<PAGE> 1
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 Quarterly Period Ended March 31, 1999
---------------
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 0-10068
-------
ICO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0566682
- ------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
11490 Westheimer, Suite 1000, Houston, Texas 77077
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(281) 721-4200
------------------
(Telephone Number)
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 [ ]
Common stock, without par value 22,113,646 shares
outstanding as of May 14, 1999
<PAGE> 2
ICO, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
September 30, 1998.............................................. 3
Consolidated Statements of Operations for the Three and
Six Months Ended March 31, 1999 and 1998........................ 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months ended March 31, 1999 and 1998.............. 5
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1999 and 1998........................ 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks..... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 19
Item 2. Changes in Securities........................................... -
Item 3. Defaults upon Senior Securities................................. -
Item 4. Submission of Matters to a Vote of Security Holders............. 21
Item 5. Other Information............................................... 21
Item 6. Exhibits and Reports on Form 8-K................................ 21
</TABLE>
-2-
<PAGE> 3
ICO, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 35,375 $ 51,135
Trade receivables (less allowance for doubtful accounts of $1,619
and $1,690, respectively) 48,428 56,868
Inventories 25,210 29,963
Deferred tax asset 3,020 3,154
Prepaid expenses and other 3,418 4,320
------------- -------------
Total current assets 115,451 145,440
------------- -------------
Property, plant and equipment, at cost 186,370 184,683
Less - accumulated depreciation and amortization (69,188) (67,384)
------------- -------------
117,182 117,299
------------- -------------
Other assets:
Goodwill (less accumulated amortization of $7,398 and $6,592,
respectively) 55,698 57,304
Debt offering costs 3,876 4,180
Other 3,452 4,454
------------- -------------
$ 295,659 $ 328,677
============= =============
LIABILITIES, STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 7,470 $ 12,836
Accounts payable 23,690 24,220
Accrued interest 4,397 4,395
Accrued insurance 2,147 1,790
Accrued salaries and wages 2,117 2,372
Income taxes payable 1,278 43
Other accrued expenses 11,481 10,564
------------- -------------
Total current liabilities 52,580 56,220
Deferred income taxes 2,880 9,454
Long-term liabilities 1,840 2,056
Long-term debt, net of current portion 133,084 132,631
------------- -------------
Total liabilities 190,384 200,361
------------- -------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, without par value - 500,000 shares authorized;
322,500 shares issued and outstanding with a liquidation
preference of $32,250 13 13
Junior participating preferred stock, without par value -
50,000 shares authorized; 0 shares issued and outstanding -- --
Common stock, without par value - 50,000,000 shares authorized;
22,113,646 and 22,108,153 shares issued and outstanding,
respectively 39,181 39,170
Additional paid-in capital 108,725 108,725
Accumulated other comprehensive loss (4,767) (1,890)
Accumulated deficit (37,877) (17,702)
------------- -------------
105,275 128,316
------------- -------------
$ 295,659 $ 328,677
============= =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-3-
<PAGE> 4
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Petrochemical processing sales and services $ 46,223 $ 42,751 $ 90,465 $ 82,095
Oilfield sales and services 17,323 28,251 35,872 54,471
------------ ------------ ------------ ------------
Total net revenues 63,546 71,002 126,337 136,566
------------ ------------ ------------ ------------
Cost and expenses:
Cost of sales and services 49,926 52,900 97,919 101,957
Selling, general and administrative 12,463 10,199 22,935 24,743
Depreciation 3,728 2,986 7,265 5,867
Amortization of intangibles 717 621 1,425 1,495
Impairment of long-lived assets 9,291 -- 9,291 --
Write-down of fixed assets 2,848 -- 2,848 --
Write-down of inventories 1,507 -- 1,507 100
Severance expenses 999 -- 999 --
Write-off of start-up costs 867 -- 867 --
------------ ------------ ------------ ------------
82,346 66,706 145,056 134,162
------------ ------------ ------------ ------------
Operating income (loss) (18,800) 4,296 (18,719) 2,404
------------ ------------ ------------ ------------
Other income (expense):
Gain on sale of equity investment -- -- -- 11,805
Interest income 497 1,072 1,146 2,157
Interest expense (3,478) (3,470) (6,948) (6,965)
Other 36 (35) 35 (4)
------------ ------------ ------------ ------------
(2,945) (2,433) (5,767) 6,993
------------ ------------ ------------ ------------
Income (loss) before taxes
and extraordinary item (21,745) 1,863 (24,486) 9,397
Provision for income taxes 5,889 (769) 6,216 (4,623)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (15,856) 1,094 (18,270) 4,774
Extraordinary gain 399 -- 399 --
------------ ------------ ------------ ------------
Net income (loss) $ (15,457) $ 1,094 $ (17,871) $ 4,774
------------ ------------ ------------ ------------
Preferred Dividends 544 544 1,088 1,088
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock $ (16,001) $ 550 $ (18,959) $ 3,686
============ ============ ============ ============
Basic earnings (loss)per share before
extraordinary item (see Note 4) $ (.74) $ .03 $ (.88) $ .17
Extraordinary item .02 -- .02 --
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ (.72) $ .03 $ (.86) $ .17
============ ============ ============ ============
Diluted earnings (loss) per share before
extraordinary item (see Note 4) (.74) .03 (.88) .17
Extraordinary item .02 -- .02 --
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ (.72) $ .03 $ (.86) $ .17
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-4-
<PAGE> 5
ICO, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income (loss) $ (15,457) $ 1,094 $ (17,871) $ 4,774
Other comprehensive loss
Foreign currency translation adjustment (3,295) (214) (2,877) (1,708)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (18,752) $ 880 $ (20,748) $ 3,066
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-5-
<PAGE> 6
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (17,871) $ 4,774
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 8,690 7,362
Gain on disposition of property, plant, and equipment (176) (53)
Gain on sale of equity investment -- (11,805)
Write-down of inventories 1,507 100
Write-off of start-up costs 867 --
Impairment of long-term assets 9,291 --
Write-down of fixed assets 2,848 --
Changes in assets and liabilities, net of the effects of business
acquisitions:
Receivables 9,181 (5,410)
Inventories 2,710 (5,103)
Prepaid expenses and other assets (137) (933)
Income taxes payable 901 3,501
Deferred taxes (7,244) 1,085
Accounts payable (353) 3,553
Accrued interest -- 288
Accrued expenses 829 (417)
------------ ------------
Total adjustments 28,914 (7,832)
------------ ------------
Net cash provided by (used for) operating activities 11,043 (3,058)
------------ ------------
Cash flows used for investing activities:
Capital expenditures (9,764) (12,054)
Acquisitions, net of cash acquired (7,575) (15,939)
Disposition of equity investment, net of expenses -- 13,679
Dispositions of property, plant and equipment 97 2,128
------------ ------------
Net cash used for investing activities (17,242) (12,186)
------------ ------------
Cash flows used for financing activities:
Net proceeds from sale of stock 11 1,046
Payment of dividend on preferred stock (1,088) (1,088)
Payment of dividend on common stock (1,216) (2,406)
Additional debt 613 773
Reductions of debt (7,728) (2,446)
------------ ------------
Net cash used for financing activities (9,408) (4,121)
------------ ------------
Effect of exchange rates on cash (153) (54)
------------ ------------
Net decrease in cash and equivalents (15,760) (19,419)
Cash and equivalents at beginning of period 51,135 83,892
------------ ------------
Cash and equivalents at end of period $ 35,375 $ 64,473
============ ============
Supplemental disclosures of cash flow information:
Cash received (paid) during the period for:
Interest received $ 1,147 $ 2,202
Interest paid (7,015) (6,209)
Income taxes paid (68) (1,152)
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-6-
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Annual Report on Form
10-K for the year ended September 30, 1998 for ICO, Inc. (the "Company"). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of March 31, 1999, the
results of operations for the three and six months ended March 31, 1999 and 1998
and the changes in its cash position for the six months ended March 31, 1999 and
1998. Results of operations for the three-month and six-month periods ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1999. For additional information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
requires that companies recognize all derivative instruments as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The Company is required to adopt SFAS No. 133 in its financial statements for
the fiscal year ending September 30, 2000. Due to the Company's limited use of
derivative instruments, the impact of adopting SFAS No. 133 is not expected to
be material to the Company's financial statements.
During April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities," which requires that companies expense as incurred costs of
start-up activities and organization costs. The Company is required to adopt SOP
98-5 in its financial statements for the fiscal year ending September 30, 2000.
The adoption of SOP 98-5 is not expected to have a material effect on the
financial results of the Company.
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosure About Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after December
15, 1997. SFAS No. 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates. The Company intends to adopt the requirements of this pronouncement in
financial statements for the year ended September 30, 1999, as required by the
Statement. The Company does not believe that the implementation of SFAS No. 131
will have a material impact on its financial statements.
Certain reclassifications have been made to prior year amounts in order
to conform to current year classifications.
-7-
<PAGE> 8
NOTE 3. ACQUISITION
On February 18, 1999, the Company acquired MilCorp Holdings, Inc. and
MilCorp Industries, Ltd. (collectively "MilCorp") for $7,653,000 in cash and the
assumption of approximately $4,144,000 of debt. The Company will account for the
acquisition using the purchase method of accounting and, as such, the operating
results for MilCorp will impact the results of the Company from the date of the
acquisition forward. The acquisition generated approximately $4,700,000 of
Goodwill which will be amortized over 40 years. MilCorp is a leading provider of
fully integrated services for oil country tubular goods, including trucking,
inventory management, inspection and internal coating. MilCorp has facilities
located on 160 acres near Edmonton, Alberta, in the energy-producing region of
Western Canada. MilCorp has been in business for more than fifty years, and its
customers include many of Western Canada's large energy companies and drilling
contractors.
NOTE 4. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
Earnings per share is based on earnings applicable to common
shareholders and is calculated using the weighted average number of common
shares outstanding and in accordance with SFAS 128, "Earnings per Share". During
the three and six months ended March 31, 1999 and 1998, the potentially dilutive
effects of the Company's exchangeable preferred stock (would have an
anti-dilutive effect) and common stock options, with exercise prices exceeding
fair market value of the underlying common shares, have been excluded from
diluted earnings per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------------
1999 1998
------------------------------------ --------------------------------------
(In thousands, except share data)
Income Shares Amount Income Shares Amount
--------- ---------- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ (15,457) $ 1,094
Less: Preferred stock dividends 544 544
---------- --------
BASIC EPS $ (16,001) 22,113,341 $ (.72) $ 550 21,839,831 $ .03
====== =====
EFFECT OF DILUTIVE SECURITIES
Options -- 1,228 -- 49,996
Warrants -- -- -- 26,457
--------- ----------- -------- ----------
DILUTED EPS $ (16,001) 22,114,569 $ (.72) $ 550 21,916,284 $ .03
========= =========== ====== ======== =========== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------
1999 1998
--------------------------------------- ------------------------------------------
(In thousands, except share data)
Income Shares Amount Income Shares Amount
--------- ---------- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $(17,871) $ 4,774
Less: Preferred stock dividends 1,088 1,088
--------- -------
BASIC EPS $(18,959) 22,112,186 $ (.86) $ 3,686 21,799,648 $ .17
====== =====
EFFECT OF DILUTIVE SECURITIES
Options -- 614 -- 141,331
Warrants -- -- -- 96,590
--------- ----------- ------- -----------
DILUTED EPS $ (18,959) 22,112,800 $ (.86) $ 3,686 22,037,569 $ .17
========= =========== ====== ======= =========== =====
</TABLE>
-8-
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. COMPREHENSIVE INCOME
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income".
SFAS 130 establishes new requirements for reporting comprehensive income and its
components. Adoption of this statement had no impact on the Company's net income
or stockholders' equity for the periods presented. SFAS 130 requires unrealized
gains or losses on the Company's foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income.
NOTE 6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 SEPTEMBER 30, 1998
-------------- ------------------
(In thousands)
<S> <C> <C>
Finished Goods $ 10,674 $ 14,292
Raw Materials 9,440 10,302
Work in Progress 960 1,491
Supplies 4,136 3,878
--------- ---------
$ 25,210 $ 29,963
========= =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in all parts of this document, including, but
not limited to, availability of liquidity for and level of future capital
expenditures, effects of the Year 2000 issue, demand for the Company's services,
commodity and product price trends and their effects, the effect of legal
proceedings, market conditions, future acquisitions, future growth plans,
financial results and any other statements which are not historical facts are
forward-looking statements within the meaning of section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve
substantial risks and uncertainties. When words such as "anticipate", "believe",
"estimate", "intend", "expect", "plan" and similar expressions are used, they
are intended to identify the statements as forward-looking. Actual results,
performance or achievements can differ materially from results suggested by
these forward-looking statements due to a number of factors, including those
described in the Company's fiscal 1998 Form 10-K dated December 23, 1998.
INTRODUCTION
The Company's revenue is classified within two operating segments:
petrochemical processing and oilfield services. Petrochemical processing
revenues are derived from (1) distributing plastic powders, (2) grinding
petrochemicals into powders (size reduction), providing ancillary services and
selling grinding equipment manufactured by the Company, and (3) compounding
sales and services, which include the manufacture and sale of concentrates. The
Company's distribution operations utilize the Company's size reduction and
compounding facilities to process petrochemical products prior to sale. Oilfield
services revenues include revenues derived from (1) exploration sales and
services (new tubular goods inspection), (2) production sales and services
(reclamation, reconditioning and inspection of used tubular goods and sucker
rods), (3) corrosion control services (coating of tubular goods and sucker
rods), and (4) other sales and services (oilfield engine sales and services in
Canada). Service revenues in both of the Company's business segments are
recorded as the services are performed or, in the case of product sales, upon
shipment to third parties.
-9-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expansion of the Company's distribution business within the
petrochemical processing segment has reduced overall petrochemical processing
margins as a percentage of revenue. The gross margin percentages for the
distribution business, as well as the concentrate manufacturing business, are,
generally, significantly lower than those generated by the Company's size
reduction services. Several of the Company's petrochemical processing
subsidiaries, including the Company's concentrate manufacturing and distribution
operations, typically buy raw materials, improve the material and then sell the
finished product. In contrast, many of the Company's size reduction operations
typically involve processing customer-owned material (referred to as "toll"
processing).
Cost of sales and services for the petrochemical processing and
oilfield services segments is primarily comprised of compensation and benefits
to non-administrative employees, occupancy costs, repair and maintenance,
electricity and equipment costs and supplies, and, in the case of concentrate
manufacturing operations and the Company's distribution business, purchased raw
materials. Selling, general and administrative expenses consist primarily of
compensation and related benefits to the sales and marketing, executive
management, accounting, human resources and other administrative employees of
the Company; other sales and marketing expenses; communications costs; systems
costs; insurance costs and legal and accounting professional fees.
The demand for the Company's oilfield products and services depends
upon oil and natural gas prices and the level of oil and natural gas production
and exploration activity. In addition to changes in commodity prices,
exploration and production activities are affected by worldwide economic
conditions, supply and demand for oil and natural gas, seasonal trends and the
political stability of oil-producing countries. The oil and gas industry has
been highly volatile over the past several years, due primarily to the
volatility of oil and natural gas prices. During fiscal 1996 and 1997, the oil
and gas service industry generally experienced increased demand and improved
product and service pricing as a result of improved commodity prices and greater
levels of oil and gas exploration and production activity, due largely to a
strong world economy. In fiscal 1998, however, oil prices declined significantly
versus fiscal 1997 levels. While gas prices also declined during this period, it
was to a lesser extent. These trends have been attributed to, among other
factors, an excess worldwide oil supply, lower domestic energy demand resulting
from an unseasonably warm winter and declining demand due to the economic
downturn in Southeast Asia. As oil and, to a lesser extent, natural gas prices
have declined, demand for oilfield products and services, including those
provided by the Company, has softened. Oil and gas prices continued to fall
sharply in the first half of fiscal 1999, resulting in very depressed levels of
oilfield exploration and production activity. The Company's oilfield service
revenues and income have been adversely impacted by these factors. More
recently, the price of oil has risen to around $18 per barrel. This increase,
however, has not yet resulted in any material increase in the level of oilfield
activity in North America. Although, barring another collapse of commodity
prices, the Company anticipates that oilfield service activity will increase
and, hence, the demand for the Company's oilfield services will improve, it
appears that the level of activity will continue to be weak in the quarter ended
June 30, 1999. Although the Company is optimistic that market conditions will
improve at some point, the timing of such a recovery cannot be predicted with
certainty.
LIQUIDITY AND CAPITAL RESOURCES
The following are considered by management as key measures of liquidity
applicable to the Company:
<TABLE>
<CAPTION>
MARCH 31, 1999 SEPTEMBER 30, 1998
-------------- ------------------
<S> <C> <C>
Cash and cash equivalents $35,375,000 $51,135,000
Working capital 62,871,000 89,220,000
Current ratio 2.2 2.6
Debt-to-capitalization .57 to 1 .53 to 1
</TABLE>
Cash and cash equivalents decreased $15,760,000 during the six months
ended March 31, 1999 and working capital declined $26,349,000 during the first
half of fiscal 1999, due to the factors described below.
-10-
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended March 31, 1999, cash provided by (used for)
operating activities increased to $11,043,000 from $(3,058,000) for the six
months ended March 31, 1998. The improvement occurred despite lower net income,
and was primarily due to the various second quarter non-cash charges, an
increase in depreciation and amortization expense, the various changes in
working capital accounts (particularly changes of accounts receivable, accounts
payable, inventory, income taxes payable, deferred income taxes and accrued
liabilities), and a gain on a sale of an equity investment included in the first
quarter of fiscal 1998 results, which was classified as an investment activity
in the statement of cash flows.
Capital expenditures totaled $4,371,000 and $9,764,000 during the three
and six months ended March 31, 1999, of which $1,476,000 for the three-month
period and $3,549,000 for the six-month period related to the oilfield services
business and the remaining $2,896,000 for the three months ended March 31, 1999
and $6,215,000 for the six months ended March 31, 1999 related to the
petrochemical processing business. A majority of the expenditures, particularly
within the oilfield service business, involved fulfilling commitments made by
the Company during fiscal 1998. For the remainder of fiscal 1999, capital
expenditures are expected to decline significantly from fiscal 1998 levels. The
Company anticipates that available cash and/or existing credit facilities will
be sufficient to fund remaining fiscal 1999 capital expenditure requirements.
Cash flows used for financing activities increased to uses of
$(9,408,000) during the six months ended March 31, 1999 from uses of
$(4,121,000) during the first six months of fiscal 1998. The increase was the
result of increased debt repayments, partially offset by lower common dividend
payments during the first six months of fiscal 1999, compared to the comparable
1998 period.
The terms of the Company's domestic credit facility and the Senior
Notes limit the amount of liens and additional indebtedness that the Company can
incur. The domestic credit facility is secured by certain receivables and
inventories, and requires maintenance of certain financial ratios, which include
minimum tangible net worth and profitability and maximum debt to total
capitalization.
The Company is currently in violation of certain financial covenants
contained within the Company's domestic credit facility. While presently there
are not any outstanding borrowings under this credit facility, the Company does
not have this source of liquidity available at this time. Management is
currently working with various lenders, including its current bank, to
re-establish a domestic credit facility and anticipates that existing cash will
provide adequate liquidity until a credit facility becomes available again. The
Company has available $10,400,000 of additional borrowing capacity under various
foreign facilities.
During the second quarter of fiscal 1999, the Company suspended
dividend payments on common stock. The Board of Directors determined that it
would be in the best interests of shareholders to maximize financial flexibility
by retaining cash within the Company in light of the conditions in the energy
and petrochemicals markets.
-11-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------------------------ ----------------------------------------------
% of % of % of % of
NET REVENUES (000'S) 1999 Total 1998 Total 1999 Total 1998 Total
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution $ 18,238 40 $ 17,539 41 $ 37,020 41 $ 32,636 40
Size Reduction Services and
Other Sales and Services 11,740 25 12,977 30 24,119 27 26,156 32
Compounding Sales and Services 16,245 35 12,235 29 29,326 32 23,303 28
--------- --------- --------- --------- --------- --------- --------- ---------
Total Petrochemical Processing 46,223 100 42,751 100 90,465 100 82,095 100
--------- --------- --------- ---------
Exploration Sales and Services 6,456 37 10,667 38 12,975 36 20,394 37
Production Sales and Services 6,018 35 9,401 33 13,111 37 18,339 34
Corrosion Control Sales and
Services 3,838 22 6,853 24 8,274 23 13,155 24
Other Sales and Services 1,011 6 1,330 5 1,512 4 2,583 5
--------- --------- --------- --------- --------- --------- --------- ---------
Total Oilfield Services Revenues 17,323 100 28,251 100 35,872 100 54,471 100
--------- --------- --------- ---------
Total $ 63,546 $ 71,002 $ 126,337 $ 136,566
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------------------------ ----------------------------------------------
% of % of % of % of
OPERATING PROFIT (LOSS) (000'S) 1999 Total 1998 Total 1999 Total 1998 Total
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemical Processing $ (11,061) 76 $ 3,389 46 $ (8,951) 77 $ 5,471 44
Oilfield Services (3,521) 24 3,929 54 (2,604) 23 6,933 56
--------- --------- --------- --------- --------- --------- --------- ---------
Total Operations (14,582) 100 7,318 100 (11,555) 100 12,404 100
General Corporate Expenses (4,218) (3,022) (7,164) (10,000)
--------- --------- --------- ---------
Total $ (18,800) $ 4,296 $ (18,719) $ 2,404
========= ========= ========= =========
</TABLE>
Three and Six Months Ended March 31, 1999 Compared to the Three and Six Months
Ended March 31, 1998
REVENUES.
Consolidated revenues decreased $7,456,000 (11%) and $10,229,000 (7%)
during the three and six months ended March 31, 1999, respectively, as compared
to the same periods of fiscal 1998. The decline is attributable to a
petrochemical processing revenue increase that was more than offset by a decline
of oilfield service revenues.
Petrochemical processing revenues increased from $42,751,000 during the
second quarter of fiscal 1998 and $82,095,000 during the first six months of
fiscal 1998, to $46,223,000 and $90,465,000 for the three and six months ended
March 31, 1999, respectively. These increases of 8% and 10%, respectively, were
due to the acquisitions of J.R. Courtenay (N.Z.) in March 1998, and Soreco in
June 1998, partially offset by a European revenue decline. Management believes
the European revenue decrease is primarily the result of declining polymer
prices. This trend has, in many cases, had the effect of lowering the Company's
sales prices and has motivated some customers to defer purchases of raw
materials and draw down on their inventories, in the hope that resin prices will
continue
-12-
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to fall and, thus, lower their raw material costs. Recently, there have been
indications that resin prices have firmed and the lowering price trend may be
reversing. If prices do begin to rise, management would expect this trend to
have a positive effect on the financial results of the petrochemical processing
business, particularly in Europe.
Distribution revenues improved to $18,238,000 and $37,020,000 for the three
and six months ended March 31, 1999. These results represent increases of
$699,000 (4%) for the three months ended March 31, 1999 and $4,384,000 (13%) for
the six months ended March 31, 1999. The increases resulted from the acquisition
of J.R. Courtenay, partially offset by a decline of European distribution
revenues. Size reduction services and other sales and service revenues declined
$1,237,000 (10%) during the three months ended March 31, 1999 and declined
$2,037,000 (8%) during the six months ended March 31, 1999, compared to the same
periods of fiscal 1998. These revenues totaled $11,740,000 and $24,119,000 for
the three and six months ended March 31, 1999, respectively. The fiscal 1999
decline, versus fiscal 1998 resulted primarily from a decline in demand for the
Company's products and services domestically and in Europe. As previously
mentioned, the Company believes the decline in demand is partially attributable
to the general decline of polymer prices over fiscal 1999, compared to fiscal
1998. Compounding sales and service revenues increased $4,010,000 (33%) and
$6,023,000 (26%) to $16,245,000 and $29,326,000 for the three and six months
ended March 31, 1999, respectively. These increases are mostly due to greater
domestic compounding revenues, due in large part to a mid-fiscal 1998 domestic
compounding capacity expansion, and the acquisition of Soreco, in June 1998.
Oilfield Service revenues declined from $28,251,000 and $54,471,000 for the
three and six months ended March 31, 1998 to $17,323,000 and $35,872,000 for the
three and six months ended March 31, 1999. These results represent declines of
$10,928,000 (39%) and $18,599,000 (34%) for the three and six-month comparisons,
respectively. The revenue decline was broad-based, across all Oilfield Service
product lines and was the result of declining demand for the Company's oilfield
products and services. Declining demand is the result of significantly lower
average oil and, to a lesser extent, gas prices, which has resulted in
significantly lower rig counts in both the United States and Canada during
fiscal 1999, compared to fiscal 1998. During the quarter ended March 31, 1999
the average domestic drilling rig count averaged 557, a 42% decline from the
average of 968 during the same quarter of fiscal 1998. Average West Texas
intermediate crude prices dropped from an average price of $15.92 during the
quarter ended March 31, 1998 to $13.16 during the quarter ended March 31, 1999,
a 17% decline. In recent weeks, the price of oil has risen to around $18 per
barrel. This increase, however, has not yet resulted in any material increase in
the level of oilfield activity in North America. In fact, the U.S. drilling rig
count declined to only 488 rigs on April 30, 1999 and rose slightly to only 507
rigs as of May 14, 1999. Although, barring another collapse of commodity prices,
the Company anticipates that oilfield service activity will increase and, hence,
the demand for the Company's oilfield services will increase, it appears that
the level of activity will continue to be weak in the quarter ended June 30,
1999. The Company has continued to reduce Oilfield Service operating and
overhead costs, while maintaining the Company's position as a leader in
providing high quality and cost-effective services to its customers. These cost
and overhead reductions include personnel reductions of more than 28% during the
past nine months and salary reductions of 10% for all salaried Oilfield Services
employees, a portion of Oilfield Service hourly employees and for certain
corporate positions, including the Company's President and Chief Executive
Officer and the Chairman and Chief Financial Officer.
COST AND EXPENSES
Consolidated gross margins as a percentage of revenues (calculated as net
revenues minus total costs of sales and services), excluding inventory
write-downs, declined to 21.4% and 22.5% for the three and six months ended
March 31, 1999, respectively, compared to 25.5% and 25.3% for the three and six
months ended March 31, 1998, respectively. The gross margins declined as a
percentage of revenues primarily due to a decline of Oilfield Service gross
margins during fiscal 1999.
-13-
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Petrochemical gross margins, excluding the inventory write-downs, were
20.6% during the second quarter of fiscal 1999 compared to 20.9% during the
second quarter of fiscal 1998. During the six months ended March 31, 1999 gross
margins were 21.2% of revenues compared to 22.0% for the same period of fiscal
1998. These slight declines resulted from the March 1998 acquisition of J.R.
Courtenay, which lowered overall Petrochemical gross margins as a percentage of
revenues, partially offset, for the six-month period comparison, by a modest
improvement of domestic petrochemical gross margins.
Excluding inventory write-downs, Oilfield Service gross margins declined to
22.2% and 24.2% for the three and six months ended March 31, 1999, respectively.
During the three and six months ended March 31, 1998, Oilfield Service gross
margins were 31.4% and 30.0%, respectively. The decline was driven by lower
volumes, as costs were spread over less revenues, and weaker pricing, as a
result of very poor market conditions. The Company has reacted to these
conditions by rationalizing the cost structure of the Oilfield Service business
to reflect current activity levels. These cost reductions have included a 28%
headcount reduction of the Oilfield Service workforce from peak levels in June
1998, a 10% reduction in compensation for most Oilfield Service salaried and
hourly employees, and a significant reduction of contract labor expenses.
Selling, general and administrative costs increased $2,264,000 (22%) during
the three months ended March 31, 1999 and declined $1,808,000 (7%) during the
six months ended March 31, 1999, compared to the same periods of fiscal 1998.
These changes are due to the acquisition of J.R. Courtenay, Soreco and MilCorp,
an increase in European expenses and domestic legal expenses, less reductions of
corporate compensation expenses, litigation charges, oilfield service and
domestic petrochemical expenses. The decline in oilfield service and domestic
petrochemical expenses are due in large part to staffing reductions. During the
first quarter of fiscal 1998, the Company recognized litigation charges
(classified as general corporate expenses) of $1,200,000 compared to recognizing
$530,000, during the second quarter of fiscal 1999.
Depreciation and amortization expenses increased from $3,607,000 during the
second quarter of fiscal 1998 to $4,445,000 during the same quarter of fiscal
1999 and from $7,362,000 for the six months ended March 31, 1998 to $8,690,000
for the six months ended March 31, 1999. This increase was the result of capital
expenditures and business acquisitions since March 31, 1998.
SECOND QUARTER FISCAL 1999 CHARGES
Impairment of long-lived assets. During the second quarter of fiscal 1999,
the Company recognized a $9,291,000 charge for the impairment of long-lived
assets. $748,000 of this charge relates to the oilfield services business, of
which $310,000 of the write-down related to the impairment of goodwill and the
remaining to machinery and equipment. $8,543,000 of the total charge relates to
the petrochemical business and reflects the impairment of four underperforming
facilities. $4,812,000 of the petrochemical charge includes the impairment of
goodwill and $3,489,000 consists of machinery and equipment impairment. The
amount of the machinery and equipment impairments were determined by comparing
fair values with the corresponding carrying values of the assets evaluated. Fair
value was determined as the estimated current market value of the assets
evaluated.
Write-down of property, plant and equipment. During the second quarter of
fiscal 1999, the Company reduced the carrying value of property, plant and
equipment primarily due to assets which are obsolete or are not in working order
and will not be used in the future. Of the $2,848,000 write-down, $2,207,000
related to the petrochemical business and $641,000 related to the oilfield
service segment.
Write-downs of inventory. During the second quarter, the Company wrote down
$1,507,000 of inventories to estimated market selling prices (mostly within the
oilfield service business), to reflect current market conditions.
-14-
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Severance expenses. During the second quarter of fiscal 1999, the Company
recognized severance expenses of $999,000 relating to terminated employees.
Write-off of start-up costs. The write-off of start-up costs primarily
relates to the closure, during the second quarter of fiscal 1999, of an
operation which had incurred capitalized start-up costs. This operation had an
immaterial impact on the Company's financial results prior to the write-off of
capitalized start-up costs.
OPERATING INCOME
Operating income decreased from $4,296,000 for the three months ended March
31, 1998, to a loss of $(18,800,000) for the three months ended March 31, 1999
and from $2,404,000 for the six months ended March 3, 1998 to a loss of
$(18,719,000) for the six months ended March 31, 1999. The decrease was due to
the changes in revenues and costs and expenses discussed above.
GAIN ON SALE OF EQUITY INVESTMENT
During the first quarter of fiscal 1998, the Company recognized a pre-tax
gain of $11,773,000 on the sale of an equity investment. The Company received
cash of $14,484,000 and recorded an after-tax gain of approximately $6,799,000
on the sale.
INTEREST INCOME/EXPENSE
Net interest expense was $2,981,000 and $5,802,000 during the three and six
months ended March 31, 1999. For the three and six months ended March 31 1998,
the Company had net interest expense of $2,398,000 and $4,808,000, respectively.
This change was primarily the result of declining cash balances, due in large
part to acquisitions, as well as internal capital expenditures.
INCOME TAXES
The Company's effective income tax rate decreased to 27% and 25% during the
three and six months ended March 31, 1999, respectively, compared to 41% and 49%
during the three and six months ended March 31, 1998, respectively. The decrease
was the result of a sale of an equity investment during the first quarter of
fiscal 1998, which created tax expense equal to 42% of the pre-tax gain, an
increase of permanent differences due to a write-down of goodwill recognized in
the second quarter of fiscal 1998 and a change in the mixture of pre-tax income
generated by the Company's operations in various taxing jurisdictions.
NET INCOME
For the three and six months ended March 31, 1999, the Company had a net
loss of $(15,457,000) and $(17,871,000), respectively, compared to net income of
$1,094,000 and $4,774,000 for the same periods in fiscal 1998, due to the
factors described above.
-15-
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
The fluctuations of the U.S. Dollar against the Dutch Guilder, Swedish
Krona, British Pound, Italian Lira, Canadian Dollar, and the French Franc have
impacted the translation of revenues and income of the Company's European
petrochemical processing operations and Canadian oilfield service operations.
The table below summarizes the impact of the above currencies during the three
and six months ended March 31, 1999, compared to the exchange rates used to
translate the three and six months ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1999 March 31, 1999
------------------------ -----------------------
<S> <C> <C>
Net revenues $570,000 $1,080,000
Operating income 70,000 83,000
Pre-tax income 61,000 67,000
Net income 39,000 41,000
</TABLE>
YEAR 2000 ISSUE
The Year 2000 problem arose because some computer programs use only the
last two digits of a year as a reference date, causing the program to improperly
recognize a year that does not begin with "19".
The Company has been working toward Year 2000 readiness since 1997 and is
proceeding on schedule. Completion of the project is scheduled for the fourth
fiscal quarter of 1999. To improve access to business information through
common, integrated computing systems within business operations, the Company has
begun a business systems replacement project. The new systems ("Business
Replacement Systems"), which are expected to make the Company's business
computer systems Year 2000 compliant, are scheduled for completion by September
1999. Implementation of these programs is approximately 70% complete. The
Company has developed a contingency plan to make the programs that are scheduled
to be replaced by these systems Year 2000 compliant. A decision to implement the
contingency plan will be made by the end of the fourth fiscal quarter of 1999.
Remaining business software programs, including those supplied by vendors, are
expected to be made Year 2000 compliant through the Year 2000 project or they
will be retired.
Overview. The Company's Project is divided into four sections: Corporate
and Facility Infrastructure, Applications Software, Inspection and Processing
Equipment, and Third-Party Suppliers. Each section consists of four phases: Year
2000 readiness analysis and assessment; retiring, replacing, or upgrading items
that are not Year 2000 ready; remediation testing of upgraded and replacement
hardware and software; and contingency planning.
Applications Software. The Application Software section includes the
conversion of software which is not Year 2000 compliant or, where available from
the supplier, the replacement of such software. Application Software consists of
all software not used directly in conjunction with the operation of the
Company's manufacturing and service facilities. The Company estimates that the
software conversion phase is now 90% complete, and that the remaining
conversions are on schedule to be completed by the end of the third fiscal
quarter 1999. The testing phase is conducted as the software is replaced and is
scheduled to be completed in the Company's third fiscal quarter of 1999. The
Company does not foresee the need for a contingency plan in this area, but a
contingency plan has been developed in case one should be needed.
Corporate Infrastructure. The Corporate Infrastructure section consists of
mainframe and desktop computing hardware and connectivity. The Company believes
its North American infrastructure is Year 2000 compliant, and the testing of
this infrastructure to confirm its compliance is scheduled to be completed by
mid-1999. The
-16-
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's European infrastructure is being replaced, and the completion of the
replacement process is scheduled for the fourth fiscal quarter of 1999. The
Company's Australian and New Zealand corporate infrastructures are more than 90%
complete and are expected to be Year 2000 compliant by the end of the third
fiscal quarter of 1999.
Facility Infrastructure. The Facility Infrastructure section consists of
hardware and systems software, used in the operation of the Company's
facilities. The Company has developed a plan detailing the tasks and resources
required for this section. The assessment of the Year 2000 readiness of Facility
Infrastructure was begun during the first fiscal quarter of 1999. The testing
and repair of Facility Infrastructure is scheduled for completion during the
third fiscal quarter of 1999 for the Company's North American, Australian, and
New Zealand operations, and during the fourth fiscal quarter of 1999 for the
Company's European operations. Contingency planning for this section began in
the second fiscal quarter of 1999 and is scheduled to be completed by mid-1999.
Inspection and Processing Equipment. The Company's oilfield services sector
uses inspection and processing equipment, which the Company believes to be
currently Year 2000 compliant. The equipment is scheduled to be tested and
repaired, if necessary, during the quarter ended December 31, 1999. The Company
does not foresee the need for any contingency planning in this area.
Third Party Suppliers. The Company has identified critical Third Party
Suppliers. The Company is communicating with suppliers of the Company's
operations in North America and Europe, and evaluating their state of Year 2000
preparedness. This process is expected to be complete by the end of the
Company's third fiscal quarter of 1999. Ninety percent of the suppliers to the
Company's Australian and New Zealand operations have been verified for
compliance. The Company-wide evaluation process is scheduled for completion by
the end of the third fiscal quarter 1999. These evaluations will be followed by
the development of contingency plans, which are scheduled for completion during
the fourth fiscal quarter of 1999.
Costs. The total cost associated with required software and hardware
modifications to become Year 2000 compliant is not expected to be material to
the Company's financial position or results of operations. The estimated total
cost of the Year 2000 project is approximately $490,000. The total amount
expended on the project through March 31, 1999 was about $235,000. The estimated
future cost of completing the Year 2000 project is estimated to be approximately
$255,000. The cost to implement the Business Replacement Systems is not included
in these estimates. Costs related to the Year 2000 project will be accounted for
in accordance with the Company's existing policies. Other than purchases of new
hardware and software, Year 2000 project expenditures will be expensed as
incurred.
Risks. A Year 2000 failure could result in a business disruption that
adversely affects the Company's business, financial condition or results of
operations. For example, if a Year 2000 failure causes insufficient rail and
freight service to be available to the Company, the receipt of raw materials and
the shipment of finished products by the Company's petrochemical operations
could be curtailed. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, the Company cannot determine at this time whether the consequences of
Year 2000 failures will have a material impact on the Company's results of
operations, liquidity, or financial condition. The Company believes that, with
the implementation of new business systems and completion of the Year 2000
Project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
-17-
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures include short-term debt
obligations carrying variable interest rates, and forward currency contracts
intended to hedge accounts payable obligations denominated in currencies other
than a given operation's functional currency.
The Company's strategy has typically been to finance only working capital
with variable interest rate debt and to fix interest rates for the financing of
long-term assets. Forward currency contracts are used by the Company as a method
to establish a fixed functional currency cost for raw material purchases
denominated in non- functional currency (typically the U.S. dollar).
The following table summarizes the Company's market sensitive financial
instruments. These transactions are considered non-trading activities.
<TABLE>
<CAPTION>
ON-BALANCE SHEET
FINANCIAL INSTRUMENTS MARCH 31, 1999
------------------------------------------------------------------------
WEIGHTED AVERAGE
Variable interest rate debt: US$ EQUIVALENT IN THOUSANDS YEAR-END INTEREST RATE EXPECTED MATURITY
--------------------------- ---------------------- -----------------
CURRENCY DENOMINATION
- ---------------------
<S> <C> <C> <C>
Dutch Guilders $ 873 4.50% less than one year
British Pounds Sterling 927 7.19% less than one year
French Francs 87 4.12% 2001
Italian Lira 2,485 3.78% less than one year
Australian Dollar 1,141 6.23% less than one year
</TABLE>
ANTICIPATED TRANSACTIONS AND RELATED DERIVATIVES
- ------------------------------------------------
<TABLE>
<S> <C>
Forward Exchange Agreements (000s):
RECEIVE US$/PAY NZ$:
- --------------------
Contract Amounts US$ 590
Average Contractual Exchange Rate (NZ$/US$) .5253
Expected Maturity Dates April 1999 through August 1999
RECEIVE US$/PAY AUSTRALIAN $:
- -----------------------------
Contract Amounts US$ 1,660
Average Contractual Exchange Rate (A$/US$) .6291
Expected Maturity Dates April 1999 through June 1999
RECEIVE US$/PAY DUTCH GUILDER
- -----------------------------
Contract Amounts US$ 25
Average Contractual Exchange Rate (NLG/US$) .5012
Expected Maturity Dates May 1999
</TABLE>
-18-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a named defendant in seven cases involving seven plaintiffs,
for personal injury claims alleging exposure to silica resulting in
silicosis-related disease. (The cases, all of which are pending in Texas state
courts, were initiated on May 13, 1991; November 21, 1991; August 26, 1992; June
29, 1995; June 29, 1995; August 15, 1995; and July 23, 1997). The Company is
generally protected under worker's compensation law from claims under these
suits except to the extent a judgment is awarded against the Company for
intentional tort. The standard of liability applicable to all of the Company's
pending cases is intentional tort, a stricter standard than the gross negligence
standard applicable to wrongful death cases. The Company currently has no
pending cases in which wrongful death is alleged. In fiscal 1993, the Company
settled two other suits, both of which alleged wrongful death caused by
silicosis-related diseases, which resulted in a total charge of $605,000. In
1994, the Company was dismissed without liability from two suits alleging
intentional tort against the Company for silicosis- related disease. In 1996,
the Company obtained a non-suit in two other intentional tort cases and in early
1997 was non-suited in an additional tort case. During the second quarter of
fiscal 1998, three cases involving alleged silicosis-related deaths were
settled. The Company was fully insured for all three cases and, as a result, did
not incur any settlement costs. During the second quarter of fiscal 1998, the
Company was non-suited in one intentional tort case, and during the fourth
quarter of fiscal 1998, the Company was non-suited in two additional tort cases.
During the second quarter of fiscal 1999, the Company was non-suited in an
additional intentional tort case. The Company and its counsel cannot at this
time predict with any reasonable certainty the outcome of any of the remaining
suits or whether or in what circumstances additional suits may be filed. Except
as described below, the Company does not believe, however, that such suits will
have a material adverse effect on its financial condition, results of operations
or cash flows. The Company has in effect in some instances general liability and
employer's liability insurance policies applicable to the referenced suits;
however, the extent and amount of coverage is limited and the Company has been
advised by certain insurance carriers of a reservation of rights with regard to
policy obligations pertaining to the suits because of various exclusions in the
policies. If an adverse judgment is obtained against the Company in any of the
referenced suits which is ultimately determined not to be covered by insurance,
the amount of such judgment could have a material adverse effect on the
financial condition, results of operations and/or cash flows of the Company.
The Company's agreement with Baker Hughes, Incorporated ("Baker Hughes"),
pursuant to which Baker Hughes Tubular Services ("BHTS") was acquired by the
Company, provides that Baker Hughes will reimburse the Company for 50% of the
BHTS environmental remediation costs in excess of $318,000, with Baker Hughes'
total reimbursement obligation being limited to $2,000,000 (current BHTS
obligation is $1,650,000). BHTS is a responsible party at two hazardous waste
disposal sites that are currently undergoing remediation pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). Under CERCLA, persons who were responsible for generating the
hazardous waste disposed of at a site where hazardous substances are being
released into the environment are jointly and severally liable for the costs of
cleaning up environmental contamination, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injuries and
property damage allegedly caused by hazardous substances released into the
environment. The two sites where BHTS is a responsible party are the French
Limited site northeast of Houston, Texas, and the Sheridan site near Hempstead,
Texas. Remediation of the French Limited site has been completed, with only
natural attenuation of contaminants in groundwater occurring at this time.
Remediation has not yet commenced at the Sheridan site. Current plans for
cleanup of this site, as set forth in the federal Record of Decision, call for
on-site bioremediation of the soils in tanks and natural attenuation of
contaminants in the groundwater. However, treatability studies to evaluate
possible new remedies for the soils, such as in-place bioremediation, are being
conducted as part of a Remedial Technology Review Program. Based on the
completed status of the remediation at the French Limited site and BHTS's
minimal contribution of wastes at both of the sites, the Company believes that
its future liability under the agreement with Baker Hughes with respect to these
two sites will not be material.
-19-
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During December 1996, an agreement was signed by the Company and Baker
Hughes to settle the litigation of a dispute concerning the assumption of
certain liabilities in connection with the acquisition of BHTS in 1992. The
agreement stipulates that with regard to future occupational health claims, the
parties shall share costs equally with the Company's obligations being limited
to $500,000 for each claim and a maximum contingent liability of $4,500,000 (net
of current accruals) in the aggregate, for all claims.
On November 21, 1997, in an action initiated by the Company in October
1994, a Texas state court jury awarded the Company approximately $13 million in
the trial of its case against John Wood Group PLC relating to the 1994 contract
for the purchase of the operating assets of NDT Systems, Inc. and certain
related entities. The court subsequently entered a judgment for $15,750,000 in
the Company's favor, which includes pre-judgment interest on the jury award. The
Company is also entitled to post-judgment interest. The Wood Group is currently
appealing the judgment and has posted a bond for the entire amount of the
judgment. This award has not been reflected in the Company's balance sheet or
operating results. The Company was represented on a contingency fee basis, and
its attorneys will receive a portion of the amount awarded to the Company.
Wedco is a plaintiff and a counterclaim defendant and the Company is a
third party defendant in a lawsuit filed on February 16, 1996 by Wedco against
Polyvector Corporation ("Polyvector"), John Lefas ("Lefas"), the principal
shareholder of Polyvector, and Fred Feder ("Feder"), a former director of Wedco,
which is pending in the federal district court for the District of New Jersey
(the "New Jersey Action"). Wedco alleges, among other things, that Lefas and
Polyvector have breached certain terms of the shareholders' agreement among
Wedco and the defendants and seeks damages for such breaches. Wedco also
alleges, among other things, that Feder has breached his fiduciary duty to
Wedco. WedTech (which had been 50% owned by each Wedco and Polyvector),
Polyvector and Lefas have asserted various counterclaims and third party claims
against the Company allegedly arising out of the Company's merger with Wedco and
the conduct of WedTech's affairs under the shareholders' agreement. The
defendants are seeking, among other things, reimbursement for alleged damages.
On January 16, 1998, Polyvector finalized its purchase of Wedco's 50% ownership
interest in WedTech for CDN $20.8 million. A proceeding initiated on June 25,
1998 has been brought in the Ontario Court (General Division) by WedTech Inc.
and Polyvector against the Company and others for damages and other relief (the
"Canadian Action"). The factual complaints raised in the Canadian Action appear
to duplicate the claims raised in the New Jersey Action. The parties to the New
Jersey Action and the Canadian Action have reached an agreement that would
settle all outstanding issues in both actions. The parties expect to enter into
a settlement, the terms of which would not have a material adverse affect on the
Company's financial condition, during the third fiscal quarter of 1999.
ICO Tubular Services, Inc., a now-defunct subsidiary of the Company, has
been named as a Respondent in an arbitration claim made by Oil Country Tubular
Limited ("OCTL"), a company based in India. OCTL alleges that its claim, which
it has brought in the Court of Arbitration of the International Chamber of
Commerce, arises in connection with a Foreign Collaboration Agreement entered
into between it and Baker Hughes Tubular Services, Inc., a corporation whose
name was changed to ICO Tubular Services, Inc. after acquisition by the Company
in 1992. OCTL claims, among other items, that it did not receive technical
assistance, spare parts, and certain raw materials necessary for its oilfield
tubular services plant in India. OCTL seeks damages in excess of $96 million,
calculated in part based on lost profit projections over a number of years, from
ICO Tubular Services, Inc. and its co-respondent, Baker Hughes Incorporated. The
Company had only peripheral knowledge of the dispute between OCTL and Baker
Hughes Incorporated prior to the filing of OCTL's claim. The arbitration
proceeding is at an early stage, with answers to OCTL's claim having been filed
in November 1998. The Tribunal will consider ICO's challenge to jurisdiction on
October 5, 1999. While the outcome of this arbitration matter cannot be
predicted, the Company plans to contest the claims vigorously.
The Company is also named as a defendant in certain lawsuits arising in the
ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, ICO does not expect these matters to have a material
adverse effect on its financial condition, cash flows or results of operations.
-20-
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on March 8, 1999
for the following purposes:
1) The election of three Class II Directors to serve until the 2002
Annual Meeting of Shareholders and until their respective successors
are elected and qualified;
2) The approval of the Second Amendment and Restatement of the ICO, Inc.
1993 Non-Employee Directors Stock Option Plan; and
3) The consideration and action upon any matters incidental to the
foregoing purposes and the transaction of such other business as might
have properly come before the meeting or any adjournment thereof.
Holders of shares of Common Stock of record on the books of the Company at
the close of business on January 18, 1999 were entitled to vote at the meeting.
William J. Morgan, Sylvia A. Pacholder, and William E. Willoughby were
elected as Class II Directors at the annual meeting with 19,376,495; 19,303,448;
and 19,320,750 votes for; and 655,377; 728,424; and 711,122 votes withheld,
respectively. There were zero abstentions.
In addition to the Class II Directors, the board of Directors is comprised
of three Class I Directors (William E. Cornelius, Robin E. Pacholder, and George
S. Sirusas) whose terms will expire 2001 and four Class III Directors (James E.
Gibson, Walter L. Leib, Asher O. Pacholder and John F. Williamson) whose terms
will expire 2000.
The Second Amendment and Restatement of the ICO, Inc. 1993 Non-Employee
Directors Stock Option Plan was approved by the following vote: 17,538,103 votes
for, 49,834 abstentions, and 46,539 votes against.
ITEM 5. OTHER INFORMATION
The Company is currently in violation of certain financial covenants
contained within the Company's domestic credit facility. While presently there
are not any outstanding borrowings under this credit facility, the Company does
not have this source of liquidity available at this time. Management is
currently working with various lenders, including its current bank, to
re-establish a domestic credit facility and anticipates that existing cash will
provide adequate liquidity until a credit facility becomes available again. The
Company has available $10,400,000 of additional borrowing capacity under various
foreign facilities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Reference is hereby made to the exhibit index which appears
on page 22.
(b) There were no reports on Form 8-K during the Company's fiscal second
quarter.
-21-
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following instruments and documents are included as Exhibits to this
Form 10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
2.1 -- Share Purchase Agreement between Rotec Chemicals Ltd. and the
Registrant (filed as Exhibit 99.2 to Form 8-K dated May 12, 1997)
2.2 -- Plan of Merger of ICO Merger Sub, Inc. with and into ICO, Inc.
(filed as Exhibit 2.4 to Form 10- Q dated August 13, 1998)
3.1 -- Articles of Incorporation of the Company dated March 20, 1998.
(filed as Exhibit 3.1 to Form 10- Q dated August 13, 1998)
3.2 -- Statement of Designation of $6.75 Convertible Exchangeable
Preferred Stock dated March 30, 1998 (filed as Exhibit 3.2 to Form
10-K dated December 23, 1998)
3.3 -- Certificate of Designation of Junior Participating Preferred Stock
of ICO Holdings, Inc. dated March 30, 1998 (filed as Exhibit 3.3 to
Form 10-K dated December 23, 1998)
3.4** -- Amended and Restated By-Laws of the Company dated May 12, 1999.
4.1 -- Indenture dated as of June 9, 1997 between the Company, as issuer,
and Fleet National Bank, as trustee, relating to Senior Notes due
2007 (filed as Exhibit 4.1 to Form S-4 dated June 17, 1997)
4.2 -- First Supplemental Indenture and Amendment dated April 1,1998
between the Company, as issuer, and State Street and Trust Company
(formerly Fleet National Bank), as trustee, relating to Senior
Notes due 2007 (filed as Exhibit 4.2 to Form 10-Q dated May 15,
1998)
4.3 -- Second Supplemental Indenture and Amendment dated April 1, 1998
between ICO P&O, Inc., a wholly owned subsidiary of the Registrant,
and State Street and Trust Company (formerly Fleet National Bank),
as trustee, relating to Senior Notes due 2007 (filed as Exhibit 4.3
to Form 10-Q dated May 15, 1998)
4.4 -- Warrant Agreement -- Series A, dated as of September 1, 1992,
between the Registrant and Society National Bank (filed as Exhibit
4 of the Registrant's Annual Report on Form 10-K for 1992)
4.5 -- Stock Registration Rights Agreement dated April 30, 1996 by and
between the Company, a subsidiary of the Company and the Wedco
Shareholders Group, as defined (filed as Exhibit 4.4 to Form S-4
dated May 15, 1996)
4.6 -- Shareholders' Rights Agreement dated November 20, 1997 by and
between the Company and Harris Trust and Savings Bank, as rights
agent (filed as Exhibit 1 to Form 8-A dated December 22, 1997)
4.7 -- Shareholder Rights Agreement dated April 1, 1998 by and between the
Registrant and Harris Trust and Savings Bank, as rights agent
(filed as Exhibit 4.7 to Form 10-Q for the quarter ended March 31,
1998)
10.1 -- Amended and Restated Business Loan Agreement dated February 21,
1997 between the Registrant and Bank of America, Texas, N.A. (filed
as Exhibit 10 to Form 10-Q dated May 14, 1997)
10.2 -- Substituted First Amendment to Amended and Restated Business Loan
Agreement by and between the Company and Bank of America Texas,
N.A. dated June 6, 1997 (filed as Exhibit 10 to Form 10-Q dated
August 14, 1997)
10.3 -- Second Amendment to Amended and Restated Business Loan Agreement
between the Registrant and Bank of America, Texas, N.A. dated
August 29, 1997 (filed as Exhibit 10.3 to Form S-4 dated October 3,
1997)
</TABLE>
-22-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.4 -- Third Amendment to Amended and Restated Business Loan Agreement
between the Registrant and Bank of America, Texas, N.A. dated July
17, 1998. (filed as Exhibit 10.4 to form 10-Q dated August 13,
1998)
10.5 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as Exhibit B to
the Registrant's Definitive Proxy Statement dated April 27, 1987
for the Annual Meeting of Shareholders)
10.6 -- Second Amended and Restated 1993 Stock Option Plan for Non-Employee
Directors of ICO, Inc. (filed as Exhibit A to the Registrant's
Definitive Proxy Statement dated January 26, 1999 for the Annual
Meeting of Shareholders)
10.7 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated June 24, 1994 for the
Annual Meeting of Shareholders)
10.8 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 10, 1995 for
the Annual Meeting of Shareholders)
10.9 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 29, 1996 for
the Annual Meeting of Shareholders)
10.10 -- ICO, Inc. 1998 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated January 23, 1998 for
the Annual Meeting of Shareholders)
10.11 -- Willoughby International Stockholders Agreement dated April 30,
1996 (filed as Exhibit 10.9 to Form S-4 dated May 15, 1996)
10.12 -- Consulting Agreement-- William E. Willoughby (filed as Exhibit
10.13 to Form S-4 dated May 15, 1996)
10.13 -- Salary Continuation Agreement-- William E. Willoughby (filed as
Exhibit 10.14 to Form S-4 dated May 15, 1996)
10.14 -- Addendum to Salary Continuation Agreement-- William E. Willoughby
(filed as Exhibit 10.15 to form S-4 dated May 15, 1996)
10.15 -- Non-Competition Covenant William E. Willoughby (filed as Exhibit
10.11 to Form S-4 dated May 15, 1996)
10.16 -- Stockholders Agreement respecting voting of shares of certain
former Wedco common shareholders (filed as Exhibit 10.21 to Form
S-4 dated May 15, 1996)
10.17 -- Stockholders Agreement respecting voting of shares of certain ICO
common shareholders (filed as Exhibit 10.22 to Form S-4 dated May
15, 1996)
10.18 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Asher O. Pacholder and amendments thereto (filed as
Exhibit 10.16 to Form 10-K dated December 29, 1997)
10.19 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Sylvia A. Pacholder and amendments thereto (filed as
Exhibit 10.17 to Form 10-K dated December 29, 1997).
10.20 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Jon C. Biro (Filed as Exhibit 10.20 to Form 10-K
dated December 23, 1998)
10.21 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Isaac H. Joseph (Filed as Exhibit 10.21 to Form 10-K
dated December 23, 1998)
</TABLE>
-23-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.22 -- Employment Agreement dated June 18, 1984 by and between a
wholly-owned subsidiary of the Registrant and Theo J.M.L. Verhoeff
(Filed as Exhibit 10.22 to Form 10-K dated December 23, 1998)
21 -- Subsidiaries of the Company (Filed as Exhibit 21 to Form 10-K dated
December 23, 1998)
27** -- Financial Data Schedule
</TABLE>
- ---------
** Filed herewith
-24-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
ICO, Inc.
------------------------------------
(Registrant)
/s/ Asher O. Pacholder
------------------------------------
May 14, 1999 Asher O. Pacholder
Chairman and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon C. Biro
------------------------------------
Jon C. Biro
Senior Vice President and Treasurer
(Principal Accounting Officer)
-25-
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
2.1 -- Share Purchase Agreement between Rotec Chemicals Ltd. and the
Registrant (filed as Exhibit 99.2 to Form 8-K dated May 12, 1997)
2.2 -- Plan of Merger of ICO Merger Sub, Inc. with and into ICO, Inc.
(filed as Exhibit 2.4 to Form 10- Q dated August 13, 1998)
3.1 -- Articles of Incorporation of the Company dated March 20, 1998.
(filed as Exhibit 3.1 to Form 10- Q dated August 13, 1998)
3.2 -- Statement of Designation of $6.75 Convertible Exchangeable
Preferred Stock dated March 30, 1998 (filed as Exhibit 3.2 to Form
10-K dated December 23, 1998)
3.3 -- Certificate of Designation of Junior Participating Preferred Stock
of ICO Holdings, Inc. dated March 30, 1998 (filed as Exhibit 3.3 to
Form 10-K dated December 23, 1998)
3.4** -- Amended and Restated By-Laws of the Company dated May 12, 1999.
4.1 -- Indenture dated as of June 9, 1997 between the Company, as issuer,
and Fleet National Bank, as trustee, relating to Senior Notes due
2007 (filed as Exhibit 4.1 to Form S-4 dated June 17, 1997)
4.2 -- First Supplemental Indenture and Amendment dated April 1,1998
between the Company, as issuer, and State Street and Trust Company
(formerly Fleet National Bank), as trustee, relating to Senior
Notes due 2007 (filed as Exhibit 4.2 to Form 10-Q dated May 15,
1998)
4.3 -- Second Supplemental Indenture and Amendment dated April 1, 1998
between ICO P&O, Inc., a wholly owned subsidiary of the Registrant,
and State Street and Trust Company (formerly Fleet National Bank),
as trustee, relating to Senior Notes due 2007 (filed as Exhibit 4.3
to Form 10-Q dated May 15, 1998)
4.4 -- Warrant Agreement -- Series A, dated as of September 1, 1992,
between the Registrant and Society National Bank (filed as Exhibit
4 of the Registrant's Annual Report on Form 10-K for 1992)
4.5 -- Stock Registration Rights Agreement dated April 30, 1996 by and
between the Company, a subsidiary of the Company and the Wedco
Shareholders Group, as defined (filed as Exhibit 4.4 to Form S-4
dated May 15, 1996)
4.6 -- Shareholders' Rights Agreement dated November 20, 1997 by and
between the Company and Harris Trust and Savings Bank, as rights
agent (filed as Exhibit 1 to Form 8-A dated December 22, 1997)
4.7 -- Shareholder Rights Agreement dated April 1, 1998 by and between the
Registrant and Harris Trust and Savings Bank, as rights agent
(filed as Exhibit 4.7 to Form 10-Q for the quarter ended March 31,
1998)
10.1 -- Amended and Restated Business Loan Agreement dated February 21,
1997 between the Registrant and Bank of America, Texas, N.A. (filed
as Exhibit 10 to Form 10-Q dated May 14, 1997)
10.2 -- Substituted First Amendment to Amended and Restated Business Loan
Agreement by and between the Company and Bank of America Texas,
N.A. dated June 6, 1997 (filed as Exhibit 10 to Form 10-Q dated
August 14, 1997)
10.3 -- Second Amendment to Amended and Restated Business Loan Agreement
between the Registrant and Bank of America, Texas, N.A. dated
August 29, 1997 (filed as Exhibit 10.3 to Form S-4 dated October 3,
1997)
</TABLE>
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.4 -- Third Amendment to Amended and Restated Business Loan Agreement
between the Registrant and Bank of America, Texas, N.A. dated July
17, 1998. (filed as Exhibit 10.4 to form 10-Q dated August 13,
1998)
10.5 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as Exhibit B to
the Registrant's Definitive Proxy Statement dated April 27, 1987
for the Annual Meeting of Shareholders)
10.6 -- Second Amended and Restated 1993 Stock Option Plan for Non-Employee
Directors of ICO, Inc. (filed as Exhibit A to the Registrant's
Definitive Proxy Statement dated January 26, 1999 for the Annual
Meeting of Shareholders)
10.7 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated June 24, 1994 for the
Annual Meeting of Shareholders)
10.8 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 10, 1995 for
the Annual Meeting of Shareholders)
10.9 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 29, 1996 for
the Annual Meeting of Shareholders)
10.10 -- ICO, Inc. 1998 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated January 23, 1998 for
the Annual Meeting of Shareholders)
10.11 -- Willoughby International Stockholders Agreement dated April 30,
1996 (filed as Exhibit 10.9 to Form S-4 dated May 15, 1996)
10.12 -- Consulting Agreement-- William E. Willoughby (filed as Exhibit
10.13 to Form S-4 dated May 15, 1996)
10.13 -- Salary Continuation Agreement-- William E. Willoughby (filed as
Exhibit 10.14 to Form S-4 dated May 15, 1996)
10.14 -- Addendum to Salary Continuation Agreement-- William E. Willoughby
(filed as Exhibit 10.15 to form S-4 dated May 15, 1996)
10.15 -- Non-Competition Covenant William E. Willoughby (filed as Exhibit
10.11 to Form S-4 dated May 15, 1996)
10.16 -- Stockholders Agreement respecting voting of shares of certain
former Wedco common shareholders (filed as Exhibit 10.21 to Form
S-4 dated May 15, 1996)
10.17 -- Stockholders Agreement respecting voting of shares of certain ICO
common shareholders (filed as Exhibit 10.22 to Form S-4 dated May
15, 1996)
10.18 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Asher O. Pacholder and amendments thereto (filed as
Exhibit 10.16 to Form 10-K dated December 29, 1997)
10.19 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Sylvia A. Pacholder and amendments thereto (filed as
Exhibit 10.17 to Form 10-K dated December 29, 1997).
10.20 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Jon C. Biro (Filed as Exhibit 10.20 to Form 10-K
dated December 23, 1998)
10.21 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Isaac H. Joseph (Filed as Exhibit 10.21 to Form 10-K
dated December 23, 1998)
</TABLE>
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.22 -- Employment Agreement dated June 18, 1984 by and between a
wholly-owned subsidiary of the Registrant and Theo J.M.L. Verhoeff
(Filed as Exhibit 10.22 to Form 10-K dated December 23, 1998)
21 -- Subsidiaries of the Company (Filed as Exhibit 21 to Form 10-K dated
December 23, 1998)
27** -- Financial Data Schedule
</TABLE>
- ---------
** Filed herewith
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
ICO, INC.
Date of Adoption: April 1, 1995
As Amended: December 4, 1995
As Amended: April 20, 1996
As Amended: May 12, 1999
ARTICLE 1: OFFICES
1.01 REGISTERED OFFICE. The registered office of the Corporation required by the
Texas Business Corporation Act (the "TBCA") to be maintained in the State of
Texas shall be as designated from time to time by the Board of Directors in the
manner provided by law.
1.02 OTHER OFFICES. The corporation may also have offices at such other places
both within and without the State of Texas as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE 2: SHAREHOLDERS
2.01 PLACE OF MEETINGS. Meetings of shareholders shall be held at the time and
place, within or without the State of Texas, designated by the Board of
Directors and stated in the notice of the meeting or in a waiver of notice.
2.02 ANNUAL MEETINGS. An annual meeting of the shareholders, for the election of
directors to succeed those whose terms expire and for the transaction of such
other business as may properly come before the meeting, shall be held on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of shareholders. At the annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the annual meeting. To be properly brought before the
annual meeting of shareholders, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a shareholder of the Corporation who is a shareholder of record
at the time of giving of notice provided for in this Section 2.02, who shall be
entitled to vote at such meeting and who complies with the notice procedures set
forth in this Section 2.02. For business to be properly brought before an annual
meeting by a shareholder, the shareholder, in addition to any other applicable
requirements, must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days nor more than one hundred twenty (120) days prior to
the anniversary date of the immediately preceding annual meeting of shareholders
of the Corporation. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to
<PAGE> 2
bring before the annual meeting: (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, and any other
shareholders known by such shareholder to be supporting such proposal, (c) the
class and number of shares of voting stock of the Corporation which are
beneficially owned by the shareholder, (d) a representation that the shareholder
intends to appear in person or by proxy at the meeting to bring the proposed
business before the annual meeting, and (e) a description of any material
interest of the shareholder in such business. Notwithstanding anything in these
bylaws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 2.02. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.02, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.02, a
shareholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.02.
2.03 SPECIAL MEETINGS. Unless otherwise provided in the Articles of
Incorporation, special meetings of the shareholders for any purpose or purposes
may be called at any time by the Chairman of the Board, by the President or by a
majority of the Board of Directors, by a majority of the executive committee (if
any), or by the holders of at least ten percent (10%) of all the shares entitled
to vote at the proposed special meeting, but such special meetings may not be
called by any other person or persons.
2.04 NOTICE OF MEETINGS. 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 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the officer or person calling the meeting, to
each shareholder entitled to vote at such meeting. If mailed, any 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 share transfer
records of the Corporation, with postage thereon prepaid.
2.05 QUORUM. The holders of a majority of the shares entitled to vote (counting
for such purposes all abstentions and broker nonvotes), represented in person or
by proxy, shall constitute a quorum at meetings of the shareholders, except as
otherwise provided in the Articles of Incorporation. If, however, such quorum
shall be not present or represented at a meeting of the shareholders, the
holders of a majority of the shares entitled to vote thereat, and represented in
person or by proxy, shall have power to recess the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such recessed 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 convened had a quorum been present.
Shareholders present at a duly organized meeting with a quorum present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
-2-
<PAGE> 3
2.06 VOTING AT MEETINGS. With respect to any matter other than the election of
directors or a matter for which the affirmative vote of the holders of a
specified portion of the shares entitled to vote is required by the TBCA, the
act of the shareholders shall be the affirmative vote of the holders of a
majority of the shares entitled to vote, and voted for or against, the matter at
a meeting of shareholders at which a quorum is present; provided that, for
purposes of this sentence, all abstentions and broker nonvotes shall not be
counted as voted either for or against such matter. With respect to the election
of directors, directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present; provided that abstentions and broker
nonvotes shall not be counted as votes cast either for or against any nominee
for director.
2.07 METHOD OF VOTING. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation. At any
meeting of the shareholders, every shareholder having the right to vote may vote
either in person, or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Voting for Directors shall be in accordance
with Section 3.06 of these Bylaws. Any vote may be taken by voice or by show of
hands unless someone entitled to vote objects, in which case written ballots
shall be used.
2.08 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 entitled to receive a distribution by the corporation (other than a
distribution involving a purchase or redemption by the corporation of any of its
own shares) or a share dividend or in order to make a determination of
shareholders for any other purpose, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than sixty (60) days, and, in the case of a meeting of
shareholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If 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 a distribution by the corporation (other than a distribution involving a
purchase or redemption by the corporation of any of its own shares) or a share
dividend, the date on which such notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for 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
2.08, such determination shall apply to any adjournment thereof.
2.09 ACTION WITHOUT MEETING. Any action required by statute to be taken at a
meeting of shareholders, 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 force and effect as a unanimous vote of the shareholders. The signed
consent, or a signed copy, shall be placed in the minute book.
2.10 VOTING LIST. The officer or agent having charge of the share transfer
records of the Corporation 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
-3-
<PAGE> 4
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 or principal place of business of the Corporation and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share transfer records shall be prima-facie evidence as to
who are the shareholders entitled to examine such list or transfer records or to
vote at any meeting of shareholders. Failure to comply with the requirements of
this Section shall not affect the validity of any action taken at such meeting.
2.11 PROXIES. A shareholder may vote either in person or by proxy executed in
writing by the shareholder. A telegram, telex, cablegram or similar transmission
by the shareholder, or a photographic, photostatic, facsimile or similar
reproduction of a writing executed by the shareholder shall be treated as an
execution in writing for purposes of this Section. Proxies for use at any
meeting of shareholders or in connection with the taking of any action by
written consent shall be filed with the Secretary, or such other officer as the
Board of Directors may from time to time determine by resolution, before or at
the time of the meeting or execution of the written consent, as the case may be.
All proxies shall be received and taken charge of and all ballots shall be
received and canvassed by the secretary of the meeting who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in which
event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after 11 months from the date of its execution
unless otherwise provided in the proxy. A proxy shall be revocable unless the
proxy form conspicuously states that the proxy is irrevocable and the proxy is
coupled with an interest. Proxies coupled with an interest shall include the
appointment as proxy of any of the persons set forth in the TBCA, including
without limitation:
(a) a pledgee;
(b) a person who purchased or agreed to purchase, or owns or holds an
option to purchase, the shares;
(c) a creditor of the Corporation who extended it credit under terms
requiring the appointment;
(d) an employee of the Corporation whose employment contract requires
the appointment; or
(e) a party to a voting agreement executed under Section B, Article
2.30 of the TBCA.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide to the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting or giving consents thereby
conferred, or if only one be present, then such powers may be exercised by that
one; or, if an even number attend and a majority do not agree on any particular
issue, the Corporation shall not be required to recognize such proxy with
respect to such issue if such proxy does not specify how the shares that are the
subject of such proxy are to be voted with respect to such issue.
2.12 INSPECTORS OF ELECTION. The chairman of each meeting of shareholders shall
appoint one or more persons to act as inspectors of election. The inspectors of
election shall report to the meeting the number of shares of each class and
series of stock, and of all classes, represented either in person
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or by proxy. The inspectors of election shall oversee the vote of the
shareholders for the election of directors and for any other matters that are
put to a vote of shareholders at the meeting; receive a ballot evidencing votes
cast by the proxy committee of the Board of Directors; judge the qualifications
of shareholders voting; collect, count and report the results of ballots cast by
any shareholders voting in person; and perform such other duties as may be
required by the chairman of the meeting or the shareholders.
2.13 NOMINATIONS FOR ELECTION AS A DIRECTOR. Only persons who are nominated in
accordance with the procedures set forth in these bylaws shall be eligible for
election by shareholders as, and to serve as, directors. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of shareholders (a) by or at the direction of the Board of Directors or
(b) by any shareholder of the Corporation who is a shareholder of record at the
time of giving of notice provided for in this Section 2.13, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice procedures set forth in this Section 2.13. Such nominations,
other than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation (i) with respect
to an election to be held at the annual meeting of the shareholders of the
Corporation, not less than ninety (90) days nor more than one hundred twenty
(120) days prior to the anniversary date of the immediately preceding annual
meeting of shareholders of the Corporation, and (ii) with respect to an election
to be held at a special meeting of shareholders of the Corporation for the
election of directors not later than the close of business on the tenth (10th)
day following the day on which notice of the date of the special meeting was
mailed to shareholders of the Corporation as provided in these bylaws or public
disclosure (whether in a press release or a document filed with the Securities
and Exchange Commission) of the date of the special meeting was made, whichever
first occurs. Such shareholder's notice to the Secretary shall set forth (x) as
to each person whom the shareholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as a nominee and to serve as a director if
elected), and (y) as to the shareholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such shareholder and (ii)
the class and number of shares of voting stock of the Corporation which are
beneficially owned by such shareholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. In the event that a person is validly designated as a nominee to
the Board of Directors in accordance with the procedures set forth in this
Section 2.13 and shall thereafter become unable or unwilling to stand for
election to the Board of Directors, the Board of Directors may designate a
substitute nominee. Other than directors chosen pursuant to the provisions of
Section 3.03, no person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.13. The presiding officer of the meeting of shareholders shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by these bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section 2.13, a shareholder shall also comply with
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all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 2.13.
ARTICLE III: DIRECTORS
3.01 MANAGEMENT. The business and affairs of the corporation shall be managed by
the Board of Directors who may exercise all such powers of the corporation and
do all such lawful acts and things as are not (by statute or by the Articles of
Incorporation or by these Bylaws) directed or required to be exercised or done
by the shareholders.
3.02 NUMBER; QUALIFICATION. The number of Directors of the corporation shall be
not less than six nor more than twelve, the exact number to be set from time to
time by the Board of Directors; provided, further, however, that none of said
Directors need be shareholders or residents of any particular state.
3.03 CHANGE IN NUMBER. The number of Directors may be increased or decreased
from time to time by amendment to these Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent Director.
3.04 CLASSIFICATION. The Board of Directors shall be divided into three classes:
Class I, Class II and Class III. The number of directors in each class shall be
as nearly equal in number as possible. Except as otherwise provided in this
Section 3.04, each Director elected at an annual meeting shall serve for a term
ending on the date of the third annual meeting following the meeting at which
such Director was elected; provided, however, that the Directors first elected
to Class I shall serve for a term ending on the annual meeting immediately
following the annual meeting at which such Directors were first elected, the
Directors first elected to Class II shall serve for a term ending on the second
annual meeting following the meeting at which such Directors were first elected
and the Directors first elected to Class III shall serve a full term as
hereinabove provided. The foregoing notwithstanding, each Director shall serve
until his successor shall have been duly elected and qualified or until his
earlier death, resignation or removal.
3.05 VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS; REMOVAL. Any vacancy
occurring in the Board of Directors may be filled in accordance with the
following paragraph of this Section 3.05 or may be filled by the affirmative
vote of a majority of the remaining directors though 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 vacancy occurring in the Board of Directors or any directorship to
be filled by reason of an increase in the number of directors (i) may be filled
by election at an annual or special meeting of shareholders called for that
purpose or (ii) may be filled by the Board of Directors; provided that, with
respect to any directorship to be filled by the Board of Directors by reason of
an increase in the number of directors (a) such directorship shall be for a term
of office continuing only until the next election of one or more directors by
shareholders and (b) the Board of Directors may not fill more than two such
directorships during the period between any two successive annual meetings of
shareholders. If the Board of Directors is classified, any director elected at
an annual or special meeting of shareholders to fill a directorship created by
reason of an increase in the number of
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directors shall be elected for a term coterminous with the remaining term of the
other members of the class to which he has been designated in accordance with
the provisions of these Bylaws.
At any meeting of shareholders at which a quorum of shareholders is
present called expressly for that purpose, any director may be removed, but only
for cause, by vote of the holders of two-thirds of the shares then entitled to
vote for the election of such director.
3.06 ELECTION OF DIRECTORS. Directors shall be elected by plurality vote.
Cumulative voting shall not be permitted.
3.07 PLACE OF MEETINGS. Meetings of the Board of Directors, regular or special,
may be held either within or without the State of Texas.
3.08 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board.
3.09 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called
by the Chairman on three day's notice to each Director, either personally
(including by telephone) or by hand delivery or facsimile transmission. Special
meetings shall be called by the Chairman of the Board or Secretary in like
manner and on like notice on the written request of a majority of the Board of
Directors. Except as otherwise expressly provided by statute, Articles of
Incorporation, or these Bylaws, neither the business to be transacted at, nor
the purpose of, any special meeting need be specified in a notice or waiver of
notice.
3.10 QUORUM -- MAJORITY VOTE. At meetings of the Board of Directors a majority
of the number of Directors fixed by these Bylaws shall constitute a quorum for
the transaction of business. The act of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
except as otherwise specifically provided by statute, the Articles of
Incorporation, or these Bylaws. If a quorum is not present at a meeting of the
Board of Directors, the Directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
3.11 COMPENSATION. By resolution of the Board of Directors, the Directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as Director, and such other compensation
as may be established from time to time by the Board of Directors. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the executive committee
or of special or standing committees may be allowed like compensation for
attending committee meetings.
3.12 PROCEDURE. The Board of Directors shall keep regular minutes of its
proceedings. The minutes shall be placed in the minute book of the corporation.
3.13 ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE. Any action permitted or
required by the TBCA, the Articles of Incorporation or these bylaws to be taken
at a meeting of the Board of Directors or any committee designated by the Board
of Directors may be taken without a meeting if a consent in writing, setting
forth the action to be taken, is signed by all the members of the Board
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of Directors or committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote at a meeting and may be stated as such in
any document or instrument filed with the Secretary of State, and the execution
of such consent shall constitute attendance or presence in person at a meeting
of the Board of Directors or any such committee, as the case may be. Subject to
the requirements of the TBCA, the Articles of Incorporation or these bylaws for
notice of meetings, unless otherwise restricted by the Articles of
Incorporation, members of the Board of Directors, or members of any committee
designated by the Board of Directors, may participate in and hold a meeting of
the Board of Directors or any committee of directors, as the case may be, by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and presence in person
at such meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
3.14 APPROVAL AND RATIFICATION OF ACTS OR CONTRACTS BY SHAREHOLDERS. The Board
of Directors in its discretion may submit any act or contract for approval or
ratification at any annual meeting of the shareholders, or at any special
meeting of the shareholders called for the purpose of considering any such act
or contract, and any act or contract that shall be approved or be ratified by
the vote of the shareholders holding a majority of the issued and outstanding
shares of stock of the Corporation entitled to vote and present in person or by
proxy at such meeting (provided that a quorum is present), shall be as valid and
as binding upon the Corporation and upon all the shareholders as if it has been
approved or ratified by every shareholder of the Corporation.
ARTICLE 4: COMMITTEES
4.01 DESIGNATION; POWERS. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, including, if
they shall so determine, an executive committee, an audit committee, a
compensation committee, and one or more special committees, each such committee
to consist of one or more of the Directors of the Corporation. Any such
designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such committee shall have the power or authority of the Board of Directors in
reference to any matter restricted by the TBCA, including amending the Articles
of Incorporation (except, to the extent provided in such resolution, with
respect to exercising authority vested in the Board in accordance with Article
2.13 of the TBCA), adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
shareholders a dissolution of the Corporation or a revocation of a dissolution
of the Corporation, or amending, altering or repealing the bylaws or adopting
new bylaws for the Corporation and, unless such resolution or the Articles of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Any such
designated committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. In addition to the above such committee shall
have such other powers and limitations of authority as may be determined from
time to time by resolution adopted by the Board of Directors.
4.02 PROCEDURE; MEETINGS; QUORUM. Any committee designated pursuant to Section
4.01 shall choose its own chairman, shall keep regular minutes of its
proceedings and report the same to the
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Board of Directors when requested, shall fix its own rules or procedures, and
shall meet at such times and at such place or places as may be provided by such
rules, or by resolution of such committee or resolution of the Board of
Directors. At every meeting of any such committee, the presence of a majority of
all the members thereof shall constitute a quorum and the affirmative vote of a
majority of the members present shall be necessary for the adoption by it of any
resolution.
4.03 SUBSTITUTION OF MEMBERS. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee.
ARTICLE 5: NOTICE
5.01 METHOD OF NOTICE. Whenever any notice is required to be given to
shareholders by law, the Articles of Incorporation or under the provisions of
these bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission or (ii) by deposit of the same in a
post office box in a sealed prepaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing, as the case may be.
5.02 WAIVER OF NOTICE. Whenever notice is required to be given by law, the
Articles of Incorporation or under any of the provisions of these bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
shareholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Articles of
Incorporation or the bylaws.
ARTICLE 6: OFFICERS
6.01 NUMBER, TITLES AND TERM OF OFFICE. The officers of the Corporation shall be
a Chairman of the Board, President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Chief Financial Officer, a Treasurer, a Secretary and such other officers as the
Board of Directors may from time to time elect or appoint. Each officer shall
hold office until his successor shall be duly elected and shall qualify or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Any number of offices may be held by the same person,
unless the Articles of Incorporation provides otherwise. Except for the Chairman
of the Board, no officer need be a director.
6.02 SALARIES. The salaries or other compensation of the officers and agents of
the Corporation shall be fixed from time to time by the Board of Directors.
6.03 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed, either with or without cause, by the vote of a
majority of the Board of Directors at a special meeting called for the purpose,
or at any regular meeting of the Board of Directors, provided the notice for
such meeting shall specify that the matter of any such proposed removal will be
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considered at the meeting but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
6.04 VACANCIES. Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors.
6.05 POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board of Directors.
Subject to the control of the Board of Directors and the executive committee (if
any), the Chairman of the Board shall have general executive charge, management
and control of the properties, business and operations of the Corporation with
all such powers as may be reasonably incident to such responsibilities; he may
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation and may sign all certificates
for shares of capital stock of the Corporation; and shall have such other powers
and duties as designated in accordance with these bylaws and as from time to
time may be assigned to him by the Board of Directors. The Chairman of the Board
shall be elected to a term of office which is the same as his term of office as
a director.
6.06 POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of Directors otherwise
determines, the President shall be the chief executive officer of the
Corporation and may sign all certificates for shares of capital stock of the
Corporation; and he or she shall have such other powers and duties as designated
in accordance with these bylaws and as from time to time may be assigned to him
or her by the Board of Directors.
6.07 VICE PRESIDENTS. The Vice Presidents shall perform such duties and have
such powers as the Board of Directors may from time to time prescribe.
6.08 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have the
responsibility for the management and coordination of the financing, borrowing
and financial planning and budgeting activities of the Corporation, and he shall
have such other powers and duties as designated in these bylaws and as from time
to time may be assigned to him by the Board of Directors.
6.09 TREASURER. The Treasurer shall have responsibility for the custody and
control of all the funds and securities of the Corporation, and he shall have
such other powers and duties as designated in these bylaws or as from time to
time assigned to him by the Board of Directors. He shall perform all acts
incident to the position of Treasurer, subject to the control of the Chairman of
the Board and the Board of Directors; and he shall, if required by the Board of
Directors, give such bond for the faithful discharge of his duties in such form
as the Board of Directors may require.
6.10 ASSISTANT TREASURERS. Each Assistant Treasurer shall have the usual powers
and duties pertaining to his office, together with such powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Chairman of the Board or the Board of Directors. The Assistant Treasurers
shall exercise the powers of the Treasurer during that officer's absence or
inability or refusal to act.
6.11 SECRETARY. The Secretary shall keep the minutes of all meetings of the
Board of Directors, committees of directors and the shareholders, in books
provided for that purpose; he shall attend to
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the giving and serving of all notices; he may in the name of the Corporation
affix the seal of the Corporation to all contracts of the Corporation and attest
the affixation of the seal of the Corporation thereto; he may sign with the
other appointed officers all certificates for shares of capital stock of the
Corporation; he shall have charge of the certificate books, transfer books and
stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the Corporation during business
hours; he shall have such other powers and duties as designated in these bylaws
and as from time to time may be assigned to him by the Board of Directors; and
he shall in general perform all acts incident to the office of Secretary,
subject to the control of the Board of Directors.
6.12 ASSISTANT SECRETARIES. Each Assistant Secretary shall have the usual power
and duties pertaining to his office, together with such other powers and duties
as designated in these bylaws and as from time to time may be assigned to him by
the Chairman of the Board or the Board of Directors. The Assistant Secretaries
shall exercise the powers of the Secretary during that officer's absence or
inability or refusal to act.
6.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise
directed by the Board of Directors, the Chairman of the Board and the President
of the Corporation shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in which
this Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
6.14 INTERESTED PARTY TRANSACTIONS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, solely because the director or officer is present at or participates in
the meeting of the Board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if : (i) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved, or
ratified by the Board of Directors, a committee thereof, or the shareholders.
Common or interested directors or shareholders may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee or
shareholders which authorizes the contract or transaction.
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ARTICLE 7: INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
7.01 RIGHT TO INDEMNIFICATION. Subject to the limitations and conditions as
provided in this Article 7, each person who was or is made a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (hereinafter a "proceeding"), or any appeal in such
a proceeding or any inquiry or investigation that could lead to such a
proceeding, by reason of the fact that he or she, or a person of whom he or she
is the legal representative, is or was a director or officer of the Corporation
or while a director or officer of the Corporation is or was serving at the
request of the Corporation 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,
employee benefit plan or other enterprise shall be indemnified by the
Corporation to the fullest extent permitted by the TBCA, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) against judgments, penalties (including excise and similar
taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, attorneys' fees) actually incurred by such
person in connection with such proceeding, and indemnification under this
Article 7 shall continue as to a person who has ceased to serve in the capacity
which initially entitled such person to indemnity hereunder and shall inure to
the benefit of the heirs, executors and administrators of such person. The
rights granted pursuant to this Article 7 shall be deemed contract rights, and
no amendment, modification or repeal of this Article 7 shall have the effect of
limiting or denying any such rights with respect to actions taken or proceedings
arising prior to any such amendment, modification or repeal. It is expressly
acknowledged that the indemnification provided in this Article 7 could involve
indemnification for negligence or under theories of strict liability.
7.02 ADVANCE PAYMENT. The right to indemnification conferred in this Article 7
shall include the right to be paid or reimbursed by the Corporation the
reasonable expenses incurred by a person of the type entitled to be indemnified
under Section 7.01 who was, is or is threatened to be made a named defendant or
respondent in a proceeding in advance of the final disposition of the proceeding
and without any determination as to the person's ultimate entitlement to
indemnification; provided, however, that the payment of such expenses incurred
by any such person in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of a written affirmation by such
director or officer of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification under this Article 7 and a
written undertaking, by or on behalf of such person, to repay all amounts so
advanced if it shall ultimately be determined by a court of competent
jurisdiction that such indemnified person is not entitled to be indemnified
under this Article 7 or otherwise.
7.03 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation, by adoption of a
resolution of the Board of Directors, may indemnify and advance expenses to an
employee or agent of the Corporation to the same extent and subject to the same
conditions under which it may indemnify and advance expenses to directors and
officers under this Article 7; and, the Corporation may indemnify and advance
expenses to persons who are not or were not directors, officers, employees or
agents of the Corporation but who are or were serving at the request of the
Corporation as a director, officer,
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partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in such capacity or arising
out of his status as such a person to the same extent that it may indemnify and
advance expenses to directors under this Article 7.
7.04 APPEARANCE AS A WITNESS. Notwithstanding any other provision of this
Article 7, the Corporation may pay or reimburse expenses incurred by a director
or officer in connection with his or her appearance as a witness or other
participation in a proceeding at a time when he or she is not a named defendant
or respondent in the proceeding.
7.05 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the advancement
and payment of expenses conferred in this Article 7 shall not be exclusive of
any other right which a director or officer or other person indemnified pursuant
to Section 7.03 may have or hereafter acquire under any law (common or
statutory), provision of the Articles of Incorporation of the Corporation or
these bylaws, agreement, vote of shareholders or disinterested directors or
otherwise.
7.06 INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, proprietorship, employee
benefit plan, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under this Article 7.
7.07 SHAREHOLDER NOTIFICATION. To the extent required by law, any
indemnification of or advance of expenses to a director or officer in accordance
with this Article 7 shall be reported in writing to the shareholders with or
before the notice or waiver of notice of the next shareholders' meeting or with
or before the next submission to shareholders of a consent to action without a
meeting and, in any case, within the 12-month period immediately following the
date of the indemnification or advance.
7.08 SAVINGS CLAUSE. If this Article 7 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person indemnified pursuant to this Article 7 as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative to the full extent permitted by
any applicable portion of this Article 7 that shall not have been invalidated
and to the fullest extent permitted by applicable law.
ARTICLE 8: CAPITAL STOCK
8.01 CERTIFICATES OF STOCK. The certificates for shares of the capital stock of
the Corporation shall be in such form, not inconsistent with that required by
law and the Articles of Incorporation, as shall be approved by the Board of
Directors. The Chairman of the Board, President or a Vice President (if any)
shall cause to be issued to each shareholder one or more certificates, which
shall be signed by the Chairman of the Board, President or a Vice President (if
any) and the Secretary or an
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Assistant Secretary (if any) or the Treasurer or an Assistant Treasurer (if any)
certifying the number of shares (and, if the stock of the Corporation shall be
divided into classes or series, the class and series of such shares) owned by
such shareholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. If the Board of Directors shall
have provided for a seal, such certificates shall bear such seal or a facsimile
thereof. The stock record books and the blank stock certificate books shall be
kept by the Secretary, or at the office of such transfer agent or transfer
agents as the Board of Directors may from time to time by resolution determine.
In case any officer, transfer agent or registrar who shall have signed or whose
facsimile signature or signatures shall have been placed upon any such
certificate or certificates shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued by the Corporation, such
certificate may nevertheless be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. The stock certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and number of shares.
Each certificate shall conspicuously bear any legend required pursuant
to Article 2.19 or Article 2.22 of the TBCA, as well as any other legend
required by law.
8.02 TRANSFER OF SHARES. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives, upon
surrender and cancellation of certificates for a like number of shares (or upon
compliance with the provisions of Section 8.05, if applicable). Upon such
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer (or upon compliance with the
provisions of Section 8.05, if applicable) and of compliance with any transfer
restrictions applicable thereto contained in an agreement to which the
Corporation is a party or of which the Corporation has knowledge by reason of
legend with respect thereto placed on any such surrendered stock certificate, it
shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
8.03 OWNERSHIP OF SHARES. Unless otherwise provided in the TBCA, and subject to
the provisions of Chapter 8 -- Investment Securities of the Texas Business &
Commerce Code:
(i) the Corporation may regard the person in whose name any shares
issued by the Corporation are registered in the share transfer records
of the Corporation at any particular time (including, without
limitation, as of a record date fixed pursuant to Article 2.26B or
2.26C of the TBCA) as the owner of those shares at that time for
purposes of voting those shares, receiving distributions thereon or
notices in respect thereof, transferring those shares, exercising
rights of dissent with respect to those shares, exercising or waiving
any preemptive right with respect to those shares, entering into
agreements with respect to those shares in accordance with Article 2.22
or 2.30 of the TBCA, or giving proxies with respect to those shares;
and
(ii) neither the Corporation nor any of its officers, directors,
employees, or agents shall be liable for regarding that person as the
owner of those shares at that time for those purposes, regardless of
whether that person does not possess a certificate for those shares.
-14-
<PAGE> 15
8.04 REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the
power and authority to make all such rules and regulations as they may deem
expedient concerning the issuance, transfer and registration or the replacement
of certificates for shares of capital stock of the Corporation.
8.05 LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The Board of Directors
may determine the conditions upon which a new certificate of stock may be issued
in place of a certificate that is alleged to have been lost, stolen, destroyed
or mutilated; and may, in its discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety, to indemnify
the Corporation and each transfer agent and registrar against any and all losses
or claims which may arise by reason of the issuance of a new certificate in the
place of the one so lost, stolen, destroyed or mutilated.
ARTICLE 9: MISCELLANEOUS PROVISIONS
9.01 FISCAL YEAR. The fiscal year of the Corporation shall be such as
established from time to time by the Board of Directors.
9.02 CORPORATE SEAL. The Board of Directors may provide a suitable seal,
containing the name of the Corporation. The Secretary shall have charge of the
seal (if any). If and when so directed by the Board of Directors, duplicates of
the seal may be kept and used by the Treasurer, if any, or by any Assistant
Secretary or Assistant Treasurer.
9.03 RESIGNATIONS. Any director, member of a committee or officer may resign at
any time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or if no time be specified, at the time of its receipt
by the chief executive officer or Secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in the
resignation.
9.04 FACSIMILE SIGNATURES. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
9.05 BOOKS AND RECORDS. The Corporation shall keep books and records of account
and shall keep minutes of the proceedings of its shareholders, its Board of
Directors and each committee of its Board of Directors. The Corporation shall
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of the original issuance of shares
issued by the Corporation and a record of each transfer of those shares that
have been presented to the Corporation for registration of transfer. Such
records shall contain the names and addresses of all past and current
shareholders of the Corporation and the number and class of shares issued by the
Corporation held by each of them. Any books, records, minutes and share transfer
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.
9.06 AMENDMENTS. The Board of Directors may amend or repeal the Corporation's
bylaws, or adopt new bylaws, unless: (a) the Articles of Incorporation or the
TBCA reserves the power exclusively to the shareholders in whole or part; or (b)
the shareholders, in amending, repealing or
-15-
<PAGE> 16
adopting a particular bylaw, expressly provide that the Board of Directors may
not amend or repeal that bylaw.
Unless the Articles of Incorporation or a bylaw adopted by the
shareholders provides otherwise as to all or some portion of the Corporation's
bylaws, the Corporation's shareholders may amend, repeal or adopt the
Corporation's bylaws even though the bylaws may also be amended, repealed or
adopted by the Board of Directors.
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FILING ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 35,375
<SECURITIES> 0
<RECEIVABLES> 50,047
<ALLOWANCES> (1,619)
<INVENTORY> 25,210
<CURRENT-ASSETS> 115,451
<PP&E> 186,370
<DEPRECIATION> (69,188)
<TOTAL-ASSETS> 295,659
<CURRENT-LIABILITIES> 52,580
<BONDS> 0
0
13
<COMMON> 39,181
<OTHER-SE> 66,081
<TOTAL-LIABILITY-AND-EQUITY> 295,659
<SALES> 126,337
<TOTAL-REVENUES> 126,337
<CGS> 97,919
<TOTAL-COSTS> 145,056
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,802)
<INCOME-PRETAX> (24,486)
<INCOME-TAX> 6,216
<INCOME-CONTINUING> (18,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 399
<CHANGES> 0
<NET-INCOME> (17,871)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
