<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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: 0-27246
ZORAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2794449
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3112 SCOTT BOULEVARD, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 919-4111
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 __
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, as of October 31, 1998 was 10,098,871.
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ZORAN CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
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ZORAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash & equivalents $ 5,560 $ 9,903
Short-term investments 10,857 12,473
Accounts receivable, net 13,357 16,509
Inventories 6,811 4,123
Other current assets 1,793 2,232
------------- ------------
Total current assets 38,378 45,240
Property & equipment, net 5,523 5,704
------------- ------------
$ 43,901 $ 50,944
------------- ------------
------------- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,529 $ 5,656
Accrued expenses and other liabilities 6,539 11,002
------------- ------------
Total current liabilities 9,068 16,658
Stockholders' equity:
Common Stock, $0.001 par value;
20,000,000 shares authorized; 10,033,870
and 9,800,679 shares issued and outstanding 10 10
Additional paid-in capital 79,156 78,664
Warrants outstanding 717 717
Accumulated deficit (45,050) (45,105)
------------- ------------
Total stockholders' equity 34,833 34,286
------------- ------------
$ 43,901 $ 50,944
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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ZORAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 8,986 $ 8,486 $ 22,230 $ 21,018
Software, licensing and development 2,860 3,101 7,859 9,888
-------- -------- --------- ---------
Total revenues 11,846 11,587 30,089 30,906
Costs and expenses:
Cost of product sales 5,153 4,044 12,750 10,048
Research and development 3,476 3,722 9,654 10,237
Selling, general and administrative 2,877 2,986 8,311 8,157
-------- -------- --------- ---------
Total costs and expenses 11,506 10,752 30,715 28,442
Operating income (loss) 340 835 (626) 2,464
Interest & other income (expense), net 176 316 696 944
-------- -------- --------- ---------
Income before income taxes 516 1,151 70 3,408
Provision for income taxes 103 288 14 852
-------- -------- --------- ---------
Net income $ 413 $ 863 $ 56 $ 2,556
-------- -------- --------- ---------
Basic net income per share $ 0.04 $ 0.09 $ .01 $ 0.27
-------- -------- --------- ---------
Diluted net income per share $ 0.04 $ 0.08 $ .01 $ 0.23
-------- -------- --------- ---------
Shares used to compute basic net income per share 10,064 9,504 9,988 9,332
-------- -------- --------- ---------
Shares used to compute diluted net income per share 10,941 11,131 10,970 11,114
-------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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ZORAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56 $ 2,556
Adjustments to reconcile net income to net cash used
by operations:
Depreciation, amortization and other 1,564 1,243
Changes in current assets and liabilities:
Accounts receivable, net 3,152 (1,591)
Inventory (2,688) 110
Other current assets 394 (371)
Accounts payable (3,127) (3,735)
Accrued expenses and other liabilities (4,463) 1,777
---------- ----------
Net cash used by operating activities (5,112) (11)
---------- ----------
Cash flows from investing activities:
Purchase of Property and equipment (1,339) (1,109)
Sales/Purchases of short-term investments, net 1,913 (2,615)
---------- ----------
Net cash provided (used) in investing activities 574 (3,724)
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net 492 380
---------- ----------
Net cash provided by financing activities 492 380
---------- ----------
Net decrease in cash and cash equivalents (4,046) (3,355)
Cash and cash equivalents at beginning of period 9,903 11,176
---------- ----------
Cash and cash equivalents at end of period $ 5,857 $ 7,821
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ZORAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary to present fairly the
financial information included therein. While the Company believes that the
disclosures are adequate to make the information not misleading, it is
suggested that these financial statements be read in conjunction with the
audited consolidated financial statements and accompanying notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Results for the interim periods presented are not necessarily indicative of the
results to be expected for the full year.
2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
INVENTORY:
Work-in-process $ 1,512 $ 1,860
Finished goods 5,299 2,263
------------- ------------
$ 6,811 $ 4,123
------------- ------------
------------- ------------
</TABLE>
3. INCOME TAXES
The provision for income taxes reflects the estimated annualized effective
tax rate applied to earnings for the interim periods. The effective tax rate
differs from the U.S. statutory rate due to utilization of net operating losses
and State of Israel tax benefits on foreign earnings. The provision includes
primarily taxes on income in excess of net operating loss carryover limitations
and foreign withholding taxes.
4. EARNINGS PER SHARE
A reconciliation of the numerators and the denominators of the basic and
diluted per share computation is as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
-------------------------------------------- -------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
to common stockholders $ 413 10,064 $ 0.04 $ 863 9,504 $ 0.09
--------- ---------
--------- ---------
Effects of Dilutive Securities:
Convertible Preferred Stock - -
Stock Options 877 1,614
Warrants - 13
Diluted EPS:
Income available to
common stockholders $ 413 10,941 $ 0.04 $ 863 11,131 $ 0.08
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
-------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available
to common stockholders $ 5 9,988 $ 0.01 $ 2,556 9,332 $ 0.27
--------- ---------
--------- ---------
Effects of Dilutive Securities:
Convertible Preferred Stock - -
Stock Options 1,043 1,697
Warrants (61) 85
Diluted EPS:
Income available to
common stockholders $ 5 10,970 $ 0.01 $ 2,556 11,114 $ 0.23
--------- ---------
--------- ---------
</TABLE>
-6-
<PAGE>
5. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). FAS 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the
statement of operations or as a deferred item depending on the type of hedge
relationship that exists with respect to such derivative. Adopting the
provisions of SFAS 133, which will be effective for the Company's fiscal year
2000, is not expected to have a material effect on the Company's consolidated
financial statements.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "FUTURE
PERFORMANCE AND RISK FACTORS" AND DISCUSSED MORE FULLY IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997.
OVERVIEW
Zoran Corporation ("Zoran" or the "Company") develops and markets
integrated circuits ("ICs"), integrated circuit cores and software for
digital video and audio applications enabled by compression. The Company's
product lines address the PC and consumer multimedia market and include
JPEG-based codecs, MPEG-based video decoders including DVD, Dolby Digital and
MPEG-based audio decoders and real-time video CD and DVD decoder software for
PC applications. The Company's software is bundled by PC and graphic systems
manufacturers for software-only or hardware-assisted video CD, DVD and JPEG
compressed video playback on the PC. Current applications for the Company's
IC products include professional and consumer video editing systems, filmless
digital cameras, PC-based or stand-alone video CD and DVD players and digital
audio systems.
Historically, average selling prices ("ASPs") in the semiconductor
industry in general, and for the Company's products in particular, have
decreased over the life of a particular product. Although ASPs for the
Company's hardware products have fluctuated substantially from period to
period, these fluctuations have been driven principally by changes in
customer mix (original equipment manufacturer ("OEM") sales versus sales to
distributors) and the transition from low-volume to high-volume production
sales rather than by factors related to product life cycles. Since 1996, the
Company has periodically reduced its ASPs on certain products to better
penetrate its target markets and remain competitive. The Company believes
that, as its product lines continue to mature and competitive markets evolve,
it is likely to experience further declines in the ASPs of its products,
although the timing and amount of such future changes cannot be predicted
with any certainty. There can be no assurance that costs will decrease at
the same rate as such declines in ASPs, or at all.
The Company sells its products to OEMs worldwide directly and
through distributors and independent sales representatives. Sales prices to
distributors are generally lower than prices for direct sales, as
distributors are responsible for certain sales and marketing expenses,
maintenance of inventories and customer support and training. Lower gross
margins on sales to distributors are partially offset by reduced selling and
marketing expenses related to such sales. Product sales in Japan are
primarily made through Fujifilm Microdevices Co., Ltd. ("Fujifilm"), the
Company's strategic partner and distributor in Japan. Fujifilm provides more
sales and marketing support than Zoran's other distributors.
Zoran has historically generated a significant percentage of its total
revenues from development contracts, primarily with key customers. These
development contracts have provided the Company with partial funding for the
development of certain of its products. Payments received by the Company
under these development contracts are recorded as development revenue. The
Company classifies all development costs, including costs related to these
development contracts, as research and development expenses. The Company
retains ownership of the intellectual property developed by it under these
development contracts. While the Company intends to continue to enter into
development contracts with certain strategic partners, it expects development
revenue to decrease as a percentage of total revenues.
The Company conducts a substantial portion of its research and
development and certain sales and marketing activities in Israel through its
wholly-owned Israeli subsidiary. As a result, certain expenses are incurred
in Israeli shekels. Substantially all of the Company's revenues have been
denominated in U.S. dollars and most costs of product sales have been
incurred in U.S. dollars. The Company expects that most of its revenues and
costs of product sales will continue to be denominated and incurred in U.S.
dollars for the foreseeable future. The Company has not experienced material
losses or gains as a result of currency
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exchange rate fluctuations and has not engaged in hedging transactions to
reduce its exposure to such fluctuations. The Company intends to actively
monitor its foreign exchange exposure and to take appropriate action to
reduce its foreign exchange risk, if such risk becomes material.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $11.8 million and $30.1 million for the three and
nine month periods ended September 30, 1998, compared to $11.6 million and
$30.9 million for the same periods of the prior fiscal year, representing a
increase of 1.7% and a decrease of 2.6% for the respective periods. For the
three and nine month periods ended September 30, 1998, the corresponding
product revenues were $9.0 million and $22.2 million compared to $8.5 million
and $21.0 million for the same periods in 1997, increases of 5.9% and 5.7%,
respectively. For the current quarter there were increased unit sales in
each of the MPEG and Audio and product families offsetting decreased unit
sales in the JPEG product family. Software, licensing and development
revenues were $2.9 million and $7.9 million for the three and nine month
periods ended September 30, 1998, compared to $3.1 million and $9.9 million
for the same periods of the prior fiscal year, representing a decrease of
6.5% and 20.2% for the respective periods. This decrease was primarily due to
a shift in the amount of fixed period license fees the Company is able to
collect on significant new software contracts and the timing of revenue
recognition on long-term development contracts.
Product sales consist of revenues from sales of the Company's integrated
circuits. Software, licensing and development revenue consists of revenue
from license and royalty agreements, primarily for audio and video decoder
software, that generally provide for the license of software for a specified
period of time for either a single fee or a fee based on the number of units
distributed by the licensee. Development revenue is derived from hardware
design contracts that provide for license and milestone payments to be made
at specified times.
PRODUCT GROSS MARGIN
Product gross margins were 42.7% and 42.6% of product revenues for the
three and nine month periods ended September 30, 1998, compared to 52.3% and
52.2% for the same periods of the prior fiscal year, a decrease of 18.3% and
18.4%, respectively. The decrease was due to a product sales mix that
included a decreased percentage of higher-margin products, a reduced
percentage of products sold directly to OEM customers and higher
manufacturing costs associated with the introduction of new products as
compared to the same periods in 1997.
The Company's product gross margin is dependent on product mix and on
the percentage of products sold directly to the Company's OEM customers
versus indirectly through its marketing partners who purchase the Company's
products at lower prices but absorb most of the associated marketing and
sales support expenses. The Company expects product and customer mix to
continue to fluctuate in future periods, causing further fluctuations in
margins.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses were $3.5 million and $9.7
million for the three and nine month periods ended September 30, 1998
compared to $3.7 million and $10.2 million for the same periods of the prior
fiscal year. As a percentage of revenues, R&D expenses decreased to 29.3%
and 32.1% for the three and nine month periods ended September 30, 1998,
compared to 32.1% and 33.1% for the same periods of the prior fiscal year.
The decrease in R&D expenses as a percentage of revenues for the current
quarter compared to the same period in 1997 was due to both reduced expenses
and increased revenue.
The Company continues to believe that significant investments in R&D are
required for it to remain competitive and expects to continue to devote
significant resources to product development, although such expenses as a
percentage of total revenues may fluctuate.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses were $2.9 million
and $8.3 million for the three and nine month periods ended September 30,
1998, compared to $3.0 million and $8.2 million for the same periods of the
prior fiscal year. As a percentage of revenues, SG&A expenses were 24.3% and
27.6% for the three and nine month periods ended September 30, 1998, compared
to 25.8% and 26.4% for the same periods of the prior fiscal year. The
decrease as a percent of revenues, quarter to quarter, was due to SG&A
expenses remaining flat while revenues increased.
INTEREST AND OTHER INCOME, NET
Net interest and other income for the three and nine month periods ended
September 30, 1998 was $176,000 and $696,000, respectively, a decrease of
44.3% and 26.3% compared to the same periods in 1997. The decrease resulted
primarily from decreased interest income due to lower cash balances during
the current periods as compared to the same periods of the prior fiscal year.
PROVISION FOR INCOME TAXES
The Company's estimated effective tax rate decreased to 20% for the
current quarter from 25% for the same quarter last year. The decrease was
primarily due to the tax benefits derived from revenue and net income
attributable to the Company's operations in Israel, which receives favorable
tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $5.6 million of cash and cash
equivalents, $10.9 million of short-term investments and $29.3 million of
working capital. Cash used in operations for the first nine months of 1998
was $5.1 million contrasted with $11,000 for the comparable period in 1997.
Cash used primarily reflects changes in inventory, accounts receivable and
accrued liabilities. The Company's capital expenditures for the nine months
ended September 30, 1998 totaled $1.3 million. The Company had no bank debt
at September 30, 1998 or at December 31, 1997.
The Company believes that its current balances of cash, cash equivalents
and short-term investments, and anticipated cash flow from operations, will
satisfy the Company's anticipated working capital and capital expenditure
requirements through at least the next 12 months.
FUTURE PERFORMANCE AND RISK FACTORS
THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
PRODUCT CONCENTRATION; EVOLVING MARKETS. Since the Company's markets are
still evolving, only a limited number of commercial and consumer products
that incorporate the Company's integrated circuits are currently in volume
production. Current applications for the Company's products include
professional and consumer video editing systems, PC-based and stand-alone
video CD and DVD players, digital audio systems, filmless digital cameras and
video conferencing systems. During 1994 and 1995, the Company derived a
majority of its product revenues from the sale of integrated circuits for
video editing applications. Video editing applications continued to account
for the largest percentage of the Company's product sales in 1996 and 1997.
Delays in the development of the DVD market resulted in decreased sales of
the Company's audio products in 1997 compared to 1996. The Company expects
that sales of its devices for video capture and editing applications and
digital audio applications will continue to account for a significant portion
of its revenues for the near future. Over the longer term, the Company's
ability to generate increased revenues will be dependent on the expansion of
sales of its products for use in other existing applications, as well as the
development and acceptance of new applications for the Company's technologies
and products. The potential size of the markets for new applications and the
timing of their development and acceptance is uncertain. The Company's
future success will depend upon whether manufacturers select the Company's
integrated circuits and software for incorporation into their products, and
upon the successful marketing of
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these products by the manufacturers. There can be no assurance that demand
for existing applications will be sustained, that new markets will develop or
that manufacturers developing products for any of these markets will design
the Company's integrated circuits into their products or successfully market
them. The failure of existing and new markets to develop or to be receptive
to the Company's products would have a material adverse effect on the
Company's business, operating results and financial condition.
The emergence of markets for the Company's integrated circuits will be
affected by a variety of factors beyond the Company's control. In
particular, the Company's products are designed to conform with certain
current industry standards. There can be no assurance that manufacturers
will continue to follow these standards or that competing standards will not
emerge which will be preferred by manufacturers. The emergence of markets
for the Company's products is also dependent in part upon third-party content
providers developing and marketing content for end user systems, such as
video and audio playback systems, in a format compatible with the Company's
products. There can be no assurance that these or other factors beyond the
Company's control will not adversely affect the development of markets for
the Company's products.
RELIANCE ON INDEPENDENT FOUNDRIES AND CONTRACTORS. The Company does not
operate any manufacturing facilities, and from time to time shortages of
foundry capacity develop for certain process technologies in the
semiconductor industry. The Company currently relies on independent
foundries to manufacture substantially all of its products. The Company's
independent foundries fabricate products for other companies and may also
produce products of their own design. The Company does not have a long-term
supply contract with either TSMC or Motorola Inc., its principal suppliers,
and, therefore, neither TSMC nor Motorola is obligated to supply products to
the Company for any specific period, in any specific quantity or at any
specified price, except as may be provided in a particular purchase order.
The Company's reliance on independent foundries involves a number of
risks, including the inability to obtain adequate capacity, the
unavailability of or interruption in access to certain process technologies,
reduced control over delivery schedules, quality assurance, manufacturing
yields and cost, and potential misappropriation of the Company's intellectual
property. The loss of any of the Company's foundries as a supplier, the
inability of the Company, in a period of increased demand for its products,
to expand supply or the Company's inability to obtain timely and adequate
deliveries from its current or future suppliers could reduce or delay
shipments of the Company's products. Any of these developments could damage
relationships with the Company's current and prospective customers and have a
material adverse effect on the Company's business, operating results or
financial condition.
At present, all of the Company's semiconductor products are assembled by
one of two independent contractors, ASAT, Inc. and Anam Industrial, and
tested by those contractors or other independent contractors. The Company's
reliance on independent assembly and testing houses limits its control over
delivery schedules, quality assurance and product cost. Disruptions in the
provision of services by the Company's assembly or testing houses or other
circumstances that would require the Company to seek alternative sources of
assembly or testing could lead to supply constraints or delays in the
delivery of the Company's products. These constraints or delays could damage
relationships with current and prospective customers and have a material
adverse effect on the Company's business, operating results or financial
condition.
NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED
PRODUCTS. The markets for the Company's products are characterized by
rapidly changing technologies, evolving industry standards, frequent new
product introductions and short product life cycles. The Company expects to
increase its expenses relating to product development, and its future success
will depend to a substantial degree upon its ability to develop and
introduce, on a timely and cost-effective basis, new and enhanced products
that meet changing customer requirements and industry standards. There can be
no assurance that the Company will successfully develop, introduce or manage
the transition to new products. Future delays in the introduction or
shipment of new or enhanced products, the inability of such products to gain
market acceptance or problems associated with new product transitions could
adversely affect the Company's business, operating results and financial
condition.
COMPETITION; PRICING PRESSURES. The Company's existing and potential
competitors include many large domestic and international companies that have
substantially greater financial, manufacturing, technical, marketing,
distribution and other resources, broader product lines and longer standing
relationships with
11
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customers than the Company. The markets in which the Company competes are
intensely competitive and are characterized by rapid technological change,
declining ASPs and rapid product obsolescence.
CUSTOMER CONCENTRATION; CHANGES IN CUSTOMER MIX. The Company's largest
customers have accounted for a substantial percentage of its revenues, and
sales to these large customers have varied materially from year to year and
quarter to quarter. There can be no assurance that the Company will be able
to retain its key customers or that such customers will not cancel purchase
orders or reschedule or decrease their level of purchases. In addition,
sales to these key customers may fluctuate significantly from quarter to
quarter. Any development that would result in a substantial decrease or
delay in sales to one or more key customers, including actions by competitors
or technological changes, could have a material adverse effect on the
Company's business, operating results or financial condition. In addition,
any development that would adversely affect the collectability of account
balances from one or more key customers could have a material adverse effect
on the Company's business, operating results or financial condition.
FLUCTUATIONS IN OPERATING RESULTS; NET OPERATING LOSS CARRYFORWARDS.
The Company's quarterly operating results have varied significantly due to a
number of factors, including the timing of new product introductions by the
Company and its competitors, market acceptance of new and enhanced versions
of the Company's products and products of its customers, the timing of large
customer orders, the availability of development funding and the timing of
development revenue, changes in the mix of products sold, and competitive
pricing pressures. The Company expects that its operating results will
fluctuate in the future as a result of these factors and a variety of other
factors, including the availability of adequate foundry capacity,
fluctuations in manufacturing yields, the emergence of new industry
standards, product obsolescence, changes in pricing policies by the Company,
its competitors or its suppliers, the cyclical nature of the semiconductor
industry, the evolving and unpredictable nature of the markets for products
incorporating the Company's integrated circuits and software and the amount
of research and development expenses associated with new product
introductions. The Company's operating results could also be adversely
affected by economic conditions generally or in various geographic areas
where the Company or its customers do business, other conditions affecting
the timing of customer orders, a downturn in the markets for its customer's
products, particularly the consumer electronics market, or order
cancellations or reschedulings. These factors are difficult or impossible to
forecast, and these or other factors could materially affect the Company's
quarterly or annual operating results. The Company places orders to purchase
its products from independent foundries several months in advance of the
scheduled delivery date, often in advance of receiving non-cancelable orders
from its customers. If anticipated shipments or development revenue in any
quarter are canceled or do not occur as quickly as expected, expense and
inventory levels could be disproportionately high. A significant portion of
the Company's expenses are relatively fixed, and the timing of increases in
expenses is based in large part on the Company's forecast of future revenues.
As a result, if revenues do not meet the Company's expectations it may be
unable to quickly adjust expenses to levels appropriate to actual revenues,
which could have a material adverse effect on the Company's business,
operating results or financial condition. The Company expects that sales
will tend to be stronger during the last several months of the calendar year
than at other times due to increased demand for consumer products during the
holiday season. As a result of the foregoing, the Company's operating results
and stock price may be subject to significant volatility, particularly on a
quarterly basis. Any shortfall in revenues or net income from levels expected
by securities analysts could have an immediate and significant adverse effect
on the trading price of the Company's Common Stock.
MANAGEMENT OF GROWTH. Over the past three years, the Company has
experienced growth and expansion which has placed, and will continue to
place, a significant strain on its administrative, operational and financial
resources and has resulted, and will continue to result, in a continuing
increase in the level of responsibility for both existing and new management
personnel. The Company anticipates that future growth, if any, will require
it to recruit and hire a substantial number of new engineering, managerial,
sales and marketing personnel. The Company's ability to manage its growth
successfully will also require the Company to continue to expand and improve
its administrative, operational, management and financial systems and
controls. Some of the Company's key operations, including the major portion
of its research and development operations and a portion of its sales and
administrative operations, are located in Israel, while a majority of its
sales and marketing and certain of its research and development and
administrative personnel, including its President and Chief Executive Officer
and other officers, are based in the United States. The geographic
separation of these operations is likely to place additional strain on the
Company's resources and
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its ability to effectively manage its growth. If the Company's management is
unable to manage growth effectively, the Company's business, operating
results or financial condition could be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant degree upon the continuing contributions of its senior
management. The loss of key management personnel could delay product
development cycles or otherwise have a material adverse effect on the
Company's business, operating results or financial condition. There can be no
assurance that the Company will be able to retain the services of any of its
key employees. The Company believes that its future success will also depend
in large part on its ability to attract and retain highly-skilled
engineering, managerial, sales and marketing personnel, both in the United
States and in Israel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting,
integrating and retaining such personnel. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
operating results or financial condition.
RELIANCE ON INTERNATIONAL SALES AND OPERATIONS; RELIANCE ON OPERATIONS
IN ISRAEL. The Company anticipates that international sales will continue to
represent a significant portion of total revenues. In addition,
substantially all of the Company's semiconductor products are manufactured,
assembled and tested outside of the United States by independent foundries
and subcontractors. The Company is subject to the risks of doing business
internationally, including unexpected changes in regulatory requirements,
fluctuations in exchange rates, imposition of tariffs and other barriers and
restrictions and the burdens of complying with a variety of foreign laws. The
Company is also subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with its international operations.
A substantial portion of the Company's research and development and
sales operations are located in the State of Israel. Therefore, the Company
is directly affected by the political, economic and military conditions to
which that country is subject. In addition, many of the Company's expenses
in Israel are paid in Israeli shekels, thereby subjecting the Company to the
risk of foreign currency fluctuations and to economic pressures resulting
from Israel's generally high rate of inflation. There can be no assurance
that such factors will not have a material adverse effect of the Company's
business, operating results or financial condition.
VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has fluctuated significantly since the Company's IPO and is subject to
material fluctuations in the future in response to announcements concerning
the Company or its competitors or customers, quarterly variations in
operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies by the
Company or its competitors, proprietary rights or other litigation, changes
in analysts' earnings estimates, general conditions in the semiconductor
industry, developments in the financial markets and other factors. In
addition, the stock market has, from time to time, experienced extreme price
and volume fluctuations that have particularly affected the market prices for
semiconductor companies or technology companies generally and which have been
unrelated to the operating performance of the affected companies. Broad
market fluctuations of this type may adversely affect the future market price
of the Common Stock.
RISKS RELATED TO YEAR 2000 PROBLEM. In the next two years, most
companies could face a potentially serious information systems problem
because many software applications and operational programs written in the
past may not properly recognize calendar dates beginning in the Year 2000.
If systems do not correctly recognize date information when the year changes
to 2000, there could be an adverse impact on the Company's operations. The
risk for Zoran exists in three areas: systems used by the Company to run its
business, embedded software and software products sold to its customers, and
the Year 2000 readiness of the Company's key suppliers and customers. The
Company is currently evaluating its exposure in all of these areas based on a
Year 2000 compliance plan it has developed.
The Company has begun conducting a comprehensive inventory and evaluation of
the systems used in running its business. This includes its IT systems,
equipment, and facilities. To date, the Company has not found any potential
Year 2000 issues that would have a material impact on its operations. The
company should complete this portion of the investigation in the second
quarter of 1999. Since the Company has not yet identified any significant
non-compliance problems there are currently no contingency plans in place for
Year 2000 issues. As the Company continues through the investigation
however, it may find it necessary to
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create contingency plans in order to address Year 2000 compliance problems.
The Company expects to complete any necessary contingency planning by the
second quarter of 1999.
The Company believes its current software products are Year 2000 compliant.
This is based on extensive testing of the software in Year 2000 simulated
conditions. However, since all customer situations cannot be anticipated,
particularly those involving third party products, the Company's software
products could prove to be non-compliant in some circumstances. The impact
of these claims could have a material impact on the Company's results of
operations or financial condition.
Zoran has begun the process of contacting each of its critical suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. Where practicable, Zoran will attempt to
mitigate its risks with respect to the failure of suppliers to be Year 2000
ready. Where suppliers will not be compliant the Company may seek
alternative suppliers who are found to be in Year 2000 conformance. To date,
no supplier has been identified that will not be Year 2000 ready by the
appropriate timeframe. However, the Company has not yet completed contacting
all of its key suppliers and does not anticipate completing this portion of
the investigation until the second quarter of 1999. The Company has just
begun to contact its key customers in order to ascertain their Year 2000
compliance status. Failure of the Company's customers to be Year 2000 ready
may result in lost sales and reduced revenue or diminish the ability of
customers to pay on a timely basis. The Company expects to complete
contacting all of its key customers by the second quarter of 1999.
Based on the investigation to date the Company has not incurred and does
not anticipate incurring costs that would materially impact the Company's
operating results or financial condition. However, the investigation is
ongoing and no assurances can be given that unidentified non-compliance
issues will not have a material impact on the Company's operations or
financial condition. Failure to ensure that the Company has fully identified
and addressed the Year 2000 problem could result in the Company or any of its
key vendors being unable for a period of time to conduct critical business
activities, which include but are not restricted to, shipping product to
customers, invoicing customers and paying vendors.
MARKET RISK DISCLOSURE. The Company has an investment portfolio of
securities that are classified as "available-for-sale". These securities are
subject to interest rate risk and will fall in value if market interest rates
increase. The Company attempts to limit this exposure by investing primarily
in short-term securities. From time to time, the Company makes certain
capital equipment or other purchases denominated in foreign currencies. As a
result, cash flows and earnings are exposed to fluctuations in interest rates
and foreign currency exchange rates. The Company attempts to limit these
exposures through operational strategies and generally has not hedged
currency exposures.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.3 Amended and Restated Bylaws of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the nine months ended
September 30, 1998.
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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.
ZORAN CORPORATION
Date: November 13, 1998 /s/ Levy Gerzberg
---------------------------------
Levy Gerzberg
President
Chief Executive Officer
/s/ Karl Schneider
---------------------------------
Karl Schneider
Vice President of Finance
Chief Financial Officer
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AMENDED AND RESTATED BYLAWS
OF
ZORAN CORPORATION
(a Delaware corporation)
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of
Newcastle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business in Santa Clara, California, at such
place as may be fixed by the Board of Directors, and may also have offices at
such other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Corporate Seal
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
SECTION 4. PLACE OF MEETING. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING. The annual meeting of the stockholders of
the corporation for the purpose of election of Directors and for such other
business as may lawfully come before it shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders of
the corporation may be called,
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for any purpose or purposes, by the Chairman of the Board of Directors, the
President or the Board of Directors at any time.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
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. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the voting power represented at any
meeting at which a quorum is present shall be valid and binding upon the
corporation.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
by the vote of a majority of the shares, the holders of which are present either
in person or by proxy. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents
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authorized by a written proxy executed by such person or his duly authorized
agent, which proxy shall be filed with the Secretary at or before the meeting
at which it is to be used. An agent so appointed need not be a stockholder.
No proxy shall be voted on after three (3) years from its date of creation
unless the proxy provides for a longer period. All elections of Directors
shall be by written ballot, unless otherwise provided in the Certificate of
Incorporation.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of this
subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of incorporation, any action required by statute to be taken at any
annual or special meeting of the stockholders, or any action which may be taken
at any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
SECTION 14. ORGANIZATION AND CONDUCT OF MEETINGS. At every meeting of
stockholders, the Chairman of the Board of Directors, or, if a Chairman has not
been appointed or is absent, the President, or, if the President is absent, the
most senior Vice President present, or in the absence of any such officer, a
chairman of the meeting chosen by a majority in interest of the stockholders
entitled to
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vote, present in person or by proxy, shall act as chairman of the meeting.
The Secretary, or, in his absence, an Assistant Secretary directed to do so
by the President, shall act as secretary of the meeting. Unless otherwise
approved by the chairman of the meeting, attendance at a meeting of
stockholders meeting is restricted to stockholders of record, persons
authorized in accordance with Section 10 of these Bylaws to act by proxy, and
officers of the corporation.
The chairman of the meeting shall call the meeting to order, establish
the agenda, and conduct the business of the meeting in accordance therewith or,
at the chairman's discretion, it may be conducted otherwise in accordance with
the wishes of the stockholders in attendance. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
The chairman of the meeting shall conduct the meeting in an orderly
manner, rule on the precedence of, and procedure on, motions and other
procedural matters, and exercise discretion with respect to such procedural
matters with fairness and good faith toward all those entitled to take part.
The chairman of the meeting may impose reasonable limits on the amount of time
taken up at the meeting on discussion in general or on remarks by any one
stockholder. Should any person in attendance become unruly or obstruct the
meeting proceedings, the chairman of the meeting shall have the power to have
such person removed from participation. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at a meeting of the
stockholders except in accordance with the procedures set forth in this
Section 14. The chairman of a meeting shall, if the facts warrant, determine
and declare to the meeting that any proposed item of business was not brought
before the meeting in accordance with the provisions of this Section 14, 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.
ARTICLE IV
Directors
SECTION 15. NUMBER AND TERM OF OFFICE. The number of Directors which
shall constitute the whole of the Board of Directors shall be six (6). Except
as provided in Section 17, the Directors shall be elected by the stockholders at
their annual meeting in each year and shall hold office until the next annual
meeting and until their successors shall be duly elected and qualified.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors
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may be filled by a majority of the Directors then in office, although less
than a quorum, or by a sole remaining Director, and each Director so elected
shall hold office for the unexpired portion of the term of the Director whose
place shall be vacant and until his successor shall have been duly elected
and qualified. A vacancy in the Board of Directors shall be deemed to exist
under this Section 17 in the case of the death, removal or resignation of any
Director, or if the stockholders fail at any meeting of stockholders at which
Directors are to be elected (including any meeting referred to in Section 19
below) to elect the number of Directors then constituting the whole Board of
Directors.
SECTION 18. RESIGNATION. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 19. REMOVAL. At a special meeting of stockholders called for
the purpose in the manner hereinabove provided, the Board of Directors, or any
individual Director, may be removed from office, with or without cause, and a
new Director or Directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of Directors.
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board
of Directors shall be necessary and such meeting shall be held for the purpose
of electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place . within or without the State of Delaware whenever called by the
President or a majority of the Directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Written notice of the time and place of all
regular and special meetings of the Board of Directors shall be given at least
one (1) day before the date of the meeting. Notice of any meeting may be waived
in writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the 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.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the Directors not present shall sign a written waiver of
notice, or a consent to holding such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
SECTION 21. QUORUM AND VOTING.
(a) QUORUM Unless the Certificate of Incorporation requires a greater
number, a quorum of the Board of Directors shall consist of a majority of the
exact number of Directors fixed from time to time in accordance with Section 15
of these Bylaws, but not less than one (1); provided, however, at any meeting
whether a quorum be present or otherwise, a majority of the Directors present
may adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting.
(b) MAJORITY VOTE. At each meeting of the Board of Directors at
which a quorum is present all questions and business shall be determined by a
vote of a majority of the Directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 23. FEES AND COMPENSATION. Directors shall not receive any
stated salary for their services as Directors, but by resolution of the Board of
Directors a fixed fee, with or without expense of attendance, may be allowed for
attendance at each meeting and at each meeting of any committee of the Board of
Directors. Nothing herein contained shall be construed to preclude any Director
from serving the corporation in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation therefor.
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SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a revocation
of a dissolution or to amend these Bylaws.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall any such committee have any of the powers denied to the
Executive Committee in these Bylaws.
(c) TERM. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Section 24, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation. The Board of Directors may
at any time for any reason remove any individual committee member and the Board
of Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee. 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
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 24 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 2 hereof, or at any place which has been
designated from time to
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time by resolution of such committee or by written consent of all members
thereof, and may be called by any Director who is a member of such committee,
upon written notice to the members of such committee of the time and place of
such special meeting given in the manner provided for the giving of written
notice to members of the Board of Directors of the time and place of special
meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting
and will be waived by any Director by attendance thereat, except when the
Director attends such special 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. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
SECTION 25. ORGANIZATION. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
SECTION 26. NOMINATIONS OF DIRECTOR CANDIDATES.
(a) NOMINATION PROCEDURES. Subject to the rights of holders of any
class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors, or a committee
appointed by the Board of Directors, or by any stockholder entitled to vote in
the election of Directors generally. However, any stockholder entitled to vote
in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary. To be timely, a stockholder nomination of a Director to be elected
at an annual meeting shall be received at the corporation's principal executive
offices not less than one hundred twenty (120) calendar days in advance of the
date that the corporation's proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been advanced by more than thirty (30) calendar days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholders to be timely must be received not later than the close of business
on the tenth day following the day on which the public announcement of the date
of such meeting is first made. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder is
a holder of record of stock of the corporation entitled to vote for the election
of Directors on the date of such notice and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each
8
<PAGE>
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (e) the consent of each nominee to
serve as a director of the corporation if so elected. For purposes of this
Section 26, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Notwithstanding the foregoing provisions of this Section 26, stockholders
shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to the matters set forth in
this Section 26. Nothing in this Section 26 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(b) SUBSTITUTE NOMINEES. In the event that a person is validly
designated as a nominee in accordance with this Section 26 and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the stockholder who proposed such nominee, as the case may
be, may designate a substitute nominee upon delivery, not fewer than five (5)
days prior to the date of the meeting for the election of such nominee, of a
written notice to the Secretary setting forth such information regarding such
substitute nominee as would have been required to be delivered to the Secretary
pursuant to this Section 26 had such substitute nominee been initially proposed
as a nominee. Such notice shall include a signed consent of each such
substitute nominee to serve as a director of the corporation, if elected.
(c) NOMINATIONS NOT IN ACCORDANCE WITH THIS SECTION. If the chairman
of the meeting for the election of Directors determines that a nomination of any
candidate for election as a Director at such meeting was not made in accordance
with the applicable provisions of this Section 26, such nomination shall be
void; provided, however, that nothing in this Section 26 shall be deemed to
limit any voting rights upon the occurrence of dividend arrearages provided to
holders of Preferred Stock pursuant to the Preferred Stock designation for any
series of Preferred Stock.
ARTICLE V
Officers
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall be the Chairman of the Board of Directors, the President, one or more
Vice Presidents, the Secretary and the Chief Financial Officer, all of whom
shall be elected at the annual meeting of the Board of Directors. The order
of the seniority of the Vice Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. The Board
of Directors may also appoint such other officers and agents with such powers
and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time
9
<PAGE>
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner, and shall
10
<PAGE>
render statements of the financial affairs of the corporation in such form
and as often as required by the Board of Directors or the President. The
Chief Financial Officer, subject to the order of the Board of Directors,
shall have the custody of all funds and securities of the corporation. The
Chief Financial Officer shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time.
The President may direct any assistant financial officer to assume and
perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each assistant financial
officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 30. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a majority
of the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or any Assistant Secretary or assistant
financial officer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
11
<PAGE>
All checks and drafts drawn on banks or other depositories on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
ARTICLE VII
Shares of Stock
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Chief Financial Officer or assistant financial
officer or the Secretary or Assistant Secretary, certifying the number of shares
owned by him in the corporation. Where such certificate is countersigned by a
transfer agent other than the corporation or its employee, or by a registrar
other than the corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue.
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 35. TRANSFERS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
SECTION 36. FIXING RECORD DATES. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights
12
<PAGE>
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action. If no record date is fixed: (a) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; (b)
the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and (c) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
Other Securities of the Corporation
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates,
may be signed by the Chairman of the Board of Directors, the President or any
Vice President, or such other person as may be authorized by the Board of
Directors, and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an assistant financial officer;
provided, however, that where any such bond, debenture or other corporate
security shall be authenticated by the manual signature of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Chief Financial
Officer or an assistant financial officer of the corporation or such other
person as may be authorized by the Board of Directors, or bear imprinted thereon
the facsimile signature of such person. In case any officer who shall have
signed or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon, shall
have ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be
13
<PAGE>
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE IX
Dividends
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be se aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Fiscal Year
SECTION 41. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the last day
of December.
ARTICLE XI
Indemnification
SECTION 42. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS. The corporation shall indemnify its Directors to the
fullest extent permitted by the Delaware General Corporation Law, as the same
exits or may hereafter be amended (but, in the case of alleged occurrences of
actions or omissions preceding 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).
(b) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its officers, employees and other agents as set forth in the
Delaware General
14
<PAGE>
Corporation Law.
(c) GOOD FAITH.
(1) For purposes of any determination under this Bylaw, a
Director shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe that his conduct was unlawful, if his action is
based on the records or books of account of the corporation or another
enterprise, or on information supplied to him by the officers of the corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the corporation or another enterprise or on information or records
given or reports made to the corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the corporation or another enterprise.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
(d) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
(e) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances under this Bylaw shall be
deemed to be contractual rights and be effective to the same extent and as if
provided for in a contract between the corporation and the Director who serves
in such capacity at any time while this Bylaw and other relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, are in
effect. Any right to indemnification or advances granted by this Bylaw to a
Director shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in connection with any proceeding in advance of its final disposition
when the required undertaking has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnify the
claimant for
15
<PAGE>
the amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable
standard of conduct.
(f) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the Delaware General Corporation
Law.
(g) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(h) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(j) SAVINGS CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each agent to the full extent permitted
by any applicable portion of this Bylaw that shall not have been invalidated, or
by any other applicable law.
(k) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without
16
<PAGE>
limitation, court costs, attorneys' fees, witness fees, fines, amounts paid
in settlement or judgment and any other costs and expenses of any nature or
kind incurred in connection with any proceeding.
(3) The term "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director, "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where such
person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (e) of Section 20 of
these Bylaws except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post
17
<PAGE>
office address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by telegram shall be deemed to have been given as at the sending
time recorded by the telegraph company transmitting the notices.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which a any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or these Bylaws, to any person with whom communication is
unlawful, the giving of such notice to such person shall not be required and
there shall be no duty to apply to any governmental authority or agency for a
license or permit to give such notice to such person. Any action or meeting
which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
ARTICLE XIII
Amendments
18
<PAGE>
SECTION 44. AMENDMENTS. These Bylaws may be repealed, altered or
amended or new Bylaws adopted by the stockholders. The Board of Directors shall
also have the authority, if such authority is conferred upon the Board of
Directors by the Certificate of Incorporation, to repeal, alter or amend these
Bylaws or adopt new Bylaws (including, without limitation, the amendment of any
Bylaw setting forth the number of Directors who shall constitute the whole Board
of Directors) subject to the power of the stockholders to change or repeal such
Bylaws and provided that the Board of Directors shall not make or alter any
Bylaws fixing the qualifications, classifications, term of office or
compensation of Directors.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED INCOME STATEMENTS, THE CONSOLIDATED BALANCE SHEETS AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,560
<SECURITIES> 10,857
<RECEIVABLES> 13,357
<ALLOWANCES> 0
<INVENTORY> 6,811
<CURRENT-ASSETS> 38,378
<PP&E> 12,073
<DEPRECIATION> 6,550
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<CURRENT-LIABILITIES> 9,068
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 34,823
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<SALES> 22,230
<TOTAL-REVENUES> 30,089
<CGS> 12,750
<TOTAL-COSTS> 12,750
<OTHER-EXPENSES> 9,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70
<INCOME-TAX> 14
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
