<PAGE>
UNITED STATES
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 quarter period ended November 30, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______to______
________________________________
Commission File Number 0-10796
________________________________
VALLEN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Texas 74-1366847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13333 Northwest Freeway
Houston, Texas 77040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-8700
</TABLE>
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, exclusive of treasury shares, at January 12, 1996:
7,250,988 shares of Common Stock, $.50 Par Value
Page 1 of 11
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PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31, 1995
------------------
ASSETS NOVEMBER 30, (DERIVED FROM
1995 AUDITED FINANCIAL
Current assets: (Unaudited) STATEMENTS)
------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 581 $ 3,006
Trading securities, at cost which
approximates market 2,000 7,255
Accounts receivable, net 31,744 26,039
Notes receivable 147 412
Inventories 30,716 24,026
Prepaid expenses and other current
assets 3,725 2,565
-------- -------
Total current assets 68,913 63,303
Property, plant and equipment, at cost 44,619 40,501
Less accumulated depreciation and
amortization 23,569 19,558
======== =======
Net property, plant and equipment 21,050 20,943
Notes receivable - non-current 1,599 1,599
Investment in foreign affiliate, net 7,616 3,070
Intangibles, net of accumulated
amortization 4,707 1,235
Other 1,513 504
-------- -------
$105,398 $90,654
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 239 $ 161
Accounts payable 11,672 8,587
Other accrued liabilities 3,642 2,654
Income taxes payable 53 180
-------- -------
Total current liabilities 15,606 11,582
Long-term debt, excluding current
maturities 10,737 5,194
Deferred income taxes 1,196 1,196
Shareholders' equity:
Preferred stock $1.00 par value;
1,000,000 shares
authorized and unissued
Common stock $.50 par value;
20,000,000 shares
authorized; 9,713,884 shares
issued at
November 30, 1995 and May 31, 1995 4,858 4,857
Additional paid-in capital 5,654 3,955
Translation adjustment (773) (417)
Retained earnings 70,734 67,028
-------- -------
80,473 75,423
Less cost of common shares held in
treasury (2,462,997
shares at November 30, 1995 and
2,591,750 shares at
May 31, 1995) 2,614 2,741
-------- -------
Total shareholders' equity 77,859 72,682
-------- -------
$105,398 $90,654
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 11
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except For Per Share Amounts)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $60,830 $50,956 $112,828 $97,018
Cost of sales 45,460 37,850 83,984 71,880
------- ------- -------- -------
Gross profit 15,370 13,106 28,844 25,138
Selling, general and administrative
expenses 12,167 10,186 23,422 20,445
------- ------- -------- -------
Operating income 3,203 2,920 5,422 4,693
Earnings from foreign affiliates, net 224 110 432 234
Interest and dividend income 117 98 316 186
Interest expense 142 49 249 96
Other income (expense), net (153) (174) (274) (243)
------- ------- -------- -------
Earnings before income taxes 3,249 2,905 5,647 4,774
Income taxes 1,100 1,020 1,941 1,685
------- ------- -------- -------
Net earnings $ 2,149 $ 1,885 $ 3,706 $ 3,089
======= ======= ======== =======
Net earnings per common share $0.30 $0.27 $0.51 $0.44
======= ======= ======== =======
Weighted average number of common
shares outstanding 7,251 7,104 7,222 7,096
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30, 1995 1994
- ---------------------------------------- --------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 3,706 $ 3,089
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Loss (gain) on disposition of
property, plant and equipment 28 (50)
Depreciation and amortization 1,603 1,772
Undistributed earnings from
foreign affiliate, net (432) (234)
Undistributed losses from U.S.
affiliate, net 58 0
Change in assets and liabilities,
net of effects from purchase of
companies
Decrease (increase) in trading
securities 5,255 (1,481)
(Increase) decrease in accounts
receivable, net (5,705) 354
(Increase) in inventory (6,687) (2,540)
(Increase) in prepaid expenses
and other current assets (895) (289)
(Increase) decrease in other
assets, net (226) 20
Increase in accounts payable
and other current liabilities 3,946 307
-------- -------
Net cash provided by operating
activities 651 948
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (797) (1,091)
Payments for acquisitions (7,545) -
-------- -------
Net cash used by investing activities (8,342) (1,091)
FINANCING ACTIVITIES:
Increase (decrease) of long-term debt 5,622 (152)
Stock option transactions - 295
-------- -------
Net cash provided by financing
activities 5,622 143
-------- -------
Net decrease in cash and cash
equivalents (2,069) -
Effect of exchange rate changes on
cash and cash equivalents (356) -
Cash and cash equivalents at
beginning of period 3,006 -
-------- -------
Cash and cash equivalents at end of
period $ 581 $
======== -------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 170 $ 71
Income tax payments $ 1,756 $ 1,550
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES - CONT'D.
The Company purchased assets or stock of Safety Centers, Inc., All Supplies,
Inc., and Century Sales and Service, Limited. In conjunction with the
acquisitions, assets acquired, liabilities assumed, and cash paid are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $14,408
Cost in excess of net assets of
companies acquired 3,523
-------
Total assets recorded $17,931
Liabilities assumed $(7,792)
Amounts due to sellers (768)
Stock issued for common stock (1,826)
-------
Cash paid for common stock and assets $ 7,545
=======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited)
Page 5 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. The
results of operations for the six months ended November 30, 1995 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1996.
The accounting policies followed by the Company in preparing interim
consolidated condensed financial statements are similar to those described in
the "Notes to Consolidated Financial Statements" in the Company's Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, for the fiscal year ended May 31, 1995. For interim reporting purposes,
provisions for income taxes are recorded on the basis of the estimated annual
effective tax rate. Certain prior year amounts have been reclassified to
conform with present year presentation.
An investment in the common stock of a foreign affiliated company is accounted
for by the equity method. The excess of cost of the stock of this affiliate
over the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
Net earnings per share were computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. The weighted average
number of shares outstanding for the six months ended November, 1995 and 1994
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1995 MAY 31, 1995
----------------- ------------
<S> <C> <C>
Raw materials $ 1,580 $ 1,241
Work-in-process 757 792
Finished Goods 28,379 21,993
------- -------
Total inventories $30,716 $24,026
======= =======
</TABLE>
Page 6 of 11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
SECOND QUARTER ENDED NOVEMBER 30, 1995 COMPARED TO
SECOND QUARTER ENDED NOVEMBER 30, 1994
--------------------------------------
Net sales increased 19.4% to $60,830 and gross profit increased by 17.3% to
$15,370. Approximately $7,032, or 11.5% of the sales increase is attributable
to the acquisitions made during fiscal 1996. In distribution operations, sales
levels under national contracts also contributed to this increase. Gross profit
margins increased primarily due to changes in the product and customer mix for
the distribution operations. The manufacturing operations sales increased 5.5%
to $4,732 compared to the same period in the last fiscal year. This increase
was due primarily to increased shipments from higher backlog levels in the
shower and eyewash lines. Gross profit margins for the manufacturing operations
were down as compared to the quarter ended November, 1994 due to an adjustment
resulting from a physical inventory taken during the same quarter last year.
During the quarter Vallen completed the acquisition of the primary assets of
Shepco Manufacturing Company, a producer of lint free uniforms and garments for
workers in clean room environments in the automotive and other industries.
There is no significant impact to sales or results of operations due to this
acquisition.
Selling, general and administrative expenses increased 19.4% compared to the
same quarter in the prior year. The increase is primarily attributable to the
additional costs associated with the companies acquired since May 31, 1995.
Selling, general and administrative expenses as a per cent of net sales were 20%
for the quarter ended November 30, 1995, remaining flat in comparison to the
same quarter last year. Earnings from foreign affiliates of $224, for the
quarter ending November 30, 1995, increased 103.6% over the same quarter last
year, due to earnings from the 50% owned Canadian affiliate, Century Sales and
Service, Limited, of $152. Interest expense increased 189.8% in the second
quarter of fiscal 1996 compared to the same quarter in fiscal 1995, due to the
Company's entering into a credit arrangement with a major bank related to a
business acquisition in the first quarter of fiscal 1996.
Net earnings increased 14% in the quarter ending November 30, 1995 to $.30 per
common share, compared to $.27 for the same quarter last year. The increase is
due primarily to the overall increased sales and earnings from the above
mentioned foreign affiliate.
SIX MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO
SIX MONTHS ENDED NOVEMBER 30, 1994
----------------------------------
Sales increased 16.3% to $112,828 and gross profit increased 14.7% to $28,844.
The reasons for sales and gross profit changes for the six month period are
consistent with the reasons discussed above for the quarter. Selling, general
and administrative expenses increased 14.6% to $23,422, primarily due to the
additional operating expenses associated with the acquisitions. Net earnings
increased 20% year to date to $3,706, or $.51 per common share, compared to
$3,089, or $.44 per common share, for the comparable six month period last year.
The increase is due primarily to the sales volume of companies acquired during
this year and the increase in earnings from foreign affiliates which are up to
$432 for the six months ending November 30, 1995 compared to $234 for the same
period last year. This increase in foreign earnings was due to the 50% owned
Canadian affiliate's earnings of $274 during this six month period.
Page 7 of 11
<PAGE>
FINANCIAL CONDITION
NOVEMBER 30, 1995 COMPARED TO MAY 31, 1995
------------------------------------------
Cash flows provided by operations for the quarter ended November 30, 1995
totaled $651, compared to $948 for the quarter ended November 30, 1994. Cash
was utilized as funding for the acquisitions in the first quarter of 1996,
thereby reducing trading securities held. The increase in inventories and
receivables assumed from acquisitions also contributed to reduce cash flows
provided by operations.
Cash and cash equivalents decreased by $2,425, primarily from the use of cash
for acquisitions thus far for the fiscal year 1996. Accounts receivable
increased $5,705 and inventory increased $6,687, primarily as a result of
acquisitions and based on increased sales levels. Net additions to property,
plant and equipment were $797. Additions were primarily for operating
equipment, computer hardware and software and assets added through acquisitions.
Accounts payable and other current liabilities increased $3,946 as a result of
increased operating levels and acquisitions taking place during the first half
of the fiscal year 1996. Long-term debt increased $5,622 due to debt issued in
connection with acquisitions thus far this year less required principal
repayments. The issuance of common stock shares held in treasury in connection
with acquisitions made through the quarter ended November 30, 1995, had the
effect of increasing paid-in capital by $1,826, including the change in treasury
stock held.
Page 8 of 11
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities - None
Item 3. Defaults upon senior securities - None
Item 4. (a) Annual stockholder meeting was held on October 10, 1995.
(b) Directors elected were Leonard J. Bruce, James W. Thompson,
Darvin M. Winick, and Kirby Attwell.
(c) First item for vote was Proposal no. 1, Election of
Directors. This matter of vote for Leonard J. Bruce, Darvin M.
Winick, and Kirby Attwell was approved by 6,001,470 shares voted
in favor, and 5,581 shares withheld from voting. The matter of
vote for James W. Thompson was approved by 6,001,020 shares in
favor and 6,031 shares withheld from voting.
Second item for vote was Proposal no. 2, Adoption of the
executive incentive compensation plan. This matter of vote was
approved by 5,845,650 shares in favor, 148,495 shares against and
12,906 shares abstained.
Third item for vote was Proposal no. 3, Amendment of the employee
stock purchase plan. This matter of vote approved by 5,744,876
shares in favor, 251,683 shares against, and 10,492 shares
abstained.
Fourth item for vote was Proposal no. 4, Amendment to the 1993
non-employee director stock option plan. This matter of vote
approved by 5,606,176 shares in favor, 388,956 shares against,
and 11,919 shares abstained.
Last item for vote was Proposal no. 5, Selection of independent
auditors. This matter of vote approved by 5,955,727 shares in
favor, 39,107 shares against and 12,217 shares abstained.
Item 5. Other information - None
Page 9 of 11
<PAGE>
Item 6. (a) Exhibits
3i. Restated Articles of Incorporation as amended. Incorporated
by reference is Exhibit 3a to the Company's Form 10-K, as
filed with the Securities and Exchange Commission on August
17, 1990.
3ii. Bylaws of the Company, as amended, through June 23, 1994,
attached hereto.
27. Financial Data Schedule, attached hereto.
Page 10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALLEN CORPORATION
Registrant
January 12, 1996 /s/ James W. Thompson
--------------------------- --------------------------------
Date James W. Thompson
President and Chief Executive Officer
January 12, 1996 /s/ Leighton J. Stephenson
--------------------------- --------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 11 of 11
<PAGE>
EXHIBIT 3II
BYLAWS OF
VALLEN CORPORATION
(the "Company")
ARTICLE I
Offices
Section 1.1. Offices. The principal business office of the Company shall be
at 13333 Northwest Freeway, Houston, Texas 77040. The Company may have such
other business offices within or without the State of Texas as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
Section 2.1. Certificate Representing Shares. Shares of the capital stock
of the Company shall be represented by certificates in such form or forms as the
board of directors may approve, provided that such form or forms shall comply
with all applicable requirements of law or of the articles of incorporation.
Such certificates shall be signed by the president or a vice president, and by
the secretary or an assistant secretary, of the Company and may be sealed with
the seal of the Company or imprinted or otherwise marked with a facsimile of
such seal. In the case of any certificate countersigned by any transfer agent or
registrar, provided such countersigner is not the Company itself or an employee
thereof, the signature of any or all of the foregoing officers of the Company
may be represented by a printed facsimile thereof. If any officer whose
signature, or a facsimile thereof, shall have been set upon any certificate
shall cease, prior to the issuance of such certificate, to occupy the position
in right of which his signature, or facsimile thereof, was so set upon such
certificate, the Company may nevertheless adopt and issue such certificate with
the same effect as if such officer occupied such position as of such date of
issuance; and issuance and delivery of such certificate by the Company shall
constitute adoption thereof by the Company. The certificates shall be
consecutively numbered, and as they are issued, a record of such issuance shall
be entered in the books of the Company.
<PAGE>
Stock 2.2. Stock Certificate Book and Shareholders of Record. In the
absence of a duly appointed transfer agent or registrar, the secretary of the
Company shall maintain, among other records, a stock certificate book, the stubs
in which shall set forth the names and addresses of the holders of all issued
shares of the Company, the number of shares held by each, the number of
certificates representing such shares, the date of issue of such certificates,
and whether or not such shares originate from original issue or from transfer.
The names and addresses of shareholders as they appear on the stock certificate
book shall be the official list of shareholders of record of the Company for all
purposes. The board of directors may appoint a transfer agent or registrar to
maintain the stock register and to record transfer of shares thereon. The
Company shall be entitled to treat the holder of record of any shares as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or any rights deriving
from such shares on the part of any other person, including, but without
limitation, a purchaser, assignee, or transferee, unless and until such other
person becomes the holder of record of such shares, whether or not the Company
shall have either actual or constructive notice of the interest of such other
person.
Section 2.3. Transfer of Stock. The shares represented by any certificate
of the Company are transferable only on the books of the Company by the holder
of record thereof or by his duly authorized attorney or legal representative
upon surrender of the certificate for such shares, properly endorsed or
assigned. The board of directors may make such rules and regulations concerning
the issue, transfer, registration and replacement of certificates as they deem
desirable or necessary.
Section 2.4. Transfer Agent and Registrar. The board of directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all share certificates to bear the signature of a transfer agent or
registrar, or both.
Section 2.5. Lost, Stolen or Destroyed Certificates. The Company may issue
a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
board of directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as the board may
direct, in order to indemnify the
<PAGE>
Company and its transfer agents and registrars, if any, against any claim that
may be made on account of the alleged loss, theft or destruction of such
certificate.
Section 2.6. Fractional Shares. Only whole shares of the stock of the
Company shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the directors, or the officers in
the exercise of powers delegated by the directors, shall take such measures
consistent with the law, the articles of incorporation and these bylaws,
including (for example, and not by way of limitation) the payment in cash of an
amount equal to the fair value of any fractional share, as they may deem proper
to avoid the issuance of any fractional share.
ARTICLE III
The Shareholders
Section 3.1. Annual Meeting. Commencing in the calendar year 1980, the
annual meeting of the shareholders, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at the principal office of the Company, at 10:00 a.m. local time,
on the second Tuesday in October of each year unless such day is a legal
holiday, in which case such meeting shall be held at such hour on the first day
thereafter which is not a legal holiday; or at such other place and time as may
be designated by the board of directors. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Company.
Section 3.2. Special Meetings. Except as otherwise provided by law or by
the articles of incorporation, special meetings of the shareholders may be
called by the chairman of the board, the president, or the board of directors,
or the holders of not less than one-tenth of all the shares having voting power
at such meeting, and shall be held at the principal office of the Company or at
such other place, and at such time, as may be stated in the notice calling such
meeting. Business transacted at any special meeting of shareholders shall be
limited to the purpose stated in the notice of such meeting given in accordance
with the terms of section 3.3.
Section 3.3. Notice of Meetings -- Waiver. Written or printed notice of
each meeting of shareholders, stating the place, day and hour of any meeting
and, in case of a special shareholders' meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more
<PAGE>
than fifty days before the date of such meeting, either personally or by mail,
by or at the direction of the chairman of the board, the president, the
secretary, or the persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Company, with
postage thereon prepaid. Such further or earlier notice shall be given as may be
required by law. The signing by a shareholder of a written waiver of notice of
any shareholders' meeting, whether before or after the time stated in such
waiver, shall be equivalent to the receiving by him of all notice required to be
given with respect to such meeting. Attendance by a shareholder, whether in
person or by proxy, at a shareholders' meeting shall constitute a waiver of
notice of such meeting. No notice of any adjournment of any meeting shall be
required.
Section 3.4. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of, or to vote at, any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend or in order to make a determination of
shareholders for any other proper purpose, the board of directors of the Company
may provide that the stock transfer books shall be closed for a stated period in
no case to exceed fifty days. If the stock transfer books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the board of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in no case to be more than fifty days
nor, in case of a meeting of shareholders, less than ten days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the board of directors declaring such dividend is adopted, as
the case may be, shall be the record date of such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.
<PAGE>
Section 3.5. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Company shall make, at least ten days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office of the Company and shall be subject to lawful inspection by
any shareholder at any time during the usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. Failure to comply with this section shall not affect the validity of
any action taken at such meeting.
Section 3.6. Quorum and Officers. Except as otherwise provided by law, by
the articles of incorporation or by these bylaws, the holders of a majority of
the shares entitled to vote and represented in person or by proxy shall
constitute a quorum at a meeting of shareholders, but the shareholders present
at any meeting, although representing less than a quorum, may from time to time
adjourn the meeting to some other day and hour, without notice other than
announcement at the meeting. The vote of the holders of a majority of the shares
entitled to vote and thus represented at a meeting at which a quorum is present
shall be the act of the shareholders' meeting, unless the vote of a greater
number is required by law. The chairman of the board shall preside at, and the
secretary shall keep the records of, each meeting of shareholders, and in the
absence of either such officer, his duties shall be performed by any other
officer authorized by these bylaws or any person appointed by the meeting.
Section 3.7. Voting at Meetings. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders
except to the extent that the articles of incorporation or the laws of the State
of Texas provide otherwise.
Section 3.8. Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact. Proxies shall be dated but need not be sealed, witnessed and
acknowledged. No proxy shall be valid after eleven (11) months from the date of
its execution unless otherwise provided in the proxy. A proxy shall be revocable
unless expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. Proxies shall be filed with the secretary of the Company
before or at the time of the meeting.
<PAGE>
Section 3.9. Balloting. Upon the demand of any shareholder, the vote upon
any question before the meeting shall be by ballot. At each meeting inspectors
of election may be appointed by the presiding officer of the meeting, and at any
meeting for the election of directors, inspectors shall be so appointed on the
demand of any shareholder present or represented by proxy and entitled to vote
in such election of directors. No director or candidate for the office of
director shall be appointed as such inspector. The number of votes cast by
shares in the election of directors shall be recorded in the minutes.
Section 3.10. Voting Rights, Prohibition of Cumulative Voting for
Directors. Each outstanding share of common stock shall be entitled to one (1)
vote upon each matter submitted to a vote at a meeting of shareholders. No
shareholder shall have the right to cumulate his votes for the election of
directors but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
Section 3.11. Record of Shareholders. The Company shall keep at its
principal business office, or the office of its transfer agent or registrar, a
record of its shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
Section 3.12. Action Without Meeting. Any action required by statute to be
taken at a meeting of the shareholders of the Company, or any action which may
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the Company.
ARTICLE IV
The Board of Directors
Section 4.1. Number, Qualifications and Term. The business and affairs of
the Company shall be managed and controlled by the board of directors; and,
subject to any restrictions imposed by law, by the articles of incorporation, or
by these bylaws, the board of directors may exercise all the powers of the
Company. The board of directors shall consist of four
<PAGE>
members. Such number may be increased or decreased by amendment of these bylaws,
but no decrease shall have the effect of shortening the term of any incumbent
director. Directors need not be residents of Texas or shareholders of the
Company absent provision to the contrary in the articles of incorporation or
laws of the State of Texas. Except as otherwise provided in section 4.3. of
these bylaws, each position on the board of directors shall be filled by
election at the annual meeting of shareholders. Any such election shall be
conducted in accordance with section 3.7. of these bylaws. Each person elected a
director shall hold office, unless removed in accordance with section 4.2. of
these bylaws, until the next annual meeting of the shareholders and until his
successor shall have been duly elected and qualified.
Section 4.2. Removal. Any director or the entire board of directors may be
removed from office, with or without cause, at any special meeting of
shareholders by the affirmative vote of a majority of the shares of the
shareholders present in person or by proxy and entitled to vote at such meeting,
if notice of the intention to act upon such matter shall have been given in the
notice calling such meeting. If the notice calling such meeting shall have so
provided, the vacancy caused by such removal may be filled at such meeting by
the affirmative vote of a majority in number of the shares of the shareholders
present in person or by proxy and entitled to vote.
Section 4.3. Vacancies. Any vacancy occurring in the board of directors may
be filled by the vote of a majority of the remaining directors, even if such
remaining directors comprise less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any position on the board of directors to be filled
by reason of an increase in the number of directors shall be filled by election
at an annual meeting of the shareholders, or at a special meeting of
shareholders duly called for such purpose.
Section 4.4. Place of Meeting. Meetings of the board of directors may be
held either within or without the State of Texas, at whatsoever place is
specified by the officer or directors calling the meeting. In the absence of
other designation, the meeting shall be held at the principal business office of
the Company in the City of Houston, Texas.
Section 4.5. Regular Meetings. Regular meetings of the board of directors
shall be held immediately following each annual meeting of shareholders, at the
place of such meeting, and at such other times and places as the board of
directors shall determine. No notice of any kind of such regular meetings
needs
<PAGE>
to be given to either old or new members of the board of directors.
Section 4.6. Special Meetings. Special meetings of the board of directors
shall be held at any time by call of the chairman of the board, the president,
the secretary or any director. The secretary shall give notice of each special
meeting to each director at his usual business or residence address by mail at
least three days before the meeting or by telegraph or telephone at least one
day before such meeting. Except as otherwise provided by law, by the articles of
incorporation, or by these bylaws, such notice need not specify the business to
be transacted at, or the purpose of, such meeting. No notice shall be necessary
for any adjournment of any meeting. The signing of a written waiver of notice of
any special meeting by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the receiving of
such notice. Attendance of a director at a meeting shall also constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express and announced purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 4.7. Quorum. A majority of the number of directors fixed by these
bylaws shall constitute a quorum for the transaction of business and the act of
not less than a majority of such quorum of the directors shall be required
in order to constitute the act of the board of directors, unless the act of a
greater number shall be required by law, by the articles of incorporation or by
these bylaws. Any one or more directors, although less than a quorum may adjourn
the meeting to some other day or hour.
Section 4.8. Procedure at Meetings. The chairman of the board shall preside
at meetings of the board of directors. In his absence at any meeting, any
officer authorized by these bylaws or any member of the board selected by the
members present shall preside. The secretary of the Company shall act as
secretary at all meetings of the board. In his absence, the presiding officer of
the meeting may designate any person to act as secretary. At meetings of the
board of directors, the business shall be transacted in such order as the board
may from time to time determine.
Section 4.9. Presumption of Assent. Any director of the Company who is
present at a meeting of the board of directors
<PAGE>
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
Section 4.10. Action Without a Meeting. Any action required by statute to
be taken at a meeting of the directors of the Company, or which may be taken at
such meeting, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by each director entitled to vote at
such meeting, and such consent shall have the same force and effect as a
unanimous vote of the directors. Such signed consent, or a signed copy thereof,
shall be placed in the minute book of the Company.
Section 4.11. Compensation. Directors shall receive such compensation for
their service as directors or members of the executive committee as the board of
directors may by resolution approve. Any director may serve the Company in any
other capacity and receive compensation therefor.
Section 4.12. Executive Committee. The board of directors, by resolution
adopted by a majority of the number of directors fixed by these bylaws, may
designate an executive committee, which committee shall consist of two or more
of the directors of the Company. Such executive committee may exercise such
authority of the board of directors in the business and affairs of the Company
as the board of directors may by resolution duly delegate to it except as
prohibited by law. The designation of such committee and the delegation thereto
of authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed upon it or him by law. Any member of the
executive committee may be removed by the board of directors by the affirmative
vote of a majority of the number of directors fixed by the bylaws whenever in
the judgment of the board the best interests of the Company will be served
thereby.
The executive committee shall keep regular minutes of its proceedings and
report the same to the board of directors when required. The minutes of the
proceedings of the executive committee shall be placed in the minute book of the
Company.
<PAGE>
Section 4.13. Other Committees of the Board of Directors. The board of
directors, by resolution adopted by a majority of the number of directors fixed
by the bylaws, may designate from their number such other committees as they
shall from time to time deem necessary and proper. Such committees shall be
composed of not less than two members and shall have and exercise such authority
of the board of directors as shall by resolution be delegated to them. The
designation of such other committees and the delegation of authority thereto
shall not operate to relieve the board of directors, or any member thereof, of
any responsibility imposed upon it or him by law.
Section 4.14. Meetings and Reports of the Committees. The committees shall
meet from time to time on call of the Chairman or any two or more members
thereof. Notice of each such meeting, stating the place, day and hour thereof,
shall be served personally on each member of such committee, or shall be mailed,
telegraphed or telephoned to his address on the books of the Company, at least
twenty-four (24) hours before the meeting. No such notice need state the
business proposed to be transacted at the meeting. No notice of the time or
place at any meeting of such committee need be given to any member thereof who
attends in person or who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice. No
notice need be given of an adjourned meeting of any committee. Meetings of the
committees may be held at such place or places, either within or outside of the
State of Texas, as such committee shall determine, or as may be specified or
fixed in the respective notices or waivers thereof. Each committee may fix its
own rules of procedure. They shall keep record of their proceedings and shall
report these proceedings to the board of directors at the regular meetings
thereof held next after they have been taken.
ARTICLE V
Officers
Section 5.1. Number. The officers of the Company shall consist of a
chairman of the board, a president, one or more vice presidents, a secretary and
a treasurer; and, in addition, such other officers and assistant officers and
agents as may be deemed necessary or desirable. Officers shall be elected or
appointed by the board of directors. Any two or more offices may be held by the
same person except that the president and secretary shall not be the same
person. In its discretion, the board of directors may leave unfilled any office
except those of president, treasurer and secretary.
<PAGE>
Section 5.2. Election; Term; Qualification. Officers shall be chosen by the
board of directors annually at the meeting of the board of directors following
the annual shareholders' meeting. Each officer shall hold office until his
successor has been chosen and qualified, or until his death, resignation, or
removal.
Section 5.3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Company shall be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create any contract rights.
Section 5.4. Vacancies. Any vacancy in any office for any cause may be
filled by the board of directors at any meeting.
Section 5.5. Duties. The officers of the Company shall have such powers
and duties, except as modified by the board of directors, as generally pertain
to their offices, respectively, as well as such powers and duties as from time
to time shall be conferred by the board of directors and by these bylaws.
Section 5.6. The Chairman of the Board. The chairman of the board shall be
the chief officer in charge of policy, planning and corporate development, and
shall be responsible directly to the board of directors. He shall be available
to consult with the president on all major decisions relating to the Company's
business and affairs. He shall preside at all meetings of shareholders and
directors. He may sign and execute in the name of the Company (i) all contracts
or other instruments authorized by the board of directors, and (ii) all
contracts or instruments in the usual and regular course of business, pursuant
to section 6.2 hereof, except in cases when the signing and execution thereof
shall be expressly delegated by the board or by these bylaws to some other
officer or agent of the Company; and, he shall perform such other duties as the
bylaws provide or the board of directors may prescribe.
Section 5.7. The President. The president shall be the chief executive
officer and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and affairs of the
Company. He may sign, with the secretary or an assistant secretary, any or all
certifi-
<PAGE>
cates of stock of the Company. He may sign and execute in the name of the
Company (i) all contracts or other instruments authorized by the board of
directors, and (ii) all contracts or instruments in the usual and regular course
of business, pursuant to section 6.2 hereof, except in cases when the signing
and execution thereof shall be expressly delegated by the board or by these
bylaws to some other officer or agent of the Company. At the request of the
chairman of the board, or in his absence or disability, he shall preside at
meetings of shareholders and directors. He shall, in general, have the powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be assigned to
him by the board of directors.
Section 5.8. The Vice Presidents. At the request of the president, or in
his absence or disability, the vice presidents, in the order of their election,
shall perform the duties of the president, and, when so acting, shall have all
the powers of, and be subject to all restrictions upon, the president. Any
action taken by a vice president in the performance of the duties of the
president shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken. The vice presidents shall perform
such other duties as may, from time to time, be assigned to them by the board of
directors or the president. A vice president may sign, with the secretary or an
assistant secretary, certificates of stock of the Company.
Section 5.9. Secretary. The secretary shall keep the minutes of all
meetings of the shareholders, of the board of directors, and of the executive
committee, if any, of the board of directors, in one or more books provided for
such purpose and shall see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law. He shall be custodian of
the corporate records and of the seal (if any) of the Company and see, if the
Company has a seal, that the seal of the Company is affixed to all documents the
execution of which on behalf of the Company under its seal is duly authorized;
shall have general charge of the stock certificate books, transfer books and
stock ledgers, and such other books and papers of the Company as the board of
directors may direct, all of which shall, at all reasonable times, be open to
the examination of any director, upon application at the office of the Company
during business hours; and in general shall perform all duties and exercise all
powers incident to the office of the secretary and such other duties and powers
as the board of directors or the president from time to time may assign to or
confer on him.
<PAGE>
Section 5.10. Treasurer. The treasurer shall keep complete and accurate
records of account, showing at all times the financial condition of the Company.
He shall be the legal custodian of all money, notes, securities and other
valuables which may from time to time come into the possession of the Company.
He shall furnish at meetings of the board of directors, or whenever requested, a
statement of the financial condition of the Company, and shall perform such
other duties as these bylaws may require or the board of directors may
prescribe.
Section 5.11. Assistant Officers. Any assistant secretary or assistant
treasurer appointed by the board of directors shall have power to perform, and
shall perform, all duties incumbent upon the secretary or treasurer of the
Company, respectively, subject to the general direction of such respective
officers, and shall perform such other duties as these bylaws may require or the
board of directors may prescribe.
Section 5.12. Salaries. The salaries or other compensation of the officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director of the Company.
Section 5.13. Bonds of Officers. The board of directors may secure the
fidelity of any officer of the Company by bond or otherwise, on such terms and
with such surety or sureties, conditions, penalties or securities as shall be
deemed proper by the board of directors.
Section 5.14. Delegation. The board of directors may delegate temporarily
the powers and duties of any officer of the Company, in case of his absence or
for any other reason, to any other officer, and may authorize the delegation by
any officer of the Company of any of his powers and duties to any agent or
employee, subject to the general supervision of such officer.
ARTICLE VI
Miscellaneous
Section 6.1. Dividends. Dividends on the outstanding shares of the Company,
subject to the provisions of the articles of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid by the Company in cash, in property, or in the
Company's own shares, but only out of the unreserved and unrestricted earned
surplus of the Company, except as otherwise allowed by law.
<PAGE>
Subject to limitations upon the authority of the board of directors imposed
by law or by the articles of incorporation, the declaration of and provision for
payment of dividends shall be at the discretion of the board of directors.
Section 6.2. Contracts. The chairman of the board and president shall each
have the power and authority to execute, on behalf of the Company, contracts or
instruments in the usual and regular course of business, and in addition, the
board of directors may authorize any officer or officers, agent or agents, of
the Company to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Company, and such authority may be general or
confined to specific instances. Unless so authorized by the board of directors
or by these bylaws, no officer, agent or employee shall have any power or
authority to bind the Company or any contract or engagement, or to pledge its
credit or to render its pecuniarily liable for any purpose or in any amount.
Section 6.3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by such officers or employees of the Company
as shall from time to time be authorized pursuant to these bylaws or by
resolution of the board of directors.
Section 6.4. Depositories. All funds of the Company shall be deposited from
time to time to the credit of the Company in such banks or other depositories as
the board of directors may from time to time designate, and upon such terms and
conditions as shall be fixed by the board of directors. The board of directors
may from time to time authorize the opening and maintaining within any such
depository as it may designate, of general and special accounts, and may make
such special rules and regulations with respect thereto as it may deem
expedient.
Section 6.5. Endorsement of Stock Certificates. Subject to the specific
directions of the board of directors, any share or shares of stock issued by any
corporation and owned by the Company, including reacquired shares of the
Company's own stock, may, for sale or transfer, be endorsed in the name of the
Company by the president or any vice president; and such endorsement may be
attested or witnessed by the secretary or any assistant secretary either with or
without the affixing thereto of the corporate seal.
Section 6.6. Voting of Shares Owned by the Corporation. Unless otherwise
ordered by the board of directors, the chairman of the board, the president, the
secretary and the treasurer, or
<PAGE>
any of them, shall have full power and authority on behalf of the Company to
attend and to vote and to grant proxies to be used at any meeting of
shareholders of any corporation in which the Company may hold stock. The board
of directors may confer like powers upon any other person or persons.
Section 6.7. Corporate Seal. The corporate seal, if any, shall be in such
form as the board of directors shall approve, and such seal, or a facsimile
thereof, may be impressed on, affixed to, or in any manner reproduced upon,
instruments of any nature required to be executed by officers of the Company.
Section 6.8. Fiscal Year. The fiscal year of the Company shall begin and
end on such dates as the board of directors at any time shall determine.
Section 6.9. Books and Records. The Company shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
shareholders and board of directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 6.10. Resignations. Any director or officer may resign at any time.
Such resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time is specified, at the time of its receipt by
the president or secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
Section 6.11. Indemnification of Officers and Directors.
(a) The Company 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 Company) by reason of the fact
that he is or was a director of the Company, or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company,
<PAGE>
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or 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 reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Company 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 Company to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and 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 for negligence or misconduct in the performance of his
duty to the Company unless and only to the extent that the court in 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
such court shall deem proper.
(c) To the extent that a director or officer of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b), or in defense of any claim,
issue or matter therein, the Company shall indemnify him against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) The determination that an officer or director has met the applicable
standard of conduct set forth in subsections (a) and (b) (unless indemnification
is ordered by a court or required by subsection (c)) shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable, or, even if obtainable a quorum
<PAGE>
of disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding when authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Company as authorized in this Section 6.11.
(f) For purposes of this section 6.11, references to "the Company" 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 and officers so that any person who is or
who was a director or officer of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this section 6.11, with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(g) The indemnification provided hereunder shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any other bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(h) The Company intends that the indemnification provided hereunder shall
indemnify its officers and directors to the fullest extent possible under the
Texas Business Corporation Act; and if any indemnification which would otherwise
be granted by this section 6.11 shall be disallowed by any competent court or
administrative body as illegal, then any officer or director with respect to
whom such adjudication was made, and any other officer or director, shall be
indemnified to the fullest extent permitted under the Texas Business Corporation
Act.
<PAGE>
Section 6.12. Meetings by Telephone. Subject to the provisions required or
permitted by these bylaws or the laws of the State of Texas for notice of
meetings, shareholders, members of the board of directors, or members of any
committee designated by the board of directors may participate in and hold any
meeting required or permitted under these bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such a meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE VII
Amendments
Section 7.1. Amendments. These bylaws may be altered, amended, or repealed,
or new bylaws may be adopted, by a majority of the board of directors at any
duly held meeting of directors or by the holders of a majority of the shares
represented at any duly held meeting of shareholders; provided that notice of
such proposed action shall have been contained in the notice of any such
meeting.
List of Amendments
Amendment 1 -- dated October 12, 1983
Amendment 2 -- dated April 12, 1984
Amendment 3 -- dated October 11, 1988
<PAGE>
AMENDMENT 1
Sections 4.1 and 4.3 of the bylaws of Vallen Corporation are amended to
allow the Vallen Corporation Board of Directors to increase its number in the
interim period between annual shareholders' meetings and to fill the vacancies
created by the increase, provided that the directors may not appoint more than
two new (increased) directors, in any period between shareholders' meetings. If
the Board of Directors is to be increased by a number greater than two, a
shareholders' meeting and election of such additional directors will be
required.
Dated: October 12, 1983
<PAGE>
AMENDMENT 2
Section 4.1 of the bylaws of Vallen Corporation is amended to state that
the Board of Directors shall consist of three members.
Dated: April 12, 1984
<PAGE>
AMENDMENT 3
RESOLVED, that Section 4.1 of the Bylaws of Vallen Corporation be amended
to state that the Board of Directors shall consist of four members.
Dated: April 22, 1985
Effective: June 1, 1985
<PAGE>
AMENDMENT 4
The bylaws were amended to include a new Section 6.11.
Section 6.11. Indemnification of Officers and Directors.
(a) The Company shall indemnify any person who was or is a named defendant
or respondent or is threatened to be made a named defendant or respondent to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal to such an
action, suit or proceeding and any inquiry or investigation that could lead to
such an action, suit or proceeding (collectively, such actions, suits,
proceedings, appeals, inquiries and investigations are referred to collectively
as "Proceedings" and individually as "Proceeding") by reason of the fact that
such person either is or was a director of the Company, or while a director of
the Company, is or was serving at the request of the Company as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another domestic or foreign corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
against judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses actually incurred by such person in
connection with such Proceeding if it is determined that such person conducted
himself in good faith, and if such conduct was in such person's official
capacity as a director of the Company, in a manner he reasonably believed to be
in the best interests of the Company, and, in all other cases, in a manner he
reasonably believed was not opposed to the best interests of the Company and, in
the case of any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful, provided that if a person is found liable to the Company
or is found liable on the basis that personal benefit was improperly received by
him, the indemnification (i) shall be limited to reasonable expenses (including
court costs and attorneys' fees) actually incurred by the person in connection
with the Proceeding and (ii) shall not be made in respect of any Proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company. The Company shall pay
or reimburse expenses incurred by a director in connection with such person's
appearance as a witness or other participation in a Proceeding at a time when
such person is not named defendant or respondent in such Proceeding.
<PAGE>
(b) The determination to be made in such subsection (a) of this Section
6.11 shall be made (i) by the board of directors by a majority vote of a quorum
consisting of directors who at the time of the vote are not named defendants or
respondents in the Proceeding; or (ii) if such a quorum cannot be obtained, by a
majority vote of a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or respondents to
the Proceeding; or (iii) by a special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in subsection (i) or
(ii), or, if such a quorum cannot be obtained and such a committee cannot be
established by a majority vote of all directors; or (iv) by the shareholders in
a vote that excludes the shares held by directors who are named defendants or
respondents in the Proceeding. A determination as to the reasonableness of
expenses (including court costs and attorneys' fees) shall be made in the same
manner as the determination that indemnification is permissible; provided,
however, that if the determination required to be made under subsection (a) of
this Section 6.11 is made by special legal counsel, the determination as to
reasonableness of expenses shall be made in the manner specified in this
subsection (b) (iii) for the selection of legal counsel.
(c) Reasonable expenses incurred by a director in connection with a
Proceeding, shall be paid by the Company in advance of the final disposition of
such Proceeding and without any of the determination specified in subsection (b)
of this Section 6.11 upon receipt by the Company of a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Section 6.11 and a written undertaking
by or on behalf of the director to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Company as
authorized in this Section 6.11, which undertaking shall be an unlimited general
obligation of such director and may be unsecured.
(d) The right to indemnification conferred in this Section 6.11 shall be a
contract right and shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any other law, bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while acting as a
director and shall continue as to a person who has ceased to be a director and
shall inure to the benefit of the heirs, executors and administrators of such
person. Any indemnification of or advance of expenses to a director in
accordance with this Section 6.11 shall be reported in writing to the
shareholders in accordance with the provisions of Article 2.02-1 of the Texas
Business Corporation Act or any successor provision thereto.
<PAGE>
(e) The Company may purchase and maintain insurance on behalf of any person
who is or was a director, officer or employee of the Company, or who is or was
serving at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
other enterprise, or employee benefit plan, against any liability asserted
against and incurred by that person in such a capacity or arising out of his
status as such a person, whether or not the Company would have the power to
indemnify such person against such liability under this Section 6.11.
(f) The Company intends that the indemnification provided hereunder shall
indemnify its directors to the fullest extent possible under the Texas Business
Corporation Act; and if any indemnification which would otherwise be granted by
this Section 6.11 shall be disallowed by any competent court or administrative
body as illegal, then any officer or director with respect to whom such
adjudication was made, and any other officer or director, shall be indemnified
to the fullest extent permitted under the Texas Business Corporation Act.
RESOLVED, that consistent with recent changes in the Texas Business
Corporation Act, the bylaws of the Company be and hereby are amended
to change the phrase "fifty days" appearing in the sixth line of
Section 3.3 and in the seventh and fourteenth lines of Section 3.4 in
each instance to read "sixty days" and to change the second sentence
of the first paragraph of Section 6.1 to read in its entirety as
follows:
"Dividends may be paid by the Company in cash, in property, or in
the Company's own shares, but only if (i) after giving effect to
such dividend the Company will not be insolvent and (ii) the
amount of such dividend does not exceed the surplus of the
Company, except as otherwise allowed by law."
<PAGE>
AMENDMENT 5
RESOLVED, that Section 4.1 of the Bylaws of Vallen Corporation be amended
to state that the Board of Directors shall consist of five members.
Dated: June 23, 1994
Effective: June 23, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-1996 MAY-31-1996
<PERIOD-START> SEP-01-1995 JUN-01-1995
<PERIOD-END> NOV-30-1995 NOV-30-1995
<CASH> 0 581
<SECURITIES> 0 2,000
<RECEIVABLES> 0 32,069
<ALLOWANCES> 0 325
<INVENTORY> 0 30,716
<CURRENT-ASSETS> 0 3,872
<PP&E> 0 44,619
<DEPRECIATION> 0 23,569
<TOTAL-ASSETS> 0 21,050
<CURRENT-LIABILITIES> 0 15,606
<BONDS> 0 0
0 4,858
0 0
<COMMON> 0 0
<OTHER-SE> 0 73,001
<TOTAL-LIABILITY-AND-EQUITY> 0 77,859
<SALES> 60,830 112,828
<TOTAL-REVENUES> 60,830 112,828
<CGS> 45,460 83,984
<TOTAL-COSTS> 45,460 83,984
<OTHER-EXPENSES> 12,167 23,422
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 142 249
<INCOME-PRETAX> 3,249 5,647
<INCOME-TAX> 1,100 1,941
<INCOME-CONTINUING> 2,149 3,706
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,149 3,706
<EPS-PRIMARY> .30 .51
<EPS-DILUTED> .30 .51
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