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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14287
USEC INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 52-2107911
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 DEMOCRACY CENTER,
6903 ROCKLEDGE DRIVE, BETHESDA MD 20817
(Address of principle executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (301) 564-3200
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
--- ---
As of March 31, 1999, there were 99,995,000 shares of Common Stock, par
value $.10 per share, issued and outstanding.
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USEC INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
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<CAPTION>
PAGE
----
PART I
<S> <C>
FINANCIAL INFORMATION
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999 (Unaudited) and June 30, 1998...... 3
Consolidated Statements of Income for the Three and Nine Months Ended
March 31, 1999 and 1998 (Unaudited).......................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1999 and 1998 (Unaudited).......................................... 5
Notes to Consolidated Financial Statements (Unaudited)........................... 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 10
Quantitative and Qualitative Disclosures about Market Risk........................... 18
PART II
OTHER INFORMATION
Legal Proceedings.................................................................... 19
Submission of Matters to a Vote of Security Holders.................................. 19
Other Information - Annual Meeting................................................... 20
Exhibits and Reports on Form 8-K..................................................... 20
Signature............................................................................ 20
</TABLE>
--------------
This Quarterly Report on Form 10-Q includes certain forward-looking
information (within the meaning of the Private Securities Litigation Reform Act
of 1995) that involve risks and uncertainty, including certain assumptions
regarding the future performance of USEC. Actual results and trends may differ
materially depending upon a variety of factors, including, without limitation,
market demand for USEC's services, pricing trends in the uranium and enrichment
markets, the availability and cost of electric power, USEC's ability to
successfully execute its internal performance plans, the refueling cycles of
USEC's customers and the impact of any government regulation. Further, customer
commitments under their contracts are based on customers' estimates of their
future requirements.
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USEC INC.
CONSOLIDATED BALANCE SHEETS
(MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, JUNE 30,
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..................................... $ 39.6 $1,177.8
Accounts receivable - customers............................... 179.4 236.4
Inventories:
Separative Work Units....................................... 702.2 687.0
Uranium..................................................... 188.9 184.5
Uranium provided by customers............................... 152.4 315.0
Materials and supplies 20.7 24.8
---------- --------
Total Inventories......................................... 1,064.2 1,211.3
Payments for future deliveries under Russian Contract......... 50.0 63.4
Other......................................................... 34.3 39.5
---------- --------
Total Current Assets...................................... 1,367.5 2,728.4
Property, Plant and Equipment, net.............................. 146.2 131.9
Other Assets
Deferred income taxes......................................... 48.9 -
Deferred costs for depleted uranium........................... 45.8 50.0
Uranium inventories........................................... 570.1 561.0
--------- --------
Total Other Assets........................................ 664.8 611.0
--------- --------
Total Assets.................................................... $2,178.5 $3,471.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities...................... $ 222.4 $ 182.9
Uranium owed to customers..................................... 152.4 315.0
Payables under Russian Contract............................... 36.7 8.4
Nuclear safety upgrade costs.................................. 24.2 41.2
---------- --------
Total Current Liabilities................................. 435.7 547.5
Long-Term Debt.................................................. 500.0 -
Other Liabilities
Advances from customers....................................... 18.1 34.3
Depleted uranium disposition.................................. 8.4 372.6
Other liabilities............................................. 84.7 96.4
---------- --------
Total Other Liabilities................................... 111.2 503.3
Stockholders' Equity
Preferred stock, par value $1.00 per share, 25,000,000 shares
authorized, none issued..................................... - -
Common stock, par value $.10 per share, 250,000,000 shares
authorized, 99,995,000 shares issued and outstanding........ 10.0 10.0
Excess of capital over par value.............................. 1,072.0 1,357.1
Retained earnings............................................. 58.4 1,053.4
Treasury stock and deferred compensation...................... (8.8) -
------- --------
Total Stockholders' Equity................................ 1,131.6 2,420.5
------- -------
Total Liabilities and Stockholders' Equity...................... $2,178.5 $3,471.3
======== ========
</TABLE>
See notes to consolidated financial statements
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USEC INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -------------------
1999 1998 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Domestic............................. $205.9 $194.6 $612.8 $ 646.0
Asia................................. 50.8 76.4 302.0 340.2
Europe and other..................... 3.7 23.0 75.9 70.5
------- ------- ------ -------
260.4 294.0 990.7 1,056.7
Cost of sales........................... 207.1 214.4 786.4 792.2
------- ------- ------ -------
Gross profit............................ 53.3 79.6 204.3 264.5
Project development costs............... 19.9 35.4 78.7 103.0
Selling, general and administrative..... 10.2 7.8 27.4 24.8
------- ------- ------ -------
Operating income........................ 23.2 36.4 98.2 136.7
Interest expense........................ 8.6 - 23.9 -
Other (income) expense, net............. (10.0) (3.9) (13.6) (5.3)
------- ------- ------- -------
Income before income taxes.............. 24.6 40.3 87.9 142.0
Provision (benefit) for income taxes.... 8.4 - (23.5) -
------- ------- ------- -------
Net income.............................. $ 16.2 $ 40.3 $111.4 $ 142.0
======= ======= ====== =======
Net income per share - basic and diluted $.16 $1.11
Dividends per share..................... $.275 $.55
Average number of shares outstanding.... 100.0 100.0
</TABLE>
See notes to consolidated financial statements
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USEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 111.4 $ 142.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes..................................... (48.9) -
Depreciation and amortization............................. 11.4 11.3
Depleted uranium disposition.............................. - 45.2
Advances from customers................................... (16.2) (.9)
Changes in operating assets and liabilities:
Accounts receivable - decrease.......................... 57.0 10.3
Inventories - (increase)................................ (24.6) (129.1)
Payables under Russian Contract, net.................... 41.7 83.1
Accounts payable and other liabilities - increase
(decrease).............................................. 20.4 (18.2)
Other................................................... 18.1 (4.6)
--------- --------
Net Cash Provided by Operating Activities....................... 170.3 139.1
--------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures............................................ (25.7) (20.5)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to U.S. Treasury................................. (1,709.4) (120.0)
Dividends paid to shareholders.................................. (55.0) -
Proceeds from issuance of senior notes.......................... 495.2 -
Purchase of treasury stock...................................... (4.6) -
Debt issuance costs............................................. (3.7) -
Costs relating to initial public offering....................... (5.3) -
--------- --------
Net Cash Used in Financing Activities........................... (1,282.8) (120.0)
--------- --------
Net Increase (Decrease)......................................... (1,138.2) (1.4)
--------- --------
Cash and Cash Equivalents at Beginning of Period................ 1,177.8 1,261.0
--------- --------
Cash and Cash Equivalents at End of Period...................... $ 39.6 $1,259.6
========= ========
Supplemental Cash Flow Information
Interest paid................................................ $ 16.7
Income taxes paid............................................ 5.7
Supplemental Schedule of Non-Cash Financing Activities
Transfer of responsibility for depleted uranium disposition
to DOE....................................................... $ 373.8
</TABLE>
See notes to consolidated financial statements
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USEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by USEC Inc. ("USEC") pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the financial results for the interim period. Certain information
and notes normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations.
Operating results for the three and nine months ended March 31, 1999, are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 1999. The unaudited consolidated financial statements
should be read in conjunction with the financial statements and footnotes
thereto, together with management's discussion and analysis of financial
condition and results of operations, included in the Annual Report on Form 10-K
for the fiscal year ended June 30, 1998, and the Registration Statement on Form
S-1, as amended, filed January 14, 1999.
Cash and cash equivalents at March 31, 1999, include temporary cash
investments with maturities of three months or less. At June 30, 1998, cash
consisted of non-interest bearing funds on deposit with the U.S. Treasury.
2. INITIAL PUBLIC OFFERING
On July 28, 1998, the sale of USEC's common stock in connection with an
initial public offering (the "IPO") was completed, resulting in net proceeds to
the U.S. Government aggregating $3,092.1 million, including $1,382.7 million
from the IPO and $1,709.4 million from the exit dividend paid to the U.S.
Treasury. The U.S. Government, the sole selling shareholder, sold its entire
interest. USEC did not receive any proceeds from the IPO.
The exit dividend of $1,709.4 million paid to the U.S. Treasury represented
the cash balance held in USEC's account at the U.S. Treasury and $500.0 million
of $550.0 million in borrowings at the time of the IPO. USEC retained $50.0
million in cash from the $550.0 million in borrowings. The amount of the exit
dividend in excess of retained earnings was recorded in July 1998 as a reduction
of excess of capital over par value.
In connection with the IPO, USEC Inc. became a holding company. The
consolidated financial statements include the accounts of USEC Inc. and its
subsidiaries. All material intercompany transactions have been eliminated.
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USEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. DEBT
Debt at March 31, 1999, follows (millions):
<TABLE>
<CAPTION>
MARCH 31,
1999
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<S> <C>
Long-term debt:
6.625% senior notes, due January 2006.................... $ 350.0
6.750% senior notes, due January 2009.................... 150.0
-------
$ 500.0
=======
</TABLE>
On January 20, 1999, USEC issued $350.0 million of 6.625% senior notes due
January 2006 and $150.0 million of 6.750% senior notes due January 2009. The net
proceeds were used to repay a portion of the borrowings under a bank credit
facility. The senior notes are unsecured obligations and rank on a parity with
all other unsecured and unsubordinated indebtedness of USEC Inc. The senior
notes are not subject to any sinking fund requirements. Interest is paid every
six months on January 20 and July 20 beginning in July 1999. The senior notes
may be redeemed at any time at a redemption price equal to the principal amount
plus any accrued interest up to the redemption date plus a make-whole premium,
as defined.
At March 31, 1999, commitments available under the bank credit facility
totaled $300.0 million as follows: $150.0 million under a revolving credit
facility convertible in July 1999 into a one-year term loan and $150.0 million
under a five-year revolving credit facility expiring July 2003. A commercial
paper program was established in February 1999. Commercial paper borrowings are
supported by available commitments under the bank credit facility. There were no
commercial paper or other short-term borrowings outstanding at March 31, 1999.
The bank credit facility requires USEC to comply with certain financial
covenants, including a minimum net worth and a debt to total capitalization
ratio, as well as other customary conditions and covenants. The bank credit
facility restricts borrowings by subsidiaries to a maximum of $100.0 million.
The failure to satisfy any of the covenants would constitute an event of
default. The bank credit facility also includes other customary events of
default, including without limitation, nonpayment, misrepresentation in a
material respect, cross-default to other indebtedness, bankruptcy, and change of
control.
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USEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. INCOME TAXES
At the time of the IPO, USEC became subject to federal, state and local
income taxes. Future tax consequences of temporary differences between the
carrying amounts for financial reporting purposes and USEC's estimate of the tax
bases of its assets and liabilities result in a deferred tax asset of $48.9
million at March 31, 1999, as follows (millions):
<TABLE>
<CAPTION>
MARCH 31,
1999
------
<S> <C>
SWU and uranium inventory costs.................................... $12.8
Plant lease turnover costs......................................... 10.4
Pension costs...................................................... 10.6
Decommissioning and shutdown costs at power generation facilities.. 6.9
Other.............................................................. 8.2
-----
$48.9
=====
</TABLE>
The provision for income taxes in the nine months ended March 31, 1999,
includes a special income tax benefit of $54.5 million for deferred income tax
benefits that arise from the transition to taxable status. Excluding the special
tax benefit, the provision for income taxes for the nine months ended March 31,
1999, amounted to $31.0 million and reflects an effective income tax rate of
35.3%, as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1999
--------------
<S> <C>
Statutory federal income tax rate............................. 35.0%
State income taxes, net of federal benefit.................... 2.3
Research and experimentation tax credit....................... (2.2)
Other......................................................... .2
----
35.3%
====
</TABLE>
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USEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. STOCKHOLDERS' EQUITY
Changes in stockholders' equity follow (millions):
<TABLE>
<CAPTION>
COMMON
STOCK, EXCESS OF TREASURY STOCK TOTAL
PAR VALUE CAPITAL OVER RETAINED AND DEFERRED STOCKHOLDERS'
$.10 PER SHARE PAR VALUE EARNINGS COMPENSATION EQUITY
-------------- ------------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998............ $10.0 $1,357.1 $1,053.4 $ - $2,420.5
Exit dividend paid to U.S. Treasury - (658.0) (1,051.4) - (1,709.4)
Transfer of depleted uranium to DOE - 373.8 - - 373.8
Costs related to the IPO........... - (5.3) - (5.3)
Purchase of treasury stock......... - - - (4.6) (4.6)
Restricted stock issued, net of
amortization....................... - 4.4 - (4.2) .2
Dividends paid to shareholders..... - - (55.0) - (55.0)
Net income......................... - - 111.4 - 111.4
----- -------- -------- --------- ---------
BALANCE AT MARCH 31, 1999.......... $10.0 $1,072.0 $ 58.4 ($ 8.8) $1,131.6
===== ======== ======= ======= ========
</TABLE>
Pursuant to the USEC Privatization Act, at the time of the IPO, depleted
uranium generated by USEC from July 1993 to July 28, 1998, was transferred to
the Department of Energy ("DOE"), and the accrued liability of $373.8 million
for depleted uranium disposition was transferred to stockholders' equity.
In December 1998 and March 1999, quarterly cash dividends of $.275 per
share were paid to shareholders and aggregated $55.0 million. In April 1999, the
regular quarterly dividend of $.275 per share was declared payable June 15 to
shareholders of record as of May 28, 1999. USEC anticipates dividend payment
dates of September 15, and December 15 during the remainder of calendar 1999.
In February 1999, stockholders approved the USEC Inc. 1999 Equity Incentive
Plan, under which 9.0 million shares of common stock are reserved for issuance
over ten years, including incentive stock options, nonqualified stock options,
restricted stock or stock units, performance awards and other stock-based
awards. There were 316,000 shares of restricted stock granted during the three
months ended March 31, 1999. Sale of these shares is restricted prior to the
date of vesting. Deferred compensation from restricted stock awards is based on
the fair market value at the date of grant and is amortized to expense on a
straight-line basis over the vesting period.
In February 1999, stockholders approved the USEC Inc. 1999 Employee Stock
Purchase Plan under which 2.5 million shares of common stock can be purchased
over ten years by eligible employees at 85% of the lower of the market price at
the beginning or the end of each six-month offer period. Employees can elect to
designate up to 10% of their compensation to purchase common stock under the
plan. Shares purchased are allocated to participants' accounts and, upon
request, shares are distributed. The initial six-month offer period began in
March 1999.
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USEC INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenue
Revenue amounted to $260.4 million in the three months ended March 31,
1999, a reduction of $33.6 million (or 11%) from $294.0 million in the three
months ended March 31, 1998. In the nine months ended March 31, 1999, revenue
was $990.7 million, a reduction of $66.0 million (or 6%) from the $1,056.7
million in the nine months ended March 31, 1998. In the fiscal 1999 periods,
revenue from sales of separative work units ("SWU") was affected by changes in
the timing of customer nuclear reactor refueling orders and lower SWU commitment
levels of a domestic and a foreign customer, partly offset by sales to customer
reactors returning to service following an extended outage. USEC provided
enrichment services for 19 and 71 reactors in the three and nine months ended
March 31, 1999, respectively, compared with 20 and 74 reactors in the
corresponding periods of fiscal 1998. Revenue and operating results can
fluctuate significantly from quarter-to-quarter, and in some cases,
year-to-year. Customer requirements are determined by refueling schedules for
nuclear reactors, which generally range from 12 to 18 months (or in some cases
up to 24 months), and are in turn affected by, among other things, the seasonal
nature of electricity demand, reactor maintenance, and reactors beginning or
terminating operations. The average SWU price billed to customers in the three
and nine months ended March 31, 1999, was 3% and .5% lower than the
corresponding periods of fiscal 1998.
Certain contracts with customers provided for the sale of uranium and SWU
in the form of enriched uranium product. Revenue from sales of uranium was $19.4
million in the nine months ended March 31, 1999, compared with $35.2 million in
the corresponding period of fiscal 1998.
Recent industry and global economic developments have intensified the
effects of production over-capacity and continuing lower prices for enrichment
services. These developments include: the adverse impact of the strengthening
U.S. dollar; recent decisions by certain European utilities to liquidate
strategic SWU inventories; termination of the Kazakhstan suspension agreement; a
reduction in the open global demand for SWU; and heightened price competition
among uranium enrichment suppliers. During the last 10 months, USEC booked $1.3
billion in new business for delivery over the next 10 years. In its marketing
efforts, however, USEC has resisted lowering prices to levels that would fail to
meet its margin requirement even when it has meant a decline in market share.
USEC's focus is on profitability rather than market share. Also, last fall and
winter's soft pricing for natural uranium reduced opportunities for uranium
sales that would have had fiscal year 2000 deliveries. As a result of these
conditions, management expects fiscal year 2000 revenue to be about $1.4
billion.
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The percentage of revenue attributed to domestic and international
customers follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
---------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Domestic.................... 79% 66% 62% 61%
Asia........................ 20 26 30 32
Europe and other............ 1 8 8 7
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
Changes in the geographic mix of revenue resulted primarily from changes in
the timing of customers' orders.
Cost of Sales
Cost of sales is based on the quantity of SWU sold during the period and is
dependent upon production costs at the gaseous diffusion plants ("plants") and
purchase costs under the Russian Contract. Production costs consist principally
of electric power, labor and benefits, depleted uranium disposition costs,
materials, and maintenance and repairs. Under the monthly moving average
inventory cost method, an increase or decrease in production or purchase costs
will have an effect on costs of sales over future periods.
Cost of sales amounted to $207.1 million in the three months ended March
31, 1999, a decline of 7.3 million (or 3%) compared with $214.4 million in the
corresponding period of fiscal 1998. Cost of sales amounted to $786.4 million in
the nine months ended March 31, 1999, a decline of $5.8 million (or 1%) from the
$792.2 million in the corresponding period of fiscal 1998. As a percentage of
revenue, cost of sales amounted to 80% and 79% for the three and nine months
ended March 31, 1999, compared with 73% and 75% in the corresponding periods of
fiscal 1998. In the fiscal 1999 periods, cost of sales and unit costs under the
monthly moving average inventory cost method were affected by high power costs
in the summer of 1998.
Electric power costs amounted to $331.2 million in the nine months ended
March 31, 1999 (representing 57% of production costs) compared with $316.7
million (representing 53% of production costs) in the corresponding period of
fiscal 1998. The increase was attributable to higher costs per megawatt hour. In
the summer of 1998 persistent hot weather, high electricity demand in the
Midwest and power generation shortages resulted in record high power costs at
the Paducah plant. USEC curtailed production at the Paducah plant during the
summer to reduce the impact of high power prices and has increased production
since last summer to meet production and cost targets.
During the quarter ended March 31, 1999, USEC successfully negotiated
changes to its power supply agreements with its two primary electric suppliers.
USEC achieved its three primary goals for these negotiations:
- to limit USEC's exposure to high-cost, non-firm power prices at the
Paducah plant this summer;
- to monetize excess power available this summer under the contract to the
Portsmouth plant; and
- to be able to move blocks of power this summer from Ohio to the Paducah
plant if and when needed.
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<PAGE> 12
An agreement increasing USEC's flexibility under the contract with Electric
Energy Inc., the main supplier for the Paducah, Kentucky plant, has been
approved by regulatory authorities. A six-month financial and supply agreement
with Ohio Valley Electric Corporation, the main supplier to the Portsmouth, Ohio
plant, is pending regulatory approval. USEC expects that the completed
agreements will result in $30.0 million after-tax benefits related to production
cost, most of which will impact fiscal years 1999 and 2000.
USEC intends to negotiate with its power suppliers to extend and expand the
benefits of the latest agreements to cover periods beyond this summer. In the
non-firm power market, prices are generally trending upward. USEC will manage
its production levels and power purchases to reduce its exposure to this
continuing fluctuation in non-firm power prices, although there can be no
assurance that USEC will be successful in reducing such exposure.
Costs for labor and benefits amounted to $179.9 million in the nine months
ended March 31, 1999, about the same as in the corresponding period of fiscal
1998. In June 1998, USEC accrued a special charge of $32.8 million for costs
relating to certain severance and transition benefits to be paid with respect to
500 plant workers in connection with workforce reductions, including $20.0
million for worker and community transition assistance benefits that was paid to
the Department of Energy in June 1998 and $12.8 million for workers'
pre-existing severance benefits, of which $4.3 million had been paid as of March
31, 1999. The first phase of the workforce reduction was completed last fall,
reducing the workforce by 259 employees. In February 1999, the second phase of
the planned voluntary workforce reduction was announced. It will reduce the
workforce at the production plants by about 240 employees by July 1999.
In November 1998, USEC gave notice to terminate the operations and
management contract with its contractor, Lockheed Martin Utility Services, Inc.
USEC will assume direct management and operation of the plants in May 1999. USEC
expects an orderly transition of compensation and benefits to allow the plant
workers to become employees of USEC or its subsidiaries.
Costs for the future disposition of depleted uranium amounted to $28.8
million in the nine months ended March 31, 1999, a decline of $16.4 million (or
36%) from $45.2 million in the corresponding period of fiscal 1998. The
reduction reflects a lower future disposal rate per kilogram of depleted uranium
based on fixed-cost disposal contracts for a certain quantity of depleted
uranium. Pursuant to the USEC Privatization Act, depleted uranium generated by
USEC from July 1993 to July 28, 1998 was transferred to DOE, and the accrued
liability of $373.8 million at the time of the IPO, on July 28, 1998, was
transferred to stockholders' equity.
SWU unit production costs in the nine months ended March 31, 1999 and 1998
were adversely affected by lower production facility capability due to continued
sub-optimal gaseous diffusion cell availability at the Portsmouth plant.
Pursuant to an agreement with the United States Treasury Department, USEC
has committed to continue operation of the plants until at least January 2005,
subject to limited exceptions, including events beyond the reasonable control of
USEC, such as natural disasters, a decrease in annual worldwide demand to less
than 28 million SWU, a decline in the average price for all SWU under USEC's
long-term firm contracts to less than $80 per SWU (in 1998 dollars), a decline
in the operating margin to below 10% in a consecutive twelve-month period, a
decline in the interest coverage ratio to below 2.5x in a consecutive
twelve-month period, or if the long-term corporate credit rating is downgraded
below an investment grade rating. None of the exceptions to USEC's obligation to
operate the plants is currently applicable. Based on
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<PAGE> 13
information known, USEC does not anticipate that the average SWU price under its
long-term firm contracts is likely to fall below $80 per SWU (in 1998 dollars)
in the near future.
SWU purchased from the Russian Federation represented 15% and 28% of the
combined produced and purchased supply mix in the three and nine months ended
March 31, 1999, respectively, compared with 28% and 37% purchased from the
Russian Federation and DOE in the corresponding periods of fiscal 1998. In March
1999, the Russian Federation resumed deliveries after several months of
suspended deliveries. The suspended schedule of 1998 calendar year deliveries to
USEC should be completed by June 1999, and USEC has agreed to a schedule of
deliveries for the remainder of calendar year 1999. Purchases from the Russian
Federation are expected to aggregate 5.7 million SWU in calendar 1999. Cost of
sales has been, and will continue to be, affected by amounts paid to purchase
SWU under the Russian Contract at prices that are substantially higher than
marginal production cost at the plants. As a result of Russian SWU purchases,
USEC has operated the plants at lower production levels resulting in higher unit
production costs.
Project Development Costs
Project development costs, primarily for the AVLIS project, amounted to
$19.9 million in the three months ended March 31, 1999, a decline of $15.5
million (or 44%) from $35.4 million in the corresponding period of fiscal 1998.
In the nine months ended March 31, 1999, project development costs declined
$24.3 million (or 24%) to $78.7 million from $103.0 million in the corresponding
period of fiscal 1998. The reductions in the fiscal 1999 periods reflect lower
spending on design and licensing activities while activities have been focused
primarily on integrated operation of the laser and separator systems to verify
enrichment production economics.
Operating Income
Operating income amounted to $23.2 million and $98.2 million in the three
and nine months ended March 31, 1999, respectively, compared with $36.4 million
and $136.7 million in the corresponding periods of fiscal 1998. The reductions
reflect lower gross profit, partly offset by lower project development costs.
Interest Expense
Interest expense of $8.6 million in the three months and $23.9 million in
the nine months ended March 31, 1999, represents interest on senior notes issued
in January 1999, borrowings under the bank credit facility established in July
1998, and short-term borrowings under a commercial paper program established in
February 1999. Prior to the IPO in July 1998, USEC had no short or long-term
debt.
Other Income
Other income of $10.0 million and $13.6 million in the three and nine
months ended March 31, 1999, includes a nonrecurring gain of $8.2 million from a
contract modification canceling accrued interest payable on an advance payment
from the Arab Republic of Egypt.
-13-
<PAGE> 14
Provision for Income Taxes
At the time of the IPO, USEC became subject to federal, state and local
income taxes. The provision for income taxes in the nine months ended March 31,
1999, includes a special income tax benefit of $54.5 million for deferred income
tax benefits that arise from the transition to taxable status. Deferred tax
benefits represent differences between the carrying amounts for financial
reporting purposes and USEC's estimate of the tax bases of its assets and
liabilities.
Excluding the special tax benefit, the provision for income taxes for the
nine months ended March 31, 1999, amounted to $31.0 million and reflects an
effective income tax rate of 35.3%.
Net Income
Net income amounted to $16.2 million (or $.16 per share) in the three
months and, excluding the special tax benefit, $56.9 million (or $.57 per share)
in the nine months ended March 31, 1999, compared with $40.3 million and $142.0
million in the corresponding periods of fiscal 1998. The reductions reflect
lower operating income and income taxes and interest expense incurred since the
IPO in July 1998. Including the special tax benefit, net income was $111.4
million (or $1.11 per share) in the nine months ended March 31, 1999.
Fiscal 2000 Outlook
In light of recent industry and global economic developments that have
intensified the effects of production over-capacity and continuing low prices
for enrichment services, management is actively reviewing USEC's cost structure
and strategic alternatives to bolster USEC's competitive position over the
longer term. Management believes that this process will result in initiatives
directed at better rationalizing worldwide excess production capacity, aligning
the Russian HEU transaction with current pricing realities and ensuring maximum
return for every R&D dollar spent. Innovative marketing initiatives are underway
to achieve additional sales.
Through aggressive cost cutting actions, management expects fiscal year
2000 earnings to be similar to fiscal 1999 levels, excluding a special tax
benefit, with continued strong cash flow. The Board of Directors emphasized that
they expect to maintain the dividend payment at the indicated level.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Flow
Net cash flows provided by operating activities amounted to $170.3 million
in the nine months ended March 31, 1999, compared with $139.1 million in the
corresponding period of fiscal 1998. Cash flow in the fiscal 1999 period
includes the collection of an overdue receivable of $36.0 million from a Korean
customer and was reduced by lower operating income and interest expense on
borrowings in the fiscal 1999 period.
Net cash flows provided by operating activities in the nine months ended
March 31, 1998, had been reduced by an increase of $129.1 million in
inventories, partly offset by the net increase of $83.1 million in payables to
the Russian Federation for purchases of SWU. Cash flow in the fiscal 1998 period
had been increased by accrued liabilities for depleted uranium disposition
-14-
<PAGE> 15
costs of $45.2 million. Under the USEC Privatization Act, depleted uranium
generated up to the time of the IPO on July 28, 1998, was transferred to DOE
with no cash outlays by USEC.
Capital expenditures related primarily to plant improvements amounted to
$25.7 million in the nine months ended March 31, 1999, compared with $20.5
million in the corresponding period of fiscal 1998.
The exit dividend paid to the U.S. Treasury at the time of the IPO in July
1998 amounted to $1,709.4 million.
In December 1998 and March 1999, quarterly cash dividends of $.275 per
share were paid to shareholders and aggregated $55.0 million. In April 1999, the
regular quarterly dividend of $.275 per share was declared payable June 15 to
shareholders of record as of May 28, 1999. USEC anticipates dividend payment
dates of September 15 and December 15 during the remainder of calendar 1999.
On January 20, 1999, USEC issued $350.0 million of 6.625% senior notes due
January 2006 and $150.0 million of 6.750% senior notes due January 2009. The net
proceeds of $495.2 were used to repay a portion of the borrowings under the bank
credit facility. The senior notes are unsecured obligations and rank on a parity
with all other unsecured and unsubordinated indebtedness of USEC Inc.
At March 31, 1999, commitments available under the bank credit facility
totaled $300.0 million as follows: $150.0 million convertible in July 1999 into
a one-year term loan and $150.0 million under a five-year revolving credit
facility expiring July 2003. Commercial paper borrowings are supported by
available commitments under the bank credit facility.
At March 31, 1999, net working capital amounted to $931.8 million and the
total debt-to-capitalization ratio was 31%.
USEC expects that its cash, internally generated funds from operating
activities, and available financing sources under the bank credit facility and
commercial paper program, will be sufficient to meet its obligations as they
become due and to fund operating requirements of the plants, purchases of SWU
under the Russian Contract, capital expenditures and discretionary investments,
project development costs in the near term, interest expense, and quarterly
dividends.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue exists because many software and embedded systems
(defined below), which use only two digits to identify a year in a date field,
were developed without considering the impact of the upcoming change in the
century. Some of these systems are critical to USEC's operations and business
processes and could fail or function inaccurately if not repaired or replaced
with Year 2000 ready products. USEC's software and embedded systems will be Year
2000 ready when such systems are replaced or remediated to perform essential
functions accurately and without failure. Software is computer programming that
has been developed by USEC for its own use (in-house software) and purchased
from vendors (vendor software). Embedded systems refer to both computing
hardware and other electronic monitoring, communications, and control systems
that have microprocessors.
-15-
<PAGE> 16
The Year 2000 project focuses on systems that are critical. The failure of
critical systems would directly and adversely affect the ability to generate or
deliver products and services or otherwise affect revenue, safety, or
reliability for a period of time as to lead to unrecoverable consequences. USEC
has adopted a phased approach for critical systems:
- a company-wide inventory, in which critical systems were identified;
assessment, in which critical systems were evaluated as to their
readiness to
- operate in the Year 2000;
- remediation, in which critical systems that are not Year 2000 ready are
upgraded by modification or replacement;
- testing, in which remediation is validated by checking the ability of
critical systems to operate within the Year 2000 time frame; and
- certification, in which systems are formally acknowledged to be Year 2000
ready and acceptable for operation.
The Year 2000 project is proceeding on schedule. Remediation, testing and
certification of the identified, critical, in-house and vendor software and
hardware is substantially complete with other items expected to be completed by
July 1999. Other software that requires Year 2000 remediation may be included
during the remediation and testing phases.
Remediated software and embedded systems are being tested both for ability
to handle Year 2000 dates, including leap year, and to assure that repair has
not affected functionality. Software and embedded systems are being tested
individually and where necessary in an integrated manner with other systems,
with dates advanced to simulate the Year 2000. All are being tested to reduce
risk, but testing cannot comprehensively address all future combinations of
dates and events.
USEC depends on external parties, including electric power utilities,
customers, suppliers, government agencies, and financial institutions, to
reliably deliver products and services. To the extent that external parties
experience Year 2000 problems, the demand for and the reliability of USEC's
services may be adversely affected. USEC has adopted a phased approach to
address external parties and the Year 2000 issue:
- inventory, in which critical business relationships were identified;
action planning, in which a series of actions and a time frame for
monitoring
- expected compliance status were developed;
- assessment, in which the likelihood of external party Year 2000 readiness
is being evaluated; and
- contingency planning, in which plans are being made to deal with the
potential failure of an external party to be Year 2000 ready.
Assessment of Year 2000 readiness of external parties will continue through
calendar year 1999.
USEC is assessing the progress of Year 2000 remediation efforts internally
and externally to determine the scope of contingency planning necessary to
reduce the risk. If the remediation schedule lags and cannot meet certain
milestones, a contingency planning process would begin, and contingency plans
would be implemented if a remediated system does not become available by the
date it is needed. USEC is developing contingency plans for the potential
failure of critical external parties to address their Year 2000 issues.
-16-
<PAGE> 17
USEC recognizes that, given the complex interaction of computing and
communication systems, it is not possible to be certain that all efforts to have
all critical systems Year 2000 ready will be successful. Irrespective of the
progress of the Year 2000 project, USEC is preparing contingency plans. The
plans take into account the possibility of multiple system failures, both
internal and external, due to Year 2000 effects.
There can be no assurance that such programs will identify and cure all
software problems, or that entities on whom USEC relies for certain services
integral to its business, such as the electric power suppliers, will
successfully address all of their software and systems problems in order to
operate without disruption in 2000.
USEC expects its costs for software modifications and systems upgrades to
resolve Year 2000 issues will amount to $14.6 million, of which $9.2 million had
been incurred at March 31, 1999. Pursuant to USEC's financial accounting and
reporting policies, purchased hardware and software costs are capitalized, and
implementation costs, including consultants' fees, are charged against income as
incurred.
POWER PURCHASES, CHANGING PRICES AND INFLATION
The plants require substantial amounts of electricity to enrich uranium.
USEC purchases firm and non-firm power to meet its production needs. Firm power
and non-firm power represented 72% and 28%, respectively, of power purchased in
the nine months ended March 31, 1999. Production costs increase to the extent
that the market prices of firm and non-firm power rise. In the non-firm power
market, prices are generally trending upward. USEC will manage its production
levels and power purchases to reduce its exposure to this continuing fluctuation
in non-firm power prices, although there can be no assurance that USEC will be
successful in reducing such exposure. In addition, the price that USEC pays for
firm power could increase if there were additional regulatory costs or
unanticipated equipment failures at the power plants supplying the firm power to
the plants.
A majority of USEC's contracts with customers generally provide for prices
that are subject to adjustment for inflation. In recent years, inflation has not
had a significant impact on operations, and unless inflation increases
substantially, it is not expected to have a material effect.
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<PAGE> 18
USEC INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments are reported on the balance sheet at March 31, 1999,
and include cash and cash equivalents, accounts receivable and payable, and
certain accrued liabilities, payables under the Russian Contract, the carrying
amounts for which approximate fair value at March 31, 1999.
On January 20, 1999, USEC refinanced $500.0 million of borrowings under the
bank credit facility with $350.0 million of 6.625% senior notes due January 2006
and $150.0 million of 6.750% senior notes due January 2009. The repayment
schedule of senior notes, the balance sheet carrying amounts and related fair
values at March 31, 1999, follow (millions):
<TABLE>
<CAPTION>
MATURITY DATES
-------------------
JANUARY JANUARY BALANCE SHEET FAIR
2006 2009 CARRYING AMOUNT VALUE
-------- -------- --------------- -------
<S> <C> <C> <C> <C>
Long-term debt:
6.625% senior notes..... $350.0 $ 350.0 $ 344.4
6.750% senior notes..... $150.0 150.0 147.0
-------- --------
$ 500.0 $ 491.4
======= =======
</TABLE>
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<PAGE> 19
USEC INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
USEC held its annual meeting of shareholders on February 2, 1999. As of the
December 4, 1998 record date, there were 100.0 million shares of common stock
outstanding and entitled to vote. 90.6% of those shares were represented at the
annual meeting.
A board of seven directors (listed below) was elected at the annual
meeting. Each director holds office until the next annual meeting. There was no
solicitation in opposition to the nominees proposed in the proxy statement, and
there were no abstentions or broker non-votes.
<TABLE>
<CAPTION>
FOR AGAINST
--- -------
<S> <C> <C>
James R. Mellor, Chairman 90,323,655 299,798
Joyce F. Brown, Ph.D 90,437,289 186,164
Frank V. Cahouet 90,457,405 166,048
John R. Hall 90,461,255 162,198
Dan T. Moore, III 90,478,155 145,298
William H. Timbers, Jr. 90,471,455 151,998
William H. White 90,459,195 164,258
</TABLE>
The appointment of Arthur Andersen LLP as independent auditors for fiscal
1999 was ratified with 90,264,268 votes for (99.8% of votes cast) and 138,331
against (0.2% of votes cast). There were 220,854 abstentions and no broker
non-votes.
The USEC Inc. 1999 Equity Incentive Plan was adopted with 49,294,942 votes
for (69.2% of votes cast) and 21,931,816 votes against (30.8% of votes cast).
There were 388,115 abstentions and 19,008,580 broker non-votes.
The USEC Inc. 1999 Employee Stock Purchase Plan was adopted with 67,493,704
votes for (94.7% of votes cast) and 3,754,209 votes against (5.3% of votes
cast). There were 366,960 abstentions and 19,008,580 broker non-votes.
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<PAGE> 20
ITEM 5. OTHER INFORMATION - ANNUAL MEETING
USEC's next annual meeting of shareholders has been scheduled for November
3, 1999, approximately four months from the end of USEC's 1999 fiscal year. USEC
expects to mail its proxy materials to shareholders for the annual meeting on or
about September 20, 1999. Consequently, in order to be considered for inclusion
in USEC's proxy statement for the annual meeting, proposals from shareholders
must be received by the Secretary of USEC at Two Democracy Center, 6903
Rockledge Drive, Bethesda, Maryland 20817, not later than June 22, 1999. In
addition, under USEC's Bylaws, in order to be timely, shareholders must give
advance notice of nominations for director or other business to be addressed at
the annual meeting, not later than the close of business on August 5, 1999 and
not earlier than July 6, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Exhibit 3 (ii), Bylaws of USEC Inc., as amended.
Exhibit 27, Financial Data Schedule.
There were no reports on Form 8-K filed during the quarter ended March 31,
1999.
SIGNATURE
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.
USEC INC.
May 6, 1999 By /s/ Henry Z Shelton, Jr.
--------------------------
HENRY Z SHELTON, JR.
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 1
Exhibit 3(ii)
AMENDED AND RESTATED
BY-LAWS
OF
USEC INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
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.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meeting of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meet-
<PAGE> 2
ings the stockholders shall elect by a plurality vote members of a Board of
Directors, and transact such other business as may properly be brought before
the meeting. Unless otherwise required by law, written notice of the Annual
Meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law
or by the Certificate of Incorporation, special meetings ("Special Meetings") of
Stockholders, for any purpose or purposes, may be called by either the Chairman,
if there be one, or the President, and shall be called by any such officer at
the request in writing of (i) the Board of Directors or (ii) a committee of the
Board of Directors that has been designated by the Board of Directors and whose
power and authority include the power to call such meetings. Such request shall
state the purpose or purposes of the proposed meeting. Unless otherwise required
by law, written notice of a Special Meeting stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting. At a Special Meeting of
Stockholders only such business shall be conducted as shall be specified in the
notice of meeting (or any supplement thereto).
Section 4. Quorum. Unless otherwise required by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. 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 noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
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<PAGE> 3
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the stock represented and entitled
to vote thereat. Each stockholder represented at a meeting of stockholders shall
be entitled to cast one vote for each share of the capital stock entitled to
vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his or her discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list 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 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 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 of the Corporation who is
present.
Section 7. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 8. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation. Nominations of persons for election to
the Board of Directors may be made at any annual meeting of stockholders (a) by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section 8
and on the record
3
<PAGE> 4
date for the determination of stockholders entitled to vote at such annual
meeting and (ii) who complies with the notice procedures set forth in this
Section 8.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred twenty
(120) days prior to the date of the annual meeting of stockholders; provided,
however, that in the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation that are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation that are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice,
(v) a statement, signed under oath and in such reasonable detail as the Board of
Directors may require, that such stockholder is not a foreign person (as defined
in the Corporation's Certificate of Incorporation) or under the control of a
foreign person and that such stockholder is
4
<PAGE> 5
not a Contravening Person (as defined in the Corporation's Certificate of
Incorporation) or under the control of a Contravening Person, (vi) an
undertaking to notify the Corporation if the statement specified in clause (v)
becomes untrue in any respect from the date such statement is given up to and
including the date and time of the vote for the proposed nominee and (vii) any
other information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 8. If the Chairman of the meeting determines (a) that a nomination was
not made in accordance with the foregoing procedures, (b) that at the date and
time of the vote for the proposed nominee the stockholder who nominated such
nominee is a foreign person or under the control of a foreign person or (c) that
at the date and time of the vote for the proposed nominee the stockholder who
nominated such nominee is a Contravening Person or under the control of a
Contravening Person, the Chairman shall declare to the meeting that the
nomination was defective and such defective nomination shall be disregarded.
Section 9. Business at Annual Meetings. No business may be
transacted at an Annual Meeting of Stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the Annual Meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the Annual Meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 9 and on the record date
for the determination of stockholders entitled to vote at such Annual Meeting
and (ii) who complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements, for business to
be properly brought before an Annual Meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
5
<PAGE> 6
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred twenty
(120) days prior to the date of the Annual Meeting of Stockholders; provided,
however, that in the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the Annual Meeting was mailed or such public disclosure of the date of
the Annual Meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the Annual Meeting (i) 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, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation that are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the Annual Meeting to bring such
business before the meeting.
No business shall be conducted at the Annual Meeting of
Stockholders except business brought before the Annual Meeting in accordance
with the procedures set forth in this Section 9, provided, however, that, once
business has been properly brought before the Annual Meeting in accordance with
such procedures, nothing in this Section 9 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an Annual
Meeting determines that business was not properly brought before the Annual
Meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
Section 10. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent
6
<PAGE> 7
inconsistent with such rules and regulations as adopted by the Board of
Directors, the Chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such Chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the Chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the
meeting to stockholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the Chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (vi) limitations on the time allotted to
questions or comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than three nor more than twenty members, the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Except as provided in
the Certificate of Incorporation, directors shall be elected by a plurality of
the votes cast at Annual Meetings of Stockholders. Any director may resign at
any time upon written notice to the Corporation. Directors need not be
stockholders. Directors must be citizens of the United States of America.
Section 2. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders.
Section 3. Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at
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such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by a majority of directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given
to each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone or telegram on twenty-four (24) hours'
notice, or on such shorter notice as the person or persons calling such meeting
may deem necessary or appropriate in the circumstances.
Section 4. Quorum. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 5. Actions by Written Consent. Unless otherwise provided
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the 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.
Section 6. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee 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 a meeting
pursuant to this Section 6 shall constitute presence in person at such meeting.
Section 7. Committees. The Board of Directors may designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
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member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. Any committee, to the extent
allowed by law and provided in the resolution establishing such committee,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 8. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 9. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose if (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in
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determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The Board of Directors shall elect a Chairman
of the Board of Directors (who must be a director) or a President, or both, and
a Secretary and a Treasurer and may elect one or more Vice Chairmen of the Board
of Directors (who must be directors) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers, as the Board may
determine. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these By-Laws.
Except as may be stipulated by a resolution of the Board of Directors, the
officers of the Corporation may, but need not be stockholders of the Corporation
nor, except in the case of the Chairman of the Board of Directors or Vice
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner
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thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors; Vice Chairmen of
the Board of Directors. The Chairman of the Board of Directors, if there be one,
shall preside at all meetings of the stockholders and of the Board of Directors.
The Chairman of the Board of Directors shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him or
her by these By-Laws or by the Board of Directors. The Board of Directors may,
by resolution, from time to time confer like powers upon one or more Vice
Chairmen of the Board of Directors to serve in the absence or disability of the
Chairman of the Board of Directors. If there shall be more than one Vice
Chairman of the Board of Directors, they shall act as Chairman by order of their
seniority on the Board of Directors or as otherwise determined by the Board of
Directors.
Section 5. President. The President, subject to the control of
the Board of Directors, shall have general charge and supervision and authority
over all operations of the Corporation and shall have such powers and perform
such duties as are incident to his or her office or as may be properly granted
to or required by him or her by the Board of Directors, by the Chairman of the
Board of Directors or by these By-laws. The President shall be the Chief
Executive Officer of the Corporation. The President shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him or her by these By-Laws or the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in
his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman or Vice Chairman of the Board of Directors), the
Vice President or the Vice Presidents if there is more than one (in the order
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. Each Vice President shall perform such other
duties and have such other powers as the Board of Directors or the Chief
Executive Officer from time to time may prescribe. If there be no Chairman or
Vice Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, 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.
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Section 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the Chief Executive Officer, under whose supervision he or she
shall be. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the Chief Executive Officer may choose another officer to cause
such notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his or her signature. The Secretary shall see that all
books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors or the Chief Executive Officer. The Treasurer shall perform such other
duties as may be prescribed by the Board of Directors or the Chief Executive
Officer, under whose supervision he or she shall be.
Section 9. Assistant Secretaries. Assistant Secretaries, if there
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the Chief Executive Officer, the
President, any Vice President, if there be one, or the Secretary, and in the
absence of the Secretary or in the event of his or her disability or refusal to
act, shall perform the duties of the Secretary, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the Secretary.
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Section 10. Assistant Treasurers. Assistant Treasurers, if there
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the Chief Executive Officer, the
President, any Vice President, if there be one, or the Treasurer, and in the
absence of the Treasurer or in the event of his or her disability or refusal to
act, shall perform the duties of the Treasurer, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors or the Chief Executive
Officer. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him or her in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may
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be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his or her attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfers shall be valid as against the
Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. 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,
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however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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 may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his or her
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the
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person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 5. Legend on Indebtedness. The Corporation shall include
a plainly stated legend on its financial obligations as required by and in
accordance with the USEC Privatization Act (P.L. 104-134) that its financial
obligations are not obligations of, or guaranteed as to principal or interest
by, the United States.
ARTICLE VIII
INDEMNIFICATION
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Section 1. Power to Indemnify in Actions, Suits or Proceedings
other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation. Subject to Section 3 of this Article VIII,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in
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which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation, or, with respect to any criminal
action or proceeding, to have had no reasonable cause to believe his or her
conduct was unlawful, if his or her action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
him or her by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in this
Section 4 shall mean any other corporation or
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any partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because he or she has met the
applicable standards of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, statute, agreement, contract, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity
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and as to action in another capacity while holding such office, it being the
policy of the Corporation that indemnification of the persons specified in
Sections 1 and 2 of this Article VIII shall be made to the fullest extent
permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State
of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or shall be a director, officer
or employee of the Corporation, or is or was or shall be a director, officer or
employee of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power or the obligation to indemnify him or her against such liability
under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers or employees, so that any person who is or was a director,
officer or employee of such constituent corporation, or is or was a director,
officer or employee of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article VIII, references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee
20
<PAGE> 21
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director,
officer or employee in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. Subject to the
requirements of the Certificate of Incorporation, all such amendments must be
approved by either the affirmative vote of the holders of at least 50% of the
voting power of all the shares of capital stock of the Corporation then entitled
to vote generally in the election of directors, voting together as a single
class or by a majority of the entire Board of Directors then in office.
21
<PAGE> 22
Section 2. Entire Board of Directors. As used in this Article IX
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
22
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