FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
---------------------------------
Commission file number #0-10786
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Insituform Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3032158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 Spirit 40 Park Drive, Chesterfield, Missouri 63005
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(Address of Principal Executive Offices)
(314) 530-8000
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at August 1, 1998
- -------------------------- ---------------------------------
Class A, Common Stock, 27,030,255 Shares
$0.01 par value<PAGE>
<PAGE>
INDEX
-----
Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Part II Other Information and Signatures:
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits<PAGE>
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
-------------------------------
ITEM 1. - FINANCIAL STATEMENTS
-------------------------------
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Unaudited
June 30, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
--------------
Cash and cash equivalents $63,419 $45,734
Trade receivables, less allowance
for doubtful accounts of $2,501
and $2,587, respectively 44,803 58,660
Costs and estimated earnings in excess
of billings 20,091 15,551
Retainage under construction contracts 12,808 14,480
Refundable income taxes 1,046 2,517
Inventories 11,910 12,214
Deferred income taxes 5,581 5,439
Prepaid expenses and other 6,240 6,678
-------- --------
TOTAL CURRENT ASSETS 165,898 161,273
-------- --------
PROPERTY AND EQUIPMENT, less accumulated
depreciation 58,014 57,983
-------- --------
OTHER ASSETS
- ------------
Goodwill, less accumulated amortization of
$13,895 and $12,483, respectively 54,072 54,133
Patents and patent applications, less
accumulated amortization of $4,805 and
$4,496, respectively 11,959 11,610
Investments in licensees and affiliated
companies 5,370 5,499
Non-compete agreements, less accumulated
amortization of $4,759 and $4,282,
respectively 1,266 1,744
Other 4,532 5,610
-------- --------
TOTAL OTHER ASSETS 77,199 78,596
-------- --------
TOTAL ASSETS $301,111 $297,852
======== ========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Unaudited
June 30, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
-------------------
Notes payable to banks $1,465 $1,231
Accounts payable 40,052 41,698
Income taxes payable 1,215 3,172
Current maturities of long-term debt 1,138 889
-------- --------
TOTAL CURRENT LIABILITIES 43,870 46,990
LONG-TERM DEBT, less current maturities 111,015 111,440
DEFERRED INCOME TAXES 3,247 3,258
OTHER LIABILITIES 1,076 1,017
-------- --------
TOTAL LIABILITIES 159,208 162,705
-------- --------
MINORITY INTERESTS 3,165 3,645
-------- --------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, undesignated, $.10 par -
shares authorized 2,000,000; none
outstanding 0 0
Common stock, $.01 par - shares authorized
40,000,000; shares outstanding 27,274,144
and 27,214,718 273 272
Additional paid-in capital 68,656 68,119
Retained earnings 75,924 68,468
-------- --------
144,853 136,859
Treasury stock, 255,801 shares (3,269) (3,269)
Cumulative foreign currency translation
adjustments (2,846) (2,088)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 138,738 131,502
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $301,111 $297,852
======== ========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except share amounts)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rehabilitation revenues $75,501 $75,316 $139,261 $152,398
Cost of rehabilitation 51,067 53,425 92,933 109,486
------- ------- ------- -------
Gross profit 24,434 21,891 46,328 42,912
Operating costs and expenses:
- -----------------------------
Selling, administrative and
general 13,612 14,055 27,128 29,065
Strategic marketing and product
development 1,568 1,478 2,929 3,439
Unusual items 0 3,845 0 3,845
------- ------- ------- -------
Total operating costs and expenses 15,180 19,378 30,057 36,349
------- ------- ------- -------
Operating income 9,254 2,513 16,271 6,563
Other expense:
- --------------
Interest expense (2,243) (2,271) (4,556) (4,180)
Other income 769 375 1,310 647
------- ------- ------- -------
Total other expense (1,474) (1,896) (3,246) (3,533)
------- ------- ------- -------
Income before taxes on income 7,780 617 13,025 3,030
Taxes on income 3,088 315 5,169 1,305
------- ------- ------- -------
Income before minority interests and
equity in earnings 4,692 302 7,856 1,725
Minority interests in net income (173) (259) (250) (451)
Equity in earnings of affiliated
companies (110) 171 (151) 246
------- ------- ------- -------
Income before extraordinary item 4,409 214 7,455 1,520
Extraordinary item - loss on early
retirement of debt 0 0 0 (225)
------- ------- ------- -------
Net income $4,409 $214 $7,455 $1,295
======= ======= ======= =======
Basic and diluted earnings per share:
Income before extraordinary item $0.16 $0.01 $0.27 $0.06
Extraordinary loss, net of income
tax benefits 0 0 0 (0.01)
------- ------- ------- -------
Net income $0.16 $0.01 $0.27 $0.05
======= ======= ======= =======
Weighted average common shares 26,978 26,916 26,969 26,913
======= ======= ======= =======
Weighted average common and
equivalent shares 27,256 26,940 27,170 26,939
======= ======= ======= =======
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income $7,455 $1,295
Adjustments to reconcile net income to cash used by
operating activities:
Depreciation and amortization 9,299 9,283
Miscellaneous (413) (997)
Equity in earnings of affiliated companies 151 (246)
Minority interests 250 451
Deferred income taxes (142) (119)
Changes in operating assets and liabilities:
Receivables 16,292 966
Costs in excess of billings under construction (4,540) (5,290)
Inventories 286 2,303
Prepaid expenses and miscellaneous 426 1,988
Miscellaneous other assets 832 (975)
Accounts payable and accruals (444) 740
Income taxes payable (3,352) (73)
------- ------
Net cash provided by operations 26,100 9,326
------- ------
Cash flows from investing activities:
- -------------------------------------
Capital expenditures (7,767) (7,797)
Proceeds on disposal of property and equipment 569 198
Investments in licensees/affiliated companies 16 0
Patents and patent applications (688) 1,154)
------- ------
Net cash used by investing activities (7,870) (8,753)
------- ------
(continued)
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of common stock 537 141
Increase in short-term borrowings 237 65
Proceeds from issuance of long-term debt 0 110,025
Repayments of long-term debt (1,286) (84,922)
Minority interests 0 (75)
------- -------
Net cash provided (used) by financing activities (512) 25,234
------- -------
Effect of exchange rates changes on cash (33) (79)
------- -------
Net increase in cash and cash equivalents for
the period 17,685 25,728
------- -------
Cash and cash equivalents, beginning of period 45,734 13,476
------- -------
Cash and cash equivalents, end of period $63,419 $39,204
======= =======
Supplemental disclosures of cash flows information:
- ---------------------------------------------------
1998 1997
---- ----
Cash paid during six months ended June 30, for:
--------------------------------------------------
Interest $4,525 $1,267
Income taxes $5,295 $491
Non-cash investing and financing activities:
--------------------------------------------
Deferred consideration for business acquired
(Note 3) $1,005 $0
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
1. GENERAL
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present
fairly the financial position as of June 30, 1998
(unaudited) and the unaudited results of operations and cash
flows for the six months ended June 30, 1998 and 1997. The
financial statements have been prepared in accordance with
the requirements of Form 10-Q and consequently do not
include all the disclosures normally made in an Annual
Report on Form 10-K. Accordingly, the consolidated
financial statements included herein should be reviewed in
conjunction with the financial statements and the footnotes
thereto included in the Company's 1997 Annual Report on Form
10-K.
The results of operations for the six months ended June 30,
1998 and 1997 are not necessarily indicative of the results
to be expected for the full year.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" which
establishes for reporting and disclosure of comprehensive
income and its components. Effective January 1, 1998, the
Company adopted SFAS No. 130. For the quarters ended June
30, 1998 and 1997, comprehensive income was $4,315 and $34,
respectively. For the six months ended June 30, 1998 and
1997, comprehensive income was $6,697 and $585,
respectively. The Company's adjustment to comprehensive
income consists solely of cumulative foreign currency
translation adjustments.
3. CURRENT EVENTS
In March 1998, the Company concluded the acquisition of the
entire minority interest in its Chilean subsidiary for an
aggregate purchase price of approximately $2.1 million, $1.0
million of which was paid in connection with closing, $0.6
million of which is due at the first anniversary of closing,
and the remainder of which is due on the second anniversary
of closing.
<PAGE>
<PAGE>
In July 1998, the Company announced that its Board of
Directors had authorized the repurchase of up to 2,700,000
shares of the Company's class A common stock, $.01 par
value, to be made from time to time over the next five years
in open market transactions.
4. LITIGATION
The Company is involved in certain litigation incidental to
the conduct of its business. In the Company's opinion, none
of these proceedings will have a material adverse effect on
the Company's financial position, results of operations and
liquidity. The financial statements include the estimated
amounts of liabilities that are likely to be incurred from
these and various other pending litigation and claims.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included
in the accompanying consolidated financial statements.
GENERAL
- -------
The Company's rehabilitation revenues derive primarily from
direct installation and other contracting activities, generated
by the Company's subsidiaries operating in the United States,
Canada, France, the United Kingdom, Chile, Argentina and Mexico,
and include product sales to, and royalties and license fees
paid by, the Company's 35 unaffiliated Insituform licensees and
sub-licensees and its seven unaffiliated NuPipe(R) licensees.
During the three years ended December 31, 1997, 1996 and 1995,
approximately 62.5%, 69.7% and 71.2%, respectively, of the
Company's consolidated revenues related to the Insituform(R)
process.
Fluctuations in the exchange rates between the United States
dollar and the currencies of other countries in which the
Company operates or has licensees may have an impact on the
Company's consolidated results during the relevant reporting
period. The Company intends to manage any such foreign currency
exposure in the context of discrete commercial transactions and,
when appropriate, to offset such exposure in whole or in part by
entering into foreign currency forward contracts, in order to
reduce the impact of such fluctuations on results of operations.
The Company does not anticipate that the circumstances in which
such hedging activity would be appropriate will have a material
effect on the Company's liquidity.
Statements contained in and preceding management's discussion
and analysis include various forward-looking information that is
based on data currently available to management and management's
beliefs and assumptions. When used in this report, the words
"anticipate," "estimate," "believes," "plans," and similar
expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements.
Such statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors,
including, without limitation, the competitive environment for
the Company's products and services, the geographical
distribution and mix of the Company's work, and other factors
set forth in reports and other documents filed by the Company
with the Securities and Exchange Commission from time to time.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998, the Company had $63.4 million in cash, U.S.
Treasury bills, and short-term investments, as compared to $45.7
million at December 31, 1997. Cash and cash equivalents
increased $17.7 million primarily as a result of cash generated
from operations of $26.1 million offset somewhat by capital
expenditures of $7.8 million. The Company's working capital
ratio was 3.8-to-1.0 at June 30, 1998, representing an increase
from 3.4-to-1.0 at December 31, 1997.
Operations provided cash of $26.1 million in 1998, as compared
to $9.3 million in the first half of 1997. The principal reason
for the favorable increase was a decrease in trade receivables
of $16.3 million, offset by a decrease in income taxes payable
of $3.4 million. In addition, net income increased to $7.5
million from $1.3 million in the first half of 1997.
Trade receivables, together with costs and estimated earnings in
excess of billings and retainage under construction contracts,
decreased 12.4% to $77.7 million from $88.7 million at December
1997. This decrease was primarily attributable to strong
collections, along with a decrease in revenue volume in the
first half of 1998. The collection cycle for construction
receivables is generally longer than for the Company's
manufacturing and royalty operations due to provisions for
retainage, often 5% to 15% of the contract amount, as well as
the slow internal review processes often employed by the
construction subsidiaries' municipal customers. In the United
States, retainage receivables are generally received within 60
to 90 days after the completion of a contract.
Capital expenditures were $7.8 million in each of the first half
of 1998 and of 1997. Capital expenditures generally reflect
replacement equipment required by the Company's contracting
divisions. The Company anticipates expenditures of approximately
$2.5 million in connection with the installation of an
electronic data collection system in each of the Company's North
American rehabilitation operations during the course of 1998, of
which $1.1 million was spent as of June 30, 1998. In addition,
the Company anticipates expenditures of approximately $1.9
million later in 1998 in order to acquire additional tunneling
equipment. In March 1998, the Company completed construction of
its new research and development facility entailing a total cost
of construction of approximately $2.9 million, of which $0.5
million was spent in the first half of 1998.
The Company has several information system improvement
initiatives underway that will require increased expenditures
during the next several years. These initiatives, which began
principally in 1997, include the aforementioned data collection
system from our field contracting units, and continual
accounting system upgrades and modifications. The Company has<PAGE>
<PAGE>
assessed and continues to assess the impact of the Year 2000
issues on its operations. Management believes that all system
modifications necessary will be completed well before the year
2000, and spending on modifications will not have a significant
impact on the Company's operations.
Financing activities used $0.5 million in the first half of
1998, as compared to cash provided of $25.2 million in the first
half of 1997. In February 1997, the Company completed the sale,
in a private transaction, of $110 million principal amount of
its 7.88% Senior Notes Series A, due February 14, 2007 (the
"Senior Notes"), approximately $85 million of which was applied
at closing to the refinancing of outstanding indebtedness of the
Company. In 1998, the Company made principal payments totaling
$1.3 million relating to the Company's existing debt.
The Senior Notes bear interest, payable semi-annually in August
and February of each year, at the rate per annum of 7.88%. Each
year, from February 2001 to February 2006, inclusive, the
Company will be required to make principal payments of $15.7
million, together with an equivalent payment at maturity. The
Senior Notes may be prepaid at the Company's option, in whole or
in part, at any time, together with a make whole premium, and
upon specified change in control events each holder has the
right to require the Company to purchase its Senior Note without
any premium thereon. To the extent not utilized to refinance
indebtedness, proceeds of the sale of the Senior Notes are
available for general corporate purposes, including possible
acquisitions of products, technologies and businesses and
repurchases of Common Stock. The Company has not reached any
determination with respect to any such transaction, and there
can be no assurance that any such transaction will be
undertaken.
In August 1997, the Company entered into a credit agreement (the
"Credit Agreement"), whereby the lender will make available to
the Company, until September 1, 2000 (the "Maturity Date"), a
revolving credit line of up to $20,000,000 aggregate principal
amount for working capital and permitted acquisitions, including
$5,000,000 available for standby and commercial letters of
credit. Interest on outstanding advances accrues, at the
election of the Company, at either the lender's prime rate,
payable monthly, or its LIBOR rate, plus a margin ranging from
.5% to 1.5% depending on the maintenance of certain financial
ratios, payable at the end of selected interest periods (from
one to six months). Outstanding principal is subject to
repayment on the Maturity Date, except that advances for
permitted acquisitions must be repaid within six months after
disbursement.
<PAGE>
<PAGE>
The note purchase agreements pursuant to which the Senior Notes
were acquired, and the Credit Agreement, obligate the Company to
comply with certain financial ratios and restrictive covenants
that, among other things, place limitations on operations and
sales of assets by the Company or its subsidiaries, and limit
the ability of the Company to incur further secured indebtedness
and liens and of subsidiaries to incur indebtedness, and, in the
event of default, limit the ability of the Company to pay cash
dividends or make other distributions to the holders of its
capital stock or to redeem such stock. The Credit Agreement
also obligates certain of the Company's domestic subsidiaries to
guaranty the Company's obligations, as a result of which the
same subsidiaries have also delivered their guaranty with
respect to the Senior Notes.
In March 1998, the Company completed the acquisition of the
entire minority interest (40%) in its Chilean subsidiary for an
aggregate purchase price of approximately $2.1 million, $1.0
million of which was paid in connection with closing, $0.6
million of which is due at the first anniversary of closing, and
the remainder of which is due on the second anniversary of
closing.
In July 1998, the Company announced that its Board of Directors
had authorized the repurchase of up to 2,700,000 shares of the
Company's class A common stock, $.01 par value ("Common Stock"),
to be made from time to time over the next five years in open
market transactions. The amount and timing of purchases will be
dependent upon a number of factors, including the price and
availability of the Company's shares, general market conditions
and competing alternative uses of funds, and may be discontinued
at any time. The repurchased shares will be held as treasury
stock.
Management believes its current working capital will be adequate
to meet its requirements for the foreseeable future.
RESULTS OF OPERATIONS
- ---------------------
Three and Six Months Ended June 30, 1998 and 1997
Total rehabilitation revenues for the second quarter increased
0.3% to $75.5 million from $75.3 million in 1997, while revenues
for the first half of 1998 decreased 8.6% to $139.3 million from
$152.4 million in the prior year. The primary reason for the
decrease for the first half was decreased volume from the
Company's corrosion and abrasion operations in the United States
and Latin America. This decrease was coupled with lower volume
from the Company's North American pipeline rehabilitation
operations, primarily due to the elimination of non-core
projects, such as cleaning and inspection. In addition, there
was a decrease in volume from the Company's pipeline
rehabilitation operations in the United Kingdom, as a result of<PAGE>
<PAGE>
lower workable backlog during the first quarter of 1998, caused
by a shift in the release of project work into the second
quarter. As a result of the management committee composition of
Midsouth Partners, the Company began accounting for its
investment therein on an equity basis beginning in April 1997,
which resulted in revenue of $0.2 million in 1998, compared to
$2.0 million in 1997 during which Midsouth's results were
consolidated with the Company.
The Company's gross profit from rehabilitation during the second
quarter increased 11.4% to $24.4 million from $21.9 million in
the comparable period in 1997, while for the first half of 1998,
gross profit increased 7.9% to $46.3 million from $42.9 million
in 1997. The overall gross profit margin achieved in the second
quarter of 1998 was 32.4% versus 29.1% in the second quarter of
1997, while for the first half of 1998, the gross profit margin
was 33.3%, compared to 28.2% in 1997. This increase was
primarily due to improvements made in productivity and
efficiency in the Company's pipeline rehabilitation operations.
Much of this improvement came as a result of extensive
reorganization during 1997, where management rationalized field
crews and equipment throughout the organization. In addition,
in 1998, more projects with favorable margins were undertaken,
as a result of the elimination of lower margin non-core
projects, such as cleaning and inspection, along with improved
pricing on core pipeline rehabilitation projects.
For the second quarter, selling, administrative and general
expenses decreased 3.5% to $13.6 million from $14.1 million in
1997, while for the first half of 1998, selling, administrative
and general expenses decreased 6.9% to $27.1 million from $29.1
million in the first half of 1997. This decrease was due to
cost savings gained from the reorganization of the Company's
pipeline rehabilitation operations through elimination of
positions, facilities, and realignment of responsibilities,
along with the consolidation of the Company's headquarters in
Chesterfield, Missouri. As a percentage of revenues, selling,
administrative and general expenses decreased in the second
quarter to 18.0% from 18.7% in 1997, due primarily to the
foregoing reasons. For the first half of 1998, selling,
administrative and general expenses as a percentage of revenues
increased to 19.5% from 19.1%, which was primarily attributable
to lower revenue volume in 1998, offset somewhat as a result of
the foregoing reasons.
For the second quarter, strategic marketing and product
development costs increased 6.7% to $1.6 million from $1.5
million in 1997. This increase was primarily attributable to
stepped-up research and development efforts in the second
quarter of 1998. For the first half, strategic marketing and
product development costs decreased 14.7% to $2.9 million from
$3.4 million in the first half of 1997. This decrease was
primarily attributable to controlled spending in marketing,<PAGE>
<PAGE>
along with decreased personnel in engineering, offset somewhat
from increased research and development costs.
During the second quarter of 1997, the Company recorded in
operating expense an unusual item of $3.2 million for employee
severance and moving employees and offices related to the
restructuring of its corporate headquarters and related
facilities, which did not recur in the current year. In
addition, the Company accrued $0.6 million (prior to any effect
of taxes) in the second quarter of 1997, with respect to
non-recurring expenses attendant to activities leading to the
settlement agreement entered into in July 1997 with a group,
including two directors of the Company, who had stated their
intention to propose a slate of individuals to run for election
to the Board of Directors of the Company in opposition to the
slate proposed by the Company.
During the second quarter, interest expense decreased 4.3% to
$2.2 million from $2.3 million in 1997, due primarily to
somewhat lower debt outstanding in 1998 resulting from scheduled
repayments of long-term debt. For the first half of 1998,
interest expense increased 9.5% to $4.6 million from $4.2
million due primarily to the effect of borrowings resulting from
the Senior Note financing completed in February 1997.
In the second quarter of 1998, taxes on income increased to $3.1
million from $0.3 million in 1997 due principally to the
increase in income before taxes on income of $7.2 million from
the second quarter of 1997. In the first half of 1998, taxes on
income increased 296.1% to $5.2 million from $1.3 million due
principally to the increase in income before taxes on income of
$10.0 million from the first half of 1997.
In February 1997, as a result of the closing of the Senior Note
financing, certain previous debt facilities were retired. Costs
of $0.4 million ($0.2 million after-tax benefits) associated
with these debt facilities which were capitalized, such as
commitment fees and legal costs, were written off. This expense
was classified as extraordinary in the Company's results of
operations for the first quarter of 1997.
As a result of the foregoing, net income for the second quarter
of 1998 was $4.4 million, representing a 5.8% return on revenue,
compared to $0.2 million in the second quarter of 1997, when
0.3% return on revenue was achieved. Net income for the first
half of 1998 was $7.5 million, or a 5.4% return on revenue,
compared to $1.3 million in the first half of 1997, when a 0.8%
return was achieved.<PAGE>
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
-----------------
Additional Texas Proceeding. In response to pleadings
filed by the Company in the previously reported suit brought
against it in the United States District Court for the Southern
District of Texas, Houston Division, captioned Inliner U.S.A.
and Cat Contracting, Inc., v. Insituform Technologies, Inc. and
Insituform East, Inc. (Civil Action No. H96-3627), the court has
dismissed, under the doctrine of res adjudicata, plaintiff's
allegation that the Company had commenced certain patent
infringement proceedings with knowledge that the subject patent
was invalid. The court also dismissed certain other claims of
plaintiffs and held that plaintiffs had failed to plead a case
with respect to the balance of its allegations. Following the
court's acceptance of plaintiffs' third amended complaint on
June 19, 1998, a joint notice of dismissal executed by all
parties was filed on June 22, 1998 and, on June 23, 1998, the
court issued its order of dismissal. Plaintiffs thereafter
filed a motion to withdraw the voluntary dismissal motion, which
the court rejected on July 3, 1998.
In the interim, on June 30, 1998 plaintiffs refiled,
as a new suit, its third amended complaint, including Insituform
Gulf South, Inc., a subsidiary of the Company, as a defendant in
addition to the original defendants (Inliner U.S.A. and CAT
Contracting, Inc., vs. Insituform Technologies, Inc., Insituform
Gulf South, Inc. and Insituform East, Inc. [Civil Action
H-98-20651] in the United States District Court for the Southern
District of Texas, Houston Division). Plaintiffs repeat their
previous allegations that defendants conspired to exercise
monopoly power under Sections 1 and 2 of the Sherman Act and/or
acted in concert to restrain trade in an unlawful manner under
Sections 1 and 2 of the Sherman Act, that defendants have
engaged in a pattern of discriminatory pricing and subsidization
specifically designed to eliminate a competitor and/or lessen
competition in violation of Section 2 of the Clayton Act, that
defendants have made false and misleading statements about the
plaintiffs and its products in violation of Section 43(a) of the
Lanham Act, and that defendants have engaged in tortious
interference with plaintiffs' business and relationships with
its licensees so as to constitute business disparagement. The
Company intends vigorously to continue to contest plaintiffs'
claims. No discovery in any of these matters has yet taken
place.
<PAGE>
<PAGE>
Western Slopes Utilities. On July 7, 1998 the
proceedings previously reported by the Company captioned Western
Slopes Utilities, Inc. v. Insituform Technologies, Inc. and
Insituform Netherlands B.V. [Civil Action No. 96-N-2394]) were
voluntarily dismissed, without prejudice, by the parties, after
the court dismissed plaintiff's claims that the Company's serial
vacuum impregnation patent was invalid along with plaintiff's
request for injunctive relief from patent infringement claims by
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) On June 10, 1998, the Company convened its Annual
Meeting of Stockholders (the "Annual Meeting").
(b) Not applicable because (i) proxies for the Annual
Meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934 together with the Company's
Proxy Statement dated May 4, 1998 (the "Proxy Statement"); (ii)
there was no solicitation in opposition to management's nominees
as listed in the Proxy Statement; and (iii) all of such nominees
were elected.
(c) At the Annual Meeting, the stockholders voted in
favor of a proposal to approve and adopt an amendment to the
Company's 1992 Employee Stock Option Plan to increase the number
of shares of the Company's Common Stock, issuable pursuant to
the exercise of options from 1,000,000 shares to 1,850,000
shares. The holders of 18,191,725 shares voted in favor of, the
holders of 898,786 voted against, the holders of 872,447 shares
abstained and there were 3,331,725 broker non-votes with respect
to approval and adoption of such proposal.
At the Annual Meeting, the stockholders voted in favor
of a proposal to approve and adopt an amendment to the Company's
1992 Director Stock Option Plan to increase the number of shares
of Common Stock issuable pursuant to the exercise of options
from 500,000 shares to 1,000,000 shares. The holders of
18,094,704 shares voted in favor of, the holders of 990,993
shares voted against, the holders of 877,261 shares abstained
and there were 3,331,725 broker non-votes with respect to
approval and adoption of such proposal.
At the Annual Meeting, the stockholders voted in favor
of management's nominees for election as directors of the
Company. The holders of 22,991,511 shares voted in favor of,
and holders of 303,172 shares withheld their vote for, the
election of Robert W. Affholder; the holders of 23,001,434
shares voted in favor of, and holders of 293,249 shares withheld
their vote for, the election of Paul A. Biddelman; the holders
of 23,000,929 shares voted in favor of, and holders of 293,754
shares withheld their vote for, the election of Stephen P.<PAGE>
<PAGE>
Cortinovis; the holders of 22,999,209 shares voted in favor of,
and holders of 295,474 shares withheld their vote for, the
election of Anthony W. Hooper; the holders of 22,998,634 shares
voted in favor of, and holders of 296,049 shares withheld their
vote for, the election of Jerome Kalishman; the holders of
23,000,154 shares voted in favor of, and holders of 294,529
shares withheld their vote for, the election of Silas Spengler;
the holders of 23,000,307 shares voted in favor of, and holders
of 294,376 shares withheld their vote for, the election of
Sheldon Weinig; the holders of 23,001,182 shares voted in favor
of, and holders of 293,501 shares withheld their vote for, the
election of Russell B. Wight, Jr.; and the holders of 23,000,829
shares voted in favor of, and holders of 293,854 shares withheld
their vote for, the election of Alfred L. Woods.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The exhibits filed as part of this Quarterly
Report on Form 10-Q are listed on the annexed Index to Exhibits.
(b) During the quarter ended June 30, 1998, the
Company did not file any Current Reports on Form 8-K. The
Company has subsequently filed: (i) a Current Report on Form
8-K dated July 6, 1998, which, under "Item 5. Other Events"
thereunder, reported the authorization of the Company's stock
repurchase program relating to up to 2,700,000 shares of Common
Stock, to be made from time to time over the next five years in
open market transactions; and (ii) a Current Report on Form 8-K
dated July 15, 1998 which, under "Item 5. Other Events"
thereunder, reported the execution of an employment letter by
the Company and Anthony W. Hooper. No financial statements were
filed as part of any such report.<PAGE>
<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 thereunto duly authorized.
INSITUFORM TECHNOLOGIES, INC.
August 11, 1998 By: s/William A. Martin
---------------------------------
William A. Martin
Senior Vice President and
Principal Financial and
Accounting Officer<PAGE>
<PAGE>
INDEX TO EXHIBITS
------------------
3.2 - By-laws of the Company
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and is not filed.
EXHIBIT 3.2
BY-LAWS
OF
INSITUFORM TECHNOLOGIES, INC.
(as amended through June 29, 1998)
ARTICLE I - OFFICES
The principal offices of the corporation in the State of
Delaware shall be located in the City of Dover, County of Kent.
The Corporation may have such other offices, either within or
without the State of incorporation as the board of directors may
designate or as the business of the corporation may from time to
time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held at
such time and upon such date during the month of June in each year
as the Board of Directors may determine, for the purpose of
electing directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the
next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by
either the chairman of the board, the president or by the
directors, and shall be called by the president at the request of
the holders of not less than fifty per cent of all the outstanding
shares of the Corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or
without the State unless otherwise prescribed by statute, as the
place of meeting for any annual meeting or for any special meeting
called by the directors. A waiver of notice signed by all
stockholders entitled to vote at a meeting may designate any
place, either within or without the state unless otherwise
prescribed by statute, as the place for holding such meeting. If
no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the
corporation.
<PAGE>
<PAGE>
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than fifty days before the
date of the meeting, either personally or by mail, by or at the
direction of either the chairman of the board, the president, the
secretary, or the officer or persons calling the meeting, to each
stockholder 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 stockholder at his address as
it appears on the stock transfer books of the corporation, with
postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or stockholders entitled to receive payment
of any dividend, or in order to make a determination of
stockholders for any other proper purpose, the directors may fix
in advance a date as the record date for any such determination of
stockholders, such date in any case to be not more than sixty days
and, in case of a meeting of stockholders, not less than ten days
prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders 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 directors
declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten days
before each meeting of stockholders, a complete list of the
stockholders 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 principal
office of the corporation and shall be subject to inspection by
any stockholder at any time during 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 stockholder
during the whole time of the meeting. The original stock transfer
book shall be prima facie evidence as to who are the stockholders<PAGE>
<PAGE>
entitled to examine such list or transfer books or to vote at the
meeting of stockholders.
7. QUORUM.
At any meeting of stockholders a majority of the
outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. If less than said number of the
outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time
without further notice. 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 notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote
by proxy executed in writing by the stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the
terms and provisions of the certificate of incorporation and these
by-laws shall be entitled to one vote, in person or by proxy, for
each share of stock entitled to vote held by such stockholders.
Upon the demand of any stockholder, the vote for directors and
upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all
other questions shall be decided by majority vote except as
otherwise provided by the Certificate of Incorporation or the laws
of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the
stockholders, shall be as follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officer.
5. Reports of Committees.<PAGE>
<PAGE>
6. Election of Directors.
7. Unfinished Business.
8. New Business.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be
managed by its board of directors. The directors shall in all
cases act as a board, and they may adopt such rules and
regulations for the conduct of their meetings and the management
of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
2. NUMBER OF DIRECTORS, TENURE AND QUALIFICATIONS.
The Board of Directors shall consist of eight (8)
directors, provided that the size of the Board of Directors shall
increase automatically, without any further amendment to this
Section 2, to nine (9) directors upon the election or appointment
of the Additional Nominee (as defined in that certain Agreement,
dated July 25, 1997, among the corporation, Jerome Kalishman,
Nancy F. Kalishman, The Jerome and Nancy Kalishman Family Fund,
Robert W. Affholder, Xanadu Investments, L.P., Paul A. Biddelman,
Stephen P. Cortinovis, Anthony W. Hooper, Silas Spengler, Sheldon
Weinig and Russell B. Wight, Jr., as it may be amended from time
to time (the "Agreement")) contemplated by, and selected in
accordance with, the provisions of the Agreement. Such directors
(except as hereinafter provided for the filling of vacancies)
shall be elected in accordance with the Corporation's Certificate
of Incorporation by the stockholders by a plurality vote of the
number of shares voting at the meeting at which such election
shall take place.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held
without other notice than this by-law immediately after, and at
the same place as, the annual meeting of stockholders. The
directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than
such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at
the request of the president, the Chairman of the Board, or any
two directors. The person or persons authorized to call special
meetings of the directors may fix the place either within or<PAGE>
<PAGE>
without the state or country, for holding any special meeting of
the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least 24
hours previously thereto by written notice delivered personally,
or by telegram or telecopy or mailed to each director at his
residence or business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. The attendance of
a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall
constitute a quorum for the transaction of business, but if less
than said number is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time
without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the
directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Any vacancy on the Board of Directors and any newly
created directorship resulting from an increase in the number of
directors may be filled by the directors in accordance with the
Corporation's Certificate of Incorporation.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed only for
cause by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written
notice to the board, the president or the secretary of the
corporation. Unless otherwise specified in the notice, the
resignation shall take effect upon receipt thereof by the board or
such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
<PAGE>
<PAGE>
11. COMPENSATION.
The Board of Directors shall have the authority to fix
the compensation of directors. Nothing herein 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 compensation for attending committee
meetings.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a
meeting of the directors 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 corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply
to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its
members an executive committee and other committees, each
consisting of one or more directors. Each such committee shall
serve at the pleasure of the board.
14. NOTICE AND APPROVAL OF CERTAIN ACTIONS
Notwithstanding any other provision of these By-laws
(and except for the implementation of Sections 2(a), (b), (c) and
(e) and Section 6 of the Agreement): (a) in the event that any
director proposes to bring before any regular or special meeting
of the Board of Directors any proposal relating to any amendment
of the Corporation's Certificate of Incorporation or these By-laws
or the Agreement (as defined in Article III, Section 2), or any
change in the structure, composition (other than such director's
resignation) or governance of the Board of Directors (any such
action being referred to herein as a "Special Action"), such
director must provide written notice thereof (including a
reasonably detailed description of such proposal) to each member
of the Board of Directors at least seven days prior to the date of
the directors' meeting at which the Special Action is to be
proposed; and (b) the taking of any Special Action by the Board of
Directors must be approved by a majority of all directors then
serving; provided, however, that no Special Action which would
have any effect prior to the 1999 annual meeting of the
stockholders may be taken if such Special Action would conflict
with, have the effect of modifying or otherwise frustrating any
provision of the Agreement, including, without limitation, any
amendment to Article SIXTH of the Corporation's Certificate of<PAGE>
<PAGE>
Incorporation or Section 2 of this Article III, as such provisions
will be in effect pursuant to the Agreement following the 1997
annual meeting of the stockholders.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a chairman of
the board, a vice chairman of the board,a president, one or more
senior vice presidents, one or more vice presidents, a secretary
and a treasurer, each of whom shall be elected by the directors.
Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the directors. In
addition, the President may from time to time appoint such
officers of operating divisions, and such contracting and
attesting officers, of the corporation as he may deem proper, who
shall have such authority, subject to the control of the
directors, as the President may from time to time prescribe.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the
directors shall be elected annually at the first meeting of the
directors held after each annual meeting of the stockholders. Each
officer elected by the directors shall hold office until his
successor shall have been duly elected and shall have qualified
or, if earlier, until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Each officer
of the corporation appointed by the President shall hold office
for such period as the President may from time to time prescribe
or, if earlier, until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.
3. REMOVAL.
Any officer elected or appointed by the directors, or
any officer appointed by the President, may be removed by the
directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be
without prejudice to the contract, if any, of the person so
removed. Any officer appointed by the President may be removed by
the President whenever in his judgment the best interests of the
corporation would be served thereby, but such removal shall be
without prejudice to the contract, if any, of the person so
removed.
4. VACANCIES.
A vacancy in any office because of death, resignation,
removal, disqualification or otherwise of an officer elected or
appointed by the directors may be filled by the directors for the
unexpired portion of the term. A vacancy in any office because of<PAGE>
<PAGE>
death, resignation, removal, disqualification or otherwise of any
officer appointed by the President may be filled by the President
for the unexpired portion of the term.
4A. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside, when present,
at all meetings of the Board of Directors and at all meetings of
the stockholders and will perform such other duties as may be
prescribed from time to time by the Board or these By-laws.
4B. VICE CHAIRMAN OF THE BOARD.
In the absence of the Chairman of the Board or in the
event of his death, inability or refusal to act, the Vice Chairman
of the Board shall perform the duties of the Chairman of the Board
and, when so acting, shall have all the powers of and be subject
to all the restrictions on the Chairman of the Board. The Vice
Chairman of the Board shall perform such other duties as may be
prescribed from time to time by the Board or these by-laws.
Notwithstanding any other provisions of these By-laws, the Vice
Chairman of the Board, acting in any capacity, shall not have the
power to call any special meeting of the Stockholders.
5. PRESIDENT.
The President shall be the chief executive officer of
the corporation and, subject to the control of the Board of
Directors, shall have general and active management of the
business of the corporation, and shall see that all orders and
resolutions of the Board and stockholders are carried into effect.
He shall have the general authority to execute bonds, deeds and
contracts, in the name of the corporation and affix the corporate
seal thereto; to sign stock certificates; to cause the employment
or appointment of such employees and agents of the corporation as
the proper conduct of operations may require, and to fix their
compensation, subject to the provisions of these By-laws; to
remove or suspend any employee or agent who shall have been
employed or appointed under his authority or under authority of an
officer subordinate to him; and, in general, to exercise all the
powers and authority usually appertaining to the chief executive
officer of a corporation.
6. VICE-PRESIDENT.
In the absence of the president or in the event of his
death, inability or refusal to act, one of the vice-presidents
designated by the 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. The
vice-president shall perform such other duties as from time to
time may be assigned to him by the president or by the directors.
<PAGE>
<PAGE>
7. SECRETARY.
The secretary shall keep the minutes of the
stockholders' and of the directors' meetings in one or more books
provided for that purpose, see that all notices are duly given in
accordance with the provisions of these by-laws or, as required,
be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such
stockholder, have general charge of the stock transfer books of
the corporation and in general perform all duties incident to the
office of secretary and such other duties as from time to time may
be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give
a bond for the faithful discharge of his duties in such sum and
with such surety or sureties as the directors shall determine. He
shall have charge and custody of and be responsible for all funds
and securities of the corporation; receive and give receipts for
monies due and payable to the corporation from any source,
whatsoever, and deposit all such monies in the name of corporation
in such banks, trust companies or other depositories as shall be
selected in accordance with these by-laws and in general perform
all of the duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the
president or by the directors.
9. SALARIES.
The salaries of those officers elected or appointed by
the directors shall be fixed from time to time by the directors
and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation,
and such authority may be general or confined to specific
instances. The President may authorize any contracting officer
appointed by him pursuant to Section 1 of Article IV to enter into
any pipeline rehabilitation contract in the ordinary course of
business of the corporation, or execute and deliver any instrument
in connection therewith, in the name and on behalf of the
corporation.
<PAGE>
<PAGE>
2. LOANS.
No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the directors. Such
authority may be general or confined to specific instances.
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 corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall
from time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries
as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation
shall be in such form as shall be determined by the directors.
Such certificates shall be signed by any of the chairman of the
board, or the president, as authorized by the directors and the
secretary, or such other officers authorized by law and by the
directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the
stockholders, the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be
cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the corporation as the
directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, and cancel
the old certificate; every such transfer shall be entered on the
transfer book of the corporation which shall be kept at its
principal office.<PAGE>
<PAGE>
(b) The corporation shall be entitled to treat the
holder of record of any share as the holder in fact thereof, and,
accordingly, shall not be bound to recognized any equitable or
other claim to or interest in such share on the part of any other
person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first
day of January in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the
corporation, the state of incorporation, year of incorporation and
the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is
required to be given to any stockholder or director of the
corporation under the provisions of these by-laws or under the
provisions of the articles of incorporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
Except as otherwise provided by law, the Board of Directors
may adopt, alter, amend or repeal the by-laws of the Corporation,
provided, however, that the stockholders, representing a majority
of all the shares issued and outstanding at any annual stock-
holders' meeting or at any special stockholders' meeting, may
repeal, alter or amend by-laws adopted by the Board or Directors
and may adopt new by-laws; provided, further, however, that the
size of the Board of Directors, as set forth in Section 2 of
Article III, may only be amended by a vote of at least 80% of the
members of the Board of Directors or by a vote of the
stockholders, representing a majority of all of the shares issued
and outstanding, at any annual stockholders' meeting or at any
special stockholders' meeting.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 63,419
<SECURITIES> 1
<RECEIVABLES> 78,748
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0
0
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</TABLE>
