased for the quarter ended March 31, 2000, as compared to the
quarter ended March 31, 1999. This decrease was primarily the result of a 1%
decrease in sales. Gross margin as a percentage of revenue for the quarters
ended March 31, 2000 and 1999, was 18% and 20%, respectively.
Gross profit for NATCO Canada increased approximately $1.0 million, or
108%, for the quarter ended March 31, 2000, as compared to the respective period
in 1999. This increase was due to a 67% increase in sales in the first quarter
of 2000, which included revenues associated with a higher margin contract, and
margins of $351,000 contributed by Porta-Test. As a percentage of revenue, gross
margin was 19% for 2000 compared to 15% for 1999.
Selling, General and Administrative Expense. Selling, general and
administrative expense of $9.4 million increased $2.0 million, or 27%, for the
quarter ended March 31, 2000, as compared to the respective period in 1999. This
increase was due primarily to: (1) the inclusion of results from Porta-Test and
MPE acquired during the first quarter of 2000, (2) increased spending dedicated
to technology and product development, as well as additional expenses related to
public company status, and (3) continued under-absorption of engineering and
service expenses and unusually high pre-order costs due to market conditions.
Depreciation and Amortization Expense. Depreciation and amortization
expense of $1.3 million for the quarter ended March 31, 2000, increased
$294,000, or 30%, compared to $1.0 million for the quarter ended March 31, 1999.
Depreciation expense of $918,000 for the quarter ended March 31, 2000,
increased $196,000, or 27%, as compared to the respective period for 1999. This
increase was primarily due to depreciation on the addition of capital assets
purchased during the last four quarters, which include renovations and
expansions of existing manufacturing plants, technological improvements to
management information systems and the purchase of computer hardware and
software, and acquisitions of and improvements to other equipment used in the
12
<PAGE> 15
Company's business. In addition, depreciation expense increased due to the
inclusion of results from Porta-Test and MPE, acquired during the first quarter
of 2000.
Amortization expense of $362,000 for the quarter ended March 31, 2000,
increased $98,000, or 37%, as compared to $264,000 for the quarter ended March
31, 1999. This increase was primarily due to amortization of goodwill associated
with the Porta-Test and MPE acquisitions during the first quarter of 2000. Also,
amortization expense increased due to an increase in goodwill related to the
acquisition of The Cynara Company ("Cynara") in November 1998. As defined in the
purchase agreement, NATCO issued 325,836 shares of the Company's Class B common
stock during the third quarter of 1999, to Cynara's former shareholders based
upon certain performance criteria that was achieved.
Interest Expense. Interest expense was $336,000 for the quarter ended March
31, 2000, as compared to $850,000 for the respective period in 1999. This 60%
decrease in interest expense was due primarily to a reduction of long-term debt
from $40.6 million at March 31, 1999 to $2.3 million at March 31, 2000. NATCO
retired $27.9 million of long-term debt under the Company's term loan facility
during February 2000 with the proceeds from its initial public offering of the
Company's Class A common stock.
Unusual Charges. Unusual charges for the three months ended March 31, 2000,
were $1.5 million. The charge was primarily for compensation expense associated
with the employment agreement of an executive officer. The terms of the
agreement entitled the officer to a sum equal to an outstanding note and accrued
interest, totaling $1.2 million at December 31, 1999, upon the sale of the
Company's Class A common stock in an initial public offering. NATCO completed
its initial public offering on January 27, 2000, and, per the agreement, the
Company recorded compensation expense for the amount of the note and accrued
interest, including related payroll burdens, totaling $1.3 million. In addition,
the Company recorded relocation expenses totaling $208,000 associated with the
consolidation of an existing Company facility with a facility that was acquired
with the acquisition of Porta-Test.
Provision (benefit) for Income Taxes. Income tax expense of $146,000 for
the quarter ended March 31, 2000, increased $257,000, from a benefit of $111,000
for the quarter ended March 31, 1999. The primary reasons for this increase in
tax expense include: (1) the increase in income before income taxes, which was
$340,000 for the quarter ended March 31, 2000, as compared to a loss of $325,000
for the respective period in 1999, and (2) an increase in the effective tax rate
from 34.2% for the quarter ended March 31, 1999, to 42.8% for the first quarter
of 2000, based upon the forecasted results for the Company during 2000, and the
acquisitions of Porta-Test and MPE in the first quarter of 2000, which
contributed additional non-deductible goodwill amortization expense.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and working capital of $2.4
million and $38.7 million, respectively, as compared to cash and working capital
of $1.7 million and $25.3 million at December 31, 1999.
Net cash used in operating activities for the quarter ended March 31, 2000,
was $5.2 million, compared to net cash provided by operations of $2.3 million
for the quarter ended March 31, 1999. The increase in the use of cash for
operating activities during the quarter ended March 31, 2000, was the result of
higher trade accounts receivable and inventory.
Net cash used in investing activities for the quarter ended March 31, 2000,
was $9.9 million attributable to the acquisitions of Porta-Test and MPE during
the period. By contrast, cash used in investing activities for the quarter ended
March 31, 1999, related primarily to capital expenditures of approximately
$700,000. Funds for the Porta-Test acquisition on January 24, 2000, were
borrowed from the Company's revolving credit agreement. These funds were repaid
during February 2000 with the proceeds from NATCO's initial public offering.
Funds for the MPE acquisition on February 8, 2000, were also provided by the
proceeds of the Company's initial public offering of its Class A common stock.
Net cash provided by financing activities for the quarter ended March 31,
2000, was $15.9 million, compared to net cash used in financing activities for
the quarter ended March 31, 1999, of $2.5 million. The primary source of funds
for financing activities during the first quarter of 2000 was the issuance of
the
13
<PAGE> 16
Company's Class A common stock through an initial public offering and the
exercise of an over-allotment option by NATCO's underwriters, which provided
$37.7 million and $10.5 million, respectively. These proceeds were used
primarily to retire $27.9 million of outstanding debt under a term loan
arrangement, to repay $3.0 million borrowed under the revolving credit agreement
for the purchase of Porta-Test, and to repay $2.9 million of debt assumed in the
acquisitions of Porta-Test and MPE.
The Company maintains revolving credit and term loan facilities as well as
a working capital facility for export sales. The revolving credit facility
provides for up to $22.0 million of borrowings in the United States and up to
$10.0 million of borrowings in Canada, subject to borrowing base limitations. At
March 31, 2000, NATCO had borrowings outstanding under the revolving credit
facility of $2.3 million, and had issued $2.8 million of letters of credit under
this facility. Borrowings under the revolving credit facility mature in November
2001. No borrowings were outstanding under the term loan facility at March 31,
2000. The revolving credit and term facility is secured by substantially all of
the Company's assets, and the Company was in compliance with all debt covenants
as of March 31, 2000. The export sales credit facility provides for aggregate
borrowings of $10.0 million, subject to borrowing base limitations, of which no
borrowings were outstanding as of March 31, 2000; however, NATCO had issued
letters of credit totaling $7.4 million under the export facility as of that
date. The export sales credit facility is secured by specific project inventory
and receivables, and is partially guaranteed by the EXIM Bank. The export sales
credit facility loans mature in July 2002. As of March 31, 2000, the weighted
average interest rate of the Company's borrowings under these credit facilities
was 8.00%.
NATCO acquired all the outstanding common stock of ESI on April 4, 2000,
for $7.5 million, net of cash and cash equivalents acquired. This acquisition
was financed with borrowings of $7.1 million under the existing revolving credit
facility, and borrowings of $2.6 million under the existing export sales
facility. Subsequent to the acquisition of ESI, the Company redeemed cash
equivalents owned by ESI totaling $2.2 million and used the proceeds to reduce
borrowings under the revolving credit facility. Outstanding debt under these
facilities at April 30, 2000, was $7.0 million and $2.6 million, respectively.
The Company estimates that cash generated from operations through 2000 will
be sufficient to meet its cash operating requirements. Capital expenditures for
the quarter ended March 31, 2000, totaled approximately $1.9 million, and
consisted of renovations and expansions of the Company's manufacturing plants,
technological improvements to management information systems and acquisitions of
and improvements to other equipment used in the Company's business. The capital
expenditure budget for 2000 includes a project to upgrade the membrane
manufacturing facility in Pittsburgh, California.
The Company's sales backlog at March 31, 2000, was $77.5 million and
included a substantial booking for one customer, CTOC; this customer contributed
19% of total revenues for the quarter ended March 31, 2000. Backlog at March 31,
2000, less the CTOC project, reflects a slight decline as compared to the period
ended March 31, 1999, but was higher than the backlog forecasted for the period
and represented the first overall increase in the level of backlog for the
Company since mid-1999. The Company's management anticipates that the backlog at
December 31, 2000, excluding the CTOC project, will be higher than the backlog
at March 31, 2000, due to bookings that are expected to occur during fiscal
2000.
At March 31, 2000, borrowing base limitations reduced the Company's
available borrowing capacity under the revolving credit agreement to $24.4
million. However, NATCO's management believes that the Company's operating cash
flow, supported by its borrowing capacity, will be adequate to fund operations
throughout 2000. Should the Company decide to pursue additional acquisition
opportunities during the remainder of 2000, the determination of the Company's
ability to finance these acquisitions will be a critical element of the analysis
of the opportunities.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued by the Financial
Accounting Standards Board in June 1998. SFAS 133 standardizes the accounting
for derivative instruments, including derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement
14
<PAGE> 17
of financial position at fair value. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and, if so,
on the reason for holding it. If specified conditions are met, entities may
elect to designate a derivative instrument as a hedge of exposures to changes in
fair values, cash flows, or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss, is reported in earnings immediately. Accounting for foreign
currency hedges is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change.
The Company will adopt SFAS 133 for the fiscal year beginning January 1,
2001. The Company's management has not determined the impact that SFAS 133 will
have on the Company's financial statements and believes that the determination
will not be meaningful until closer to the date of initial adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are conducted around the world in a number of
different countries. Accordingly, future earnings are exposed to changes in
foreign currency exchange rates when transactions are denominated in currencies
other than the Company's functional currencies, the primary currencies in which
the Company conducts its business in various jurisdictions. The majority of the
Company's foreign currency transactions are denominated in the Canadian dollar,
which is the functional currency of NATCO Canada. As these contracts are
denominated and settled in the functional currency, risks associated with
currency fluctuations are minimized. The Company does not currently hedge
against foreign currency translation risks and NATCO's management believes that
foreign currency exchange risk is not significant to its operations.
The Company's financial instruments that are subject to change in interest
rates include its revolving credit and term loan facility and its working
capital facility for export sales. At March 31, 2000, the Company had no
borrowings outstanding under the term loan portion of the revolving credit and
term loan facility. Borrowings, which bear interest at floating rates,
outstanding under the revolving credit agreement at March 31, 2000, totaled $2.3
million. These borrowings mature on November 30, 2001. As of March 31, 2000, the
weighted average interest rate of the Company's borrowings under this credit
facility was 8.00%. There were no borrowings outstanding under the working
capital facility for export sales at March 31, 2000.
Based on past market movements and possible near-term market movements, the
Company's management does not believe that potential near-term losses in future
earnings, fair values or cash flows from changes in interest rates are likely to
be material. Assuming the Company's current level of borrowings, a 100 basis
point increase in interest rates under the borrowings would decrease the
Company's current quarter net income and cash flow from operations by less than
$100,000. In the event of an adverse change in interest rates, the Company could
take action to mitigate its exposure. However, due to the uncertainty of actions
that could be taken and the possible effects, this analysis assumes no such
actions. Furthermore, this analysis does not consider the effects of a possible
change in the level of overall economic activity that could exist in such an
environment.
15
<PAGE> 18
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings that are
incidental to its business activities. The Company insures against the risk of
these proceedings to the extent deemed prudent by its management, but the
Company offers no assurance that the type or value of this insurance will meet
the liabilities that may arise from any pending or future legal proceedings
related to its business activities. The Company's management does not, however,
believe the pending legal proceedings, individually or taken together, will have
a material adverse effect on the Company's results of operations or financial
condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds
On January 27, 2000, the Company completed an initial public offering of
7,500,000 shares of Class A common stock at a price of $10.00 per share
(4,053,807 shares issued by the Company and 3,446,193 shares issued by selling
stockholders). The proceeds to the Company, less underwriting fees, were $37.7
million. These funds were used to retire debt of $27.9 million under the term
loan facility, to repay borrowings of $3.0 million under the revolving credit
facility used to acquire Porta-Test, to retire $2.2 million of Porta-Test debt
acquired, to pay offering costs of $1.4 million and to fund other working
capital needs. On February 3, 2000, the underwriter exercised its over-allotment
option which resulted in the issuance of 1,125,000 additional shares of Class A
common stock and proceeds of $10.5 million, net of underwriter's fees. Proceeds
from the over-allotment were used to complete the acquisition of MPE, including
the repayment of $685,000 of debt acquired, and for other working capital needs.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
Mr. E. Hale Staley retired from the Company's Board of Directors effective
February 15, 2000. Mr. John U. Clarke was elected to the Board of Directors
effective February 28, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index of Exhibits for a list of those exhibits filed herewith,
which index includes and identifies management contracts or
compensatory plans or arrangements required to be filed as exhibits to
this Form 10-Q by Item 601(10)(iii) of Regulation S-K.
(b) Reports on form 8-K. There were no reports on Form 8-K filed during the
quarter ended March 31, 2000.
(c) Index of Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger dated
November 17, 1998 but effective March 26, 1998 among the
Company, NATCO Acquisition Company, National Tank Company
and The Cynara Company (incorporated by reference to
Exhibit 2.1 of the Company's Registration Statement No.
333-48851 on Form S-1).
2.2 -- Stock Purchase Agreement dated as of May 7, 1997 among
Enterra Petroleum Equipment Group, Inc., National Tank
Company and Weatherford Enterra, Inc. (incorporated by
reference to Exhibit 2.2 of the Company's Registration
Statement No. 333-48851 on Form S-1).
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company, as
amended by Certificate of Amendment dated November 18,
1998 and Certificate of Amendment dated November 29, 1999
(incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
3.2 -- Certificate of Designations of Series A Junior
Participating Preferred Stock (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
No. 333-48851 on Form S-1).
3.3* -- Amended and Restated Bylaws of the Company, as amended.
4.1 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement No. 333-48851 on Form S-1).
4.2 -- Rights Agreement dated as of May 15, 1998 by and among
the Company and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (incorporated by reference to Exhibit 4.2
of the Company's Registration Statement No. 333-48851 on
Form S-1).
4.3 -- Registration Rights Agreement dated as of November 18,
1998 among the Company and Capricorn Investors, L.P. and
Capricorn Investors II, L.P. (incorporated by reference
to Exhibit 4.3 of the Company's Registration Statement
No. 333-48851 on Form S-1).
4.4 -- Registration Rights Agreement dated as of November 18,
1998 among the Company and the former stockholders of The
Cynara Company (incorporated by reference to Exhibit 4.4
of the Company's Registration Statement No. 333-48851 on
Form S-1).
4.5 -- Form of lock-up letter to the Underwriters from certain
directors and officers of the Company (incorporated by
reference to Exhibit 4.5 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.1** -- Directors Compensation Plan (incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.2** -- Form on Nonemployee Director's Option Agreement
(incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.3** -- Employee Stock Incentive Plan (incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement
No. 333-48851 on Form S-1).
10.4 -- Commitment Letter dated November 24, 1994 from The Bank
of Nova Scotia to NATCO Canada, Ltd. (incorporated by
reference to Exhibit 10.5 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.5 -- Service and Reimbursement Agreement dated as of July 1,
1997 between the Company and Capricorn Management, G.P.
(incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.6** -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.7 -- Securities Exchange Agreement dated as of March 5, 1998
by and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P. (incorporated by reference
to Exhibit 10.10 of the Company's Registration Statement
No. 333-48851 on Form S-1).
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.8 -- Stockholders' Agreement by and among the Company,
Capricorn Investors, L.P. and Capricorn Investors II,
L.P. (incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.9** -- Employment Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory, as amended as of
July 12, 1999 (incorporated by reference to Exhibit 10.12
of the Company's Registration Statement No. 333-48851 on
Form S-1).
10.10** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory, as amended as of
July 12, 1999 (incorporated by reference to Exhibit 10.13
of the Company's Registration Statement No. 333-48851 on
Form S-1).
10.11** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Patrick M. McCarthy (incorporated by
reference to Exhibit 10.14 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.12** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and William B. Wiener III (incorporated by
reference to Exhibit 10.15 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.13** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith (incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.14** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith (incorporated by reference to
Exhibit 10.17 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.15** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and David Volz (incorporated by reference to
Exhibit 10.18 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.16 -- Stockholder's Agreement dated as of November 18, 1998
among the Company, Capricorn Investors, L.P., Capricorn
Investors II, L.P. and the former stockholders of The
Cynara Company (incorporated by reference to Exhibit
10.19 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.17** -- Change of Control Policy dated as of September 28, 1999
(incorporated by reference to Exhibit 10.20 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.18** -- Severance Pay Summary Plan Description (incorporated by
reference to Exhibit 10.21 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.19 -- Loan Agreement ($22,000,000 U.S. Revolving Loan Facility,
$10,000,000 Canadian Revolving Loan Facility and
$32,500,000 Term Loan Facility) dated as of November 20,
1998 among National Tank Company, NATCO Canada, Ltd.,
Chase Bank of Texas, National Association, The Bank of
Nova Scotia and the other lenders parties thereto and
joined in by NATCO Group, Inc., as amended (incorporated
by reference to Exhibit 10.22 to the Company's
Registration Statement No. 333-48851 on Form S-1).
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20 -- International Revolving Loan Agreement dated as of June
30, 1997 between National Tank Company and Texas Commerce
Bank, National Association, as amended (incorporated by
reference to Exhibit 10.23 to the Company's Registration
Statement No. 333-48851 on Form S-1).
10.21** -- Form of Nonstatutory Stock Option Agreement (incorporated
by reference to Exhibit 10.24 to the Company's
Registration Statement No. 333-48851 on Form S-1).
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
** Management contracts or compensatory plans or arrangements.
19
<PAGE> 22
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.
NATCO Group Inc.
(Registrant)
By: /s/ J. MICHAEL MAYER
----------------------------------
Name: J. Michael Mayer
Senior Vice President and
Chief Financial Officer
Date: March 12, 2000
By: /s/ RYAN S. LILES
----------------------------------
Name: Ryan S. Liles
Vice President and Controller
(Principal Accounting Officer)
Date: March 12, 2000
20
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger dated
November 17, 1998 but effective March 26, 1998 among the
Company, NATCO Acquisition Company, National Tank Company
and The Cynara Company (incorporated by reference to
Exhibit 2.1 of the Company's Registration Statement No.
333-48851 on Form S-1).
2.2 -- Stock Purchase Agreement dated as of May 7, 1997 among
Enterra Petroleum Equipment Group, Inc., National Tank
Company and Weatherford Enterra, Inc. (incorporated by
reference to Exhibit 2.2 of the Company's Registration
Statement No. 333-48851 on Form S-1).
3.1 -- Restated Certificate of Incorporation of the Company, as
amended by Certificate of Amendment dated November 18,
1998 and Certificate of Amendment dated November 29, 1999
(incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
3.2 -- Certificate of Designations of Series A Junior
Participating Preferred Stock (incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement
No. 333-48851 on Form S-1).
3.3* -- Amended and Restated Bylaws of the Company, as amended.
4.1 -- Specimen Common Stock certificate (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement No. 333-48851 on Form S-1).
4.2 -- Rights Agreement dated as of May 15, 1998 by and among
the Company and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (incorporated by reference to Exhibit 4.2
of the Company's Registration Statement No. 333-48851 on
Form S-1).
4.3 -- Registration Rights Agreement dated as of November 18,
1998 among the Company and Capricorn Investors, L.P. and
Capricorn Investors II, L.P. (incorporated by reference
to Exhibit 4.3 of the Company's Registration Statement
No. 333-48851 on Form S-1).
4.4 -- Registration Rights Agreement dated as of November 18,
1998 among the Company and the former stockholders of The
Cynara Company (incorporated by reference to Exhibit 4.4
of the Company's Registration Statement No. 333-48851 on
Form S-1).
4.5 -- Form of lock-up letter to the Underwriters from certain
directors and officers of the Company (incorporated by
reference to Exhibit 4.5 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.1** -- Directors Compensation Plan (incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.2** -- Form on Nonemployee Director's Option Agreement
(incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.3** -- Employee Stock Incentive Plan (incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement
No. 333-48851 on Form S-1).
10.4 -- Commitment Letter dated November 24, 1994 from The Bank
of Nova Scotia to NATCO Canada, Ltd. (incorporated by
reference to Exhibit 10.5 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.5 -- Service and Reimbursement Agreement dated as of July 1,
1997 between the Company and Capricorn Management, G.P.
(incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.6** -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.7 -- Securities Exchange Agreement dated as of March 5, 1998
by and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P. (incorporated by reference
to Exhibit 10.10 of the Company's Registration Statement
No. 333-48851 on Form S-1).
10.8 -- Stockholders' Agreement by and among the Company,
Capricorn Investors, L.P. and Capricorn Investors II,
L.P. (incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.9** -- Employment Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory, as amended as of
July 12, 1999 (incorporated by reference to Exhibit 10.12
of the Company's Registration Statement No. 333-48851 on
Form S-1).
10.10** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory, as amended as of
July 12, 1999 (incorporated by reference to Exhibit 10.13
of the Company's Registration Statement No. 333-48851 on
Form S-1).
10.11** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Patrick M. McCarthy (incorporated by
reference to Exhibit 10.14 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.12** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and William B. Wiener III (incorporated by
reference to Exhibit 10.15 of the Company's Registration
Statement No. 333-48851 on Form S-1).
10.13** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith (incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.14** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith (incorporated by reference to
Exhibit 10.17 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.15** -- Stock Option Agreement dated as of July 31, 1997 between
the Company and David Volz (incorporated by reference to
Exhibit 10.18 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.16 -- Stockholder's Agreement dated as of November 18, 1998
among the Company, Capricorn Investors, L.P., Capricorn
Investors II, L.P. and the former stockholders of The
Cynara Company (incorporated by reference to Exhibit
10.19 of the Company's Registration Statement No.
333-48851 on Form S-1).
10.17** -- Change of Control Policy dated as of September 28, 1999
(incorporated by reference to Exhibit 10.20 of the
Company's Registration Statement No. 333-48851 on Form
S-1).
10.18** -- Severance Pay Summary Plan Description (incorporated by
reference to Exhibit 10.21 of the Company's Registration
Statement No. 333-48851 on Form S-1).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.19 -- Loan Agreement ($22,000,000 U.S. Revolving Loan Facility,
$10,000,000 Canadian Revolving Loan Facility and
$32,500,000 Term Loan Facility) dated as of November 20,
1998 among National Tank Company, NATCO Canada, Ltd.,
Chase Bank of Texas, National Association, The Bank of
Nova Scotia and the other lenders parties thereto and
joined in by NATCO Group, Inc., as amended (incorporated
by reference to Exhibit 10.22 to the Company's
Registration Statement No. 333-48851 on Form S-1).
10.20 -- International Revolving Loan Agreement dated as of June
30, 1997 between National Tank Company and Texas Commerce
Bank, National Association, as amended (incorporated by
reference to Exhibit 10.23 to the Company's Registration
Statement No. 333-48851 on Form S-1).
10.21** -- Form of Nonstatutory Stock Option Agreement (incorporated
by reference to Exhibit 10.24 to the Company's
Registration Statement No. 333-48851 on Form S-1).
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
** Management contracts or compensatory plans or arrangements.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS, AS AMENDED
OF
NATCO GROUP INC.
A Delaware Corporation
<PAGE> 2
NATCO GROUP INC.
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article I
Offices................................................................................................-1-
Section 1. Registered Office..........................................................................-1-
Section 2. Other Offices..............................................................................-1-
Article II
Stockholders...........................................................................................-1-
Section 1. Place of Meetings..........................................................................-1-
Section 2. Quorum; Adjournment of Meetings............................................................-1-
Section 3. Annual Meetings............................................................................-2-
Section 4. Special Meetings...........................................................................-2-
Section 5. Record Date................................................................................-2-
Section 6. Notice of Meetings.........................................................................-3-
Section 7. Stock List.................................................................................-3-
Section 8. Proxies....................................................................................-3-
Section 9. Voting; Elections; Inspectors..............................................................-3-
Section 10. Conduct of Meetings.......................................................................-4-
Section 11. Treasury Stock............................................................................-5-
Section 12. Action Without Meeting....................................................................-5-
Section 13. Notice of Stockholder Business............................................................-5-
Article III
Board of Directors.....................................................................................-5-
Section 1. Power; Number; Term of Office..............................................................-5-
Section 2. Quorum.....................................................................................-6-
Section 3. Place of Meetings; Order of Business.......................................................-6-
Section 4. First Meeting..............................................................................-6-
Section 5. Regular Meetings...........................................................................-6-
Section 6. Special Meetings...........................................................................-6-
Section 7. Removal....................................................................................-6-
Section 8. Vacancies; Increases in the Number of Directors............................................-6-
Section 9. Compensation...............................................................................-7-
Section 10. Action Without a Meeting; Telephone Conference Meeting....................................-7-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 11. Approval or Ratification of Acts or Contracts by Stockholders.............................-7-
Article IV
Committees.............................................................................................-8-
Section 1. Designation; Powers........................................................................-8-
Section 2. Procedure; Meetings; Quorum................................................................-8-
Section 3. Substitution of Members....................................................................-8-
Article V
Officers...............................................................................................-8-
Section 1. Number, Titles and Term of Office..........................................................-8-
Section 2. Salaries...................................................................................-9-
Section 3. Removal....................................................................................-9-
Section 4. Vacancies..................................................................................-9-
Section 5. Powers and Duties of the Chief Executive Officer...........................................-9-
Section 6. Powers and Duties of the Chairman of the Board.............................................-9-
Section 7. Powers and Duties of the President.........................................................-9-
Section 8. Vice Presidents...........................................................................-10-
Section 9. Treasurer.................................................................................-10-
Section 10. Assistant Treasurers.....................................................................-10-
Section 11. Secretary................................................................................-10-
Section 12. Assistant Secretaries....................................................................-10-
Section 13. Action with Respect to Securities of Other Corporations..................................-10-
Article VI
Indemnification of Directors,
Officers, Employees and Agents........................................................................-11-
Section 1. Right to Indemnification..................................................................-11-
Section 2. Indemnification of Employees and Agents...................................................-11-
Section 3. Right of Claimant to Bring Suit...........................................................-12-
Section 4. Nonexclusivity of Rights..................................................................-12-
Section 5. Insurance.................................................................................-12-
Section 6. Savings Clause............................................................................-12-
Section 7. Definitions...............................................................................-12-
Article VII
Capital Stock.........................................................................................-13-
Section 1. Certificates of Stock.....................................................................-13-
Section 2. Transfer of Shares........................................................................-13-
Section 3. Ownership of Shares.......................................................................-13-
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 4. Regulations Regarding Certificates........................................................-14-
Section 5. Lost or Destroyed Certificates............................................................-14-
Article VIII
Miscellaneous Provisions..............................................................................-15-
Section 1. Fiscal Year...............................................................................-15-
Section 2. Corporate Seal............................................................................-15-
Section 3. Notice and Waiver of Notice...............................................................-15-
Section 4. Resignations..............................................................................-15-
Section 5. Facsimile Signatures......................................................................-15-
Section 6. Reliance upon Books, Reports and Records..................................................-15-
Article IX
Amendments............................................................................................-16-
</TABLE>
<PAGE> 5
BYLAWS
OF
NATCO GROUP INC.
Article I
Offices
Section 1. Registered Office. The registered office of the Corporation
required by the General Corporation Law of the State of Delaware to be
maintained in the State of Delaware, shall be the registered office named in the
original Certificate of Incorporation of the Corporation as amended and restated
from time to time (the "Certificate of Incorporation"), or such other office as
may be designated from time to time by the Board of Directors in the manner
provided by law. Should the Corporation maintain a principal office within the
State of Delaware such registered office need not be identical to such principal
office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be specified or fixed in the notices
or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Certificate of Incorporation or these bylaws, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
any meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy, at any meeting of stockholders, whether or not a quorum is present,
shall have the power to adjourn such meeting from time to time, without any
notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed
<PAGE> 6
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at such meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within fifteen (15) months subsequent
to the date of the last annual meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board (if
any), by the President or by a majority of the Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least ten percent (10%)
of the issued and outstanding stock entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If, in
accordance with Section 13 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-2-
<PAGE> 7
Section 6. Notice of Meetings. Except as otherwise required by law or
the Certificate of Incorporation, written notice of the place, date and hour of
all meetings, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote thereat not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
Such notice may be delivered either personally or by mail. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in the name of such stockholder, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The stock list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching upon the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall have
one vote for each share of stock entitled to vote which is registered in his
name on the record date for the meeting. Shares registered in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as
-3-
<PAGE> 8
the bylaw (or comparable instrument) of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors (or comparable body) of
such corporation may determine. Shares registered in the name of a deceased
person may be voted by his executor or administrator, either in person or by
proxy.
All voting shall be by stock vote. Every stock vote shall be taken by
written ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. All elections of directors shall be by ballot,
unless otherwise provided in the Certificate of Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders shall
be presided over by the Chairman of the Board (if any), or if he is not present,
by the President, or if neither the Chairman of the Board (if any), nor
President is present, by a chairman elected at the meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
an Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order. Unless the chairman of the meeting of stockholders shall otherwise
determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
-4-
<PAGE> 9
Section 11. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Section 12. Action Without Meeting. Any action permitted or required by
law, the Certificate of Incorporation or these bylaws to be taken at a meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the outstanding shares entitled to vote
thereon.
Section 13. Notice of Stockholder Business. At an annual meeting of
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting (a) by or at the direction of the Board of Directors
or (b) by a stockholder who is a stockholder of record at the time of giving
such notice, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in this Section. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 40 days prior to the
meeting. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Company's books, of the stockholder proposing
such business, (c) the class and number of shares of the Company that are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
compliance with this Section. The Chairman of an annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section.
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be seven. Each director shall hold office for the term for which
he is elected, and until his successor shall have been elected and qualified or
until his earlier death, resignation or removal.
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Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by law, in such place or places, within or without
the State of Delaware, as the Board of Directors may from time to time determine
by resolution. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board (if any), or in his absence by the President, or by
resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board (if any), the President or, on the
written request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the Certificate of
Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors; provided that, unless the
Certificate of Incorporation otherwise provides, if the Board of Directors is
classified, then the stockholders may effect such removal only for cause; and
provided further that, if the Certificate of Incorporation expressly grants to
stockholders the right to cumulate votes for the election of directors and if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of which
such director is a part.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any
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increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or a sole remaining
director; and any director so chosen shall hold office until the next annual
election and until his successor shall be duly elected and shall qualify, unless
sooner displaced.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall qualify.
Section 9. Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote and such
consent shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
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Article IV
Committees
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such committee shall have the power or authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing the bylaws or adopting new bylaws for the Corporation and, unless such
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such designated committee may authorize the
seal of the Corporation to be affixed to all papers which may require it. In
addition to the above such committee or committees shall have such other powers
and limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when requested, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by
resolution of such committee or resolution of the Board of Directors. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time
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elect or appoint. Each officer shall hold office until his successor shall be
duly elected and shall qualify or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
provides otherwise. Except for the Chairman of the Board, if any, no officer
need be a director.
Section 2. Salaries. The salaries or other compensation of the officers
and agents of the Corporation shall be fixed from time to time by the Board of
Directors.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation and may
sign all certificates for shares of capital stock of the Corporation; and shall
have such other powers and duties as designated in accordance with these bylaws
and as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If elected,
the Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
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Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. In the absence of a designation by the Board of Directors of a Vice
President to perform the duties of the President, or in the event of his absence
or inability or refusal to act, the Vice President who is present and who is
senior in terms of time as a Vice President of the Corporation shall so act. The
Vice Presidents shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest the affixation
of the seal of the Corporation thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; he shall
have such other powers and duties as designated in these bylaws and as from time
to time may be assigned to him by the Board of Directors; and he shall in
general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the chief executive officer
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with
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respect to any action of security holders of any other corporation in which this
Corporation may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
Article VI
Indemnification of Directors,
Officers, Employees and Agents
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to become
a director or officer of the Corporation or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving or having agreed to
serve as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Corporation. The right to indemnification conferred in
this Article VI shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
current, former or proposed director or officer in his or her capacity as a
director or officer or proposed director or officer (and not in any other
capacity in which service was or is or has been agreed to be rendered by such
person while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation,
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individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in this Article.
Section 3. Right of Claimant to Bring Suit. If a written claim received
by the Corporation from or on behalf of an indemnified party under this Article
VI is not paid in full by the Corporation within ninety days after such receipt,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a
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constituent) absorbed in a consolidation or merger prior to (or, in the case of
an entity specifically designated in a resolution of the Board of Directors,
after) the adoption hereof and which, if its separate existence had continued,
would have had the power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
Article VII
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the Chairman
of the Board (if any), President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share
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or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Delaware.
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
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Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required
to be given by law, the Certificate of Incorporation or under the provisions of
these bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission or (ii) by deposit of the same in a
post office box in a sealed prepaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the bylaws.
Section 4. Resignations. Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director and
each member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
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reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
Unless otherwise restricted by the Certificate of Incorporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time bylaws of the Corporation at any regular or special meeting of the Board of
Directors upon the affirmative vote of a majority of the directors then in
office, subject to the right of the stockholders entitled to vote with respect
thereto to amend or repeal such bylaws as adopted or amended by the Board of
Directors.
-16-
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