<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1999 Commission File No. 000-21429
---------
ARQULE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3221586
(State of Incorporation) (I.R.S. Employer Identification Number)
200 BOSTON AVENUE, MEDFORD, MASSACHUSETTS 02155
(Address of Principal Executive Offices)
(781) 395-4100
(Registrant's Telephone Number, including Area Code)
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 [ ]
Number of shares outstanding of the registrant's Common Stock as of August 2,
1999:
Common Stock, par value $.01 12,717,010 shares outstanding
<PAGE> 2
ARQULE, INC.
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Unaudited Consolidated Financial Statements
Consolidated Balance Sheet (Unaudited)
June 30, 1999 and December 31, 1998 ............................ 2
Consolidated Statement of Operations (Unaudited)
Three months ended June 30, 1999 and 1998
and six months ended June 30, 1999 and 1998..................... 3
Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, 1999 and 1998......................... 4
Notes to Unaudited Consolidated Financial Statements................... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7
PART II - OTHER INFORMATION.................................................. 11
Item 2 - Use of Proceeds from Registered Securities.......................... 11
Item 4 - Submission of Meeting to a Vote of Security Holders................. 11
Item 5 - Other Information................................................... 12
Signatures ............................................................. 13
<PAGE> 3
ARQULE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
----------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,716 $ 5,780
Marketable securities 26,821 28,090
Accounts receivable 688 3,028
Accounts receivable related party 1,872 2,680
Inventory 556 526
Prepaid expenses and other current assets 528 869
Notes receivable from related parties 10 30
-------- --------
Total current assets 34,191 41,003
Property and equipment, net 12,902 14,696
Construction-in-progress 9,854 3,125
Other assets 1,656 1,656
-------- --------
$ 58,603 $ 60,480
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 562 $ 907
Accounts payable and accrued expenses 2,926 2,094
Current portion of long-term debt 1,550 --
Deferred revenue 404 1,656
Deferred revenue related party 309 800
-------- --------
Total current liabilities 5,751 5,457
-------- --------
Capital lease obligations 70 306
Long-term debt 4,650 --
Deferred revenue 450 450
Shareholders' Equity:
Common stock, $0.01 par value; 30,000,000
shares authorized; 12,701,307 and
12,171,335 shares issued and outstanding at
June 30, 1999 and December 31,
1998, respectively
128 122
Additional paid-in capital 72,348 71,432
Accumulated deficit (24,665) (17,105)
-------- --------
47,811 54,449
Deferred compensation (129) (182)
-------- --------
Total stockholders' equity 47,682 54,267
-------- --------
$ 58,603 $ 60,480
======== ========
-2-
<PAGE> 4
ARQULE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
-------- -------- -------- --------
Revenue:
<S> <C> <C> <C> <C>
Compound development revenue $ 2,369 $ 3,221 $ 4,173 $ 6,149
Compound development revenue - related parties 2,222 2,784 4,430 5,542
-------- -------- -------- --------
Total revenue 4,591 6,005 8,603 11,691
-------- -------- -------- --------
Costs and expenses:
Cost of revenue 2,031 1,920 3,683 3,522
Cost of revenue - related parties 1,888 1,660 3,910 3,175
Research and Development 3,156 2,159 6,503 4,014
Marketing, general and administrative 1,494 1,469 2,737 2,759
-------- -------- -------- --------
Total costs and expenses 8,569 7,208 16,833 13,470
-------- -------- -------- --------
Loss from operations (3,978) (1,203) (8,230) (1,779)
Interest income 404 610 828 1,312
Interest expense (20) (45) (158) (100)
-------- -------- -------- --------
Net loss $ (3,594) $ (638) $ (7,560) $ (567)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.29) $ (0.05) $ (0.61) $ (0.05)
======== ======== ======== ========
Weighted average common shares outstanding 12,560 12,000 12,438 11,938
======== ======== ======== ========
</TABLE>
-3-
<PAGE> 5
ARQULE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (7,560) $ (567)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,801 1,863
Amortization of deferred compensation 192 155
Decrease (increase) in accounts receivable 3,148 (742)
Increase in inventory (30) (66)
Decrease (increase) in prepaid expenses and other 341 (110)
current assets
Increase in other assets -- (750)
Decrease in notes receivable from related party 20 15
Increase (decrease) in accounts payable and accrued 832 (1,791)
expenses
Decrease in deferred revenue (1,743) (2,648)
-------- ---------
Net cash used in operating activities (1,999) (4,641)
-------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (30,957) (28,037)
Proceeds from sale or maturity of marketable securities 32,226 29,430
Additions to property and equipment, including
construction in progess (7,736) (5,623)
-------- ---------
Net cash used in investing activities
(6,467) (4,230)
-------- ---------
Cash flows from financing activities:
Principal payments of capital lease obligation (581) (627)
Proceeds from issuance of common stock 783 2,937
Borrowings of long-term debt 6,200 --
-------- ---------
Net cash provided by financing activities 6,402 2,310
-------- ---------
Net decrease in cash and cash equivalents (2,064) (6,561)
Cash and cash equivalents, beginning of period 5,780 15,137
-------- ---------
Cash and cash equivalents, end of period $ 3,716 $ 8,576
======== =========
</TABLE>
-4-
<PAGE> 6
ARQULE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements and related footnotes for the year
ended December 31, 1998 thereto included in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March
29, 1999. The unaudited consolidated financial statements include, in the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position
of the Company as of June 30, 1999, and the results of its operations for
the three and six month periods ended June 30, 1999 and 1998. The results
of operations for such interim periods are not necessarily indicative of
the results to be achieved for the full year.
2. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of cash equivalents held by the Company at
June 30, 1999 and December 31, 1998 which are carried at amortized cost
approximating fair market value: (In thousands)
JUNE 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
- --------------------------------------------------------------------------------
U.S. Government Obligations $ 2,952 $ 2,002
Corporate Notes 23,869 26,088
-------- --------
$ 26,821 $ 28,090
======== ========
All of the Company's marketable securities are classified as current at
June 30, 1999 and December 31, 1998 as these funds are highly liquid and
are available to meet working capital needs and to fund current
operations.
-5-
<PAGE> 7
ARQULE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTIES
In January 1998, the Company elected an individual to its Board of
Directors who is also an employee of Wyeth-Ayerst (a subsidiary of
American Home Products). In July 1999, the Company elected an individual
to its Board of Directors who is also an employee of Solvay Duphar BV.
4. FLEET TERM LOAN
In March 1999, the Company executed a term loan agreement (the
"Agreement") with Fleet National Bank. Under the Agreement, the Company
may borrow up to $15.0 million to support capital expenditures. As of
June 30, 1999, the Company has borrowed $6.2 million pursuant to the
Agreement.
5. SUBSEQUENT EVENT
In July 1999, the Company entered into a Technology Acquisition Agreement
with Pfizer, Inc. In connection with this collaboration, the Company will
devote designated technologies, scientists, and its AMAP(TM) Chemistry
Operating System at its Medford, Massachusetts facility to generate
compound libraries for Pfizer. ArQule may receive up to $117 million in
total payments during the full 4.5 year term of the collaboration.
-6-
<PAGE> 8
ARQULE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW
ArQule, Inc. (the "Company") is engaged in the production and development
of novel chemical compounds with commercial potential in the
pharmaceutical, biotechnology, bioseparations and agrochemical
industries. The Company primarily manufactures arrays of synthesized
compounds for delivery to its customers for use in lead compound
generation and lead compound optimization activities. The Company also
offers other research and development services to meet the needs of its
customers. In addition, the Company has established a number of joint
drug discovery programs with biotechnology companies and academic
institutions, and pursues a limited number of its own internal drug
discovery programs.
The Company primarily generates revenue through its collaborative
agreements for production and delivery of compound arrays and other
research and development services. Under most of these collaborative
agreements, the Company is also entitled to receive milestone and royalty
payments if the customer develops products resulting from the
collaboration. To date, the Company has received two milestone payments
and no royalty payments. In addition, the Company has not yet realized
any significant revenue from its joint drug discovery programs with
biotechnology companies and academic institutions, nor from its internal
drug discovery programs. Quarterly variations in financial performance
may be expected because levels of revenue are dependent on expanding or
continuing existing collaborations, obtaining additional corporate
collaborations, receiving future milestone and royalty payments, and
realizing value from ongoing drug discovery programs, all of which are
inconsistent and difficult to anticipate.
The Company will continue to invest in technologies that enhance and
expand its capabilities in drug discovery and other areas in the life
sciences. These continued investments in technology are intended to
advance the two primary objectives of the future business strategy of the
Company. First, the Company intends to enhance the novelty, diversity,
and medicinal relevance of its compound arrays for lead generation.
Second, the Company intends to invest in additional technologies such as
informatics, pharmacology, and biology to augment the power and scope of
its chemistry capabilities for the purposes of lead optimization. As the
Company meets these two primary objectives, the Company believes that it
can contribute to the acceleration of the drug discovery process. In
addition to investments in technology, the Company will continue to
invest in its drug discovery programs with the goal of delivering
clinical candidates. Investments of this nature have the potential to
enhance longer-term equity value, but may result in near term earnings
fluctuations or impact the magnitude of profitability or loss.
The Company has incurred a cumulative net loss of $24.7 million through
June 30, 1999. Losses have resulted principally from costs incurred in
research and development activities related to the Company's efforts to
develop its technologies and from the associated administrative costs
required to support those efforts. The Company's ability to achieve
profitability is dependent on a number of factors, including its ability
to perform under its collaborations at the expected cost, expand or
continue existing collaborations, obtain additional corporate
collaborations, and realize value from the development and
commercialization of products in which it has an economic interest, all
of which are difficult to anticipate.
-7-
<PAGE> 9
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements reflecting
management's current expectations regarding the Company's future
financial performance. Such expectations are based on certain assumptions
regarding the progress of product development efforts under collaborative
agreements, the execution of new collaborative agreements and other
factors relating to the Company's growth. Such expectations may not
materialize if product development efforts are delayed or suspended, if
negotiations with potential collaborators are delayed or unsuccessful or
if other assumptions prove incorrect. See also "Important Factors
Regarding Forward-Looking Statements" described more fully in Exhibit
99.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUE. The Company's revenue for the three months ended June 30, 1999
decreased $1.4 million to $4.6 million from $6.0 million for the same
period in 1998. Revenue was $8.6 million and $11.7 million for the six
months ended June 30, 1999 and 1998, respectively. This decrease is
primarily due to completion of certain programs and reduced compound
development revenue from work performed on, and the delivery of, Mapping
Array(TM) and Directed Array(TM) sets under the Company's collaborative
agreements.
COST OF REVENUE. The Company's cost of revenue for the three months ended
June 30, 1999 increased $0.3 million to $3.9 million from $3.6 million
for the same period in 1998. Cost of revenue was $7.6 million and 6.7
million for the six months ended June 30, 1999 and 1998, respectively.
This increase is primarily attributable to the costs of additional
scientific personnel and the necessary supplies and overhead expenses
related to the performance of the work and the delivery of the Mapping
Array and Directed Array sets and other services provided pursuant to the
Company's collaborative agreements. The Company anticipates that the
aggregate cost of revenue will increase over the next several years as
its business expands.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development
expenses for the three months ended June 30, 1999 increased $1.0 million
to $3.2 million from $2.2 million for the same period in 1998. Research
and development expenses were $6.5 million and $4.0 million for the six
months ended June 30, 1999 and 1998, respectively. This increase is the
result of the Company's expansion of its chemistry capabilities and
related proprietary technologies. The Company expects research and
development spending to increase over the next several years as the
Company further expands its drug discovery and development programs.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's marketing,
general and administrative expenses for the three months ended June 30,
1999 and 1998 was $1.5 million.
-8-
<PAGE> 10
Marketing, general and administrative expenses were $2.7 million and $2.8
million for the six months ended June 30, 1999 and 1998, respectively.
These expenses will likely increase in the aggregate in future periods to
support the projected growth of the Company.
NET INTEREST INCOME. The Company's net interest income for the three
months ended June 30, 1999 decreased $0.2 million to $0.4 million from
$0.6 million in 1998. Net interest income was $0.7 million and $1.2
million for the six months ended June 30, 1999 and 1998, respectively.
Higher interest income in 1998 resulted primarily from the Company
holding higher cash and marketable securities balances.
NET LOSS. The Company's net loss for the three months ended June 30, 1999
was $(3.6) million as compared to net loss of $(0.6) million for the same
period in 1998. Net loss was $(7.6) and $(0.6) for the six months ended
June 30, 1999 and 1998, respectively. The net loss for 1999 is primarily
attributable to decreased revenue and aggressive investments in new
technologies in order to expand its drug discovery capabilities.
LIQUIDITY AND CAPITAL RESOURCES
At June 30,1999, the Company held cash and cash equivalents and
marketable securities with a value of $30.5 million. The Company's
working capital at June 30, 1999 was $28.4 million. The Company has
funded operations and capital expenditures through June 30, 1999 with
sales of common stock, payments from corporate collaborators, and a term
loan agreement with a bank.
The Company expects that its available cash and marketable securities,
together with operating revenues, investment income, and debt financing
arrangements, will be sufficient to finance its working capital and
capital requirements for the foreseeable future. The Company's cash
requirements may vary materially from those now planned depending upon
the results of its drug discovery and development strategies, the ability
of the Company to enter into any corporate collaborations in the future
and the terms of such collaborations, the results of research and
development, the need for currently unanticipated capital expenditures,
competitive and technological advances, acquisitions and other factors.
There can be no assurance that the Company will be able to obtain
additional customers for the Company's products and services, or that
such products and services will produce revenues adequate to fund the
Company's operating expenses. The Company may have to seek additional
financing from public or private sales of its securities, including
equity securities. There can be no assurance that additional funding will
be available when needed or on acceptable terms.
YEAR 2000 COMPLIANCE
Many currently installed systems are not capable of distinguishing 21st
century dates from 20th century dates. As a result, in less than six
months, computer systems and/or software used by many companies in a very
wide variety of applications may experience operating difficulties unless
they are modified or upgraded to adequately process information
involving, related to or dependent upon the century change. Significant
uncertainty exists concerning the scope and magnitude of problems
associated with the century change.
The Company has established a project team to address Year 2000 risks.
The Company has also initiated various Information Technology enhancement
projects intended to improve the access and dissemination of scientific
and business information throughout the enterprise to enhance development
and operational efficiencies. As part of this initiative, the Company
acquired an Enterprise Resource Financial System in late 1997 and has
implemented the major relevant components of that system. The Company's
internal financial system is currently Y2K compliant. As the costs
associated with these initiatives are part of the Company's continuing
improvement process, they were recognized as incurred.
The Company has completed its assessment phase of the data gathered in
the data-gathering
-9-
<PAGE> 11
phase with respect to automated production equipment, and has concluded
that there are no Year 2000 issues that can not be remedied by operating
system upgrade, hardware upgrade and/or software upgrade or patch. These
upgrades and patches are in the process of being attained from vendors.
The process of upgrading the automated production equipment has already
begun and is expected to be completed by the end of the third quarter of
1999. There are internally developed software packages that have been
written to control instruments or acquire data from automation production
equipment. These software programs have been assessed and it has been
concluded that they are Year 2000 compliant or can be brought to
compliance by recompiling the source code in newer versions of the
development software. The process of recompiling the code has already
begun and is expected to be completed by the end of third quarter 1999.
The Company is continuing the process of contacting its critical
suppliers, service providers and contractors to determine the extent to
which the Company's interface systems are vulnerable to those third
parties' failure to remedy their own Year 2000 issues. To the extent that
responses to Year 2000 readiness are unsatisfactory, the Company intends
to change suppliers, service providers or contractors to those who have
demonstrated Year 2000 readiness but the Company cannot be assured that
it will be successful in finding such alternative suppliers, service
providers and contractors. The Company does not currently have any formal
information concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on
being Year 2000 compliant. In the event that any of the Company's
significant customers and suppliers do not successfully and timely
achieve Year 2000 compliance, and the Company is unable to replace them
with new customers or alternate suppliers, the Company's business or
operations could be adversely affected.
-10-
<PAGE> 12
ARQULE, INC.
PART II - OTHER INFORMATION
Item 1 - None
Item 2 - Use of Proceeds from Registered Securities
A Registration Statement on Form S-1 (File No. 333-11105) registering
2,875,000 shares of the Company"s Common Stock, filed in connection with
the Company's Initial Public Offering (the "IPO") was declared effective
by the Securities and Exchange Commission on October 16, 1996. Exercise
of the over-allotment option was initiated on November 13, 1996 and was
closed on November 18, 1996.
The Company and its selling shareholders sold, in aggregate, all
2,875,000 shares registered in the IPO, with an aggregate offering price
to the public of $34.5 million. The managing underwriters of the IPO were
Hambrecht & Quist LLC, Oppenheimer & Co., Inc. and Vector Securities
International Inc.
In connection with the IPO, the Company incurred total expenses of $3.0
million, including underwriting discounts and commissions of $2.4 million
and other expenses of $0.6 million. After such expenses, the Company's
net proceeds from the IPO were $31.5 million. The amount of net offering
proceeds used by the Company as of June 30, 1999 was as follows:
approximately $27.1 million for the fixed asset additions and
approximately $2.9 million for capital lease obligations.
Item 3 - None
Item 4 - Submission of Meeting to a Vote of Security Holders
At the annual meeting of stockholders held on May 27, 1999, the Company's
stockholders voted to re-elect Drs. L. Patrick Gage and Michael
Rosenblatt to the Board of Directors, each for a three-year term.
Nominees Total Vote "For" Total Vote "Against"
-------------------------------------------------------------------------
L. Patrick Gage 10,854,095 48,900
Michael Rosenblatt 10,854,095 48,900
The terms in office of Stephen M. Dow, Stephen A. Hill, Allan R. Ferguson
and Joseph C. Hogan, Jr., Ph.D. continued after the meeting.
On July 15, 1999, the Board of Directors elected Dr. Werner Cautreels to
fill the vacancy on the Board of Directors resulting from Dr. Adrian de
Jonge's decision not to seek re-election. Dr. Cautreels' term in office
expires at the 2001 annual meeting of stockholders.
-11-
<PAGE> 13
Item 5 - Other Information
Pursuant to the Company's Amended and Restated By-laws and assuming that
the 2000 annual meeting of stockholders (the "Meeting") is no more than
30 days before or after May 27, 2000, a shareholder proposal for the
Meeting will be untimely if received by the Company at its principal
executive offices after the close of business on March 13, 2000. Untimely
stockholder proposals will not be included on the agenda for the Meeting.
Item 6(a) - Exhibits:
EXHIBITS DESCRIPTION
-------- -----------
3.1 Amended and Restated By-laws
10.1 Amended and Restated 1996 Employee Stock Purchase Plan
11.1 Statement Re Computation of Unaudited Net Income (Loss) Per Share
27 Financial Data Schedule
Item 6(b) - Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
-12-
<PAGE> 14
ARQULE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ArQule, Inc.
Date: August 11, 1999 /s/ James R. Fitzgerald, Jr.
-------------------------------------------------------
James R. Fitzgerald, Jr.
(Vice President, Chief Financial Officer and Treasurer)
-13-
<PAGE> 15
ARQULE, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated By-laws *
10.1 Amended and Restated 1996 Employee Stock Purchase Plan *
11.1 Statement Re Computation of Unaudited Net Income (Loss) Per
Share *
27 Financial Data Schedule *
* Filed herewith.
-14-
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
BY-LAWS
OF
ARQULE, INC.
Adopted by the Board of Directors on May 27, 1999
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders
shall be held at the principal office of the corporation or at such other place
as may be named in the notice.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour and
place as the directors or an officer designated by the directors may determine.
If the annual meeting is not held on the date designated therefor, the directors
shall cause the meeting to be held as soon thereafter as convenient.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
stockholders may be called at any time by the President or a majority of the
Board of Directors.
SECTION 4. NOTICE OF MEETINGS. Except where some other notice is
required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is called,
shall be given by the Secretary under the direction of the Board of Directors or
the President, not less than ten nor more than sixty days before the date fixed
for such meeting, to each stockholder of record entitled to vote at such
meeting. Notice shall be given personally to each stockholder or left at his or
her residence or usual place of business or mailed postage prepaid and addressed
to the stockholder at his or her address as it appears upon the records of the
corporation. In case of the death, absence, incapacity or refusal of the
Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, 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. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the stockholders shall not be required.
SECTION 5. RECORD DATE. The Board of Directors may fix in
advance a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action. Such record date shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days before any other action to which such record date relates. If
no record date is fixed, the record date for
1
<PAGE> 2
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held, and 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 to
such purpose. 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 6. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors at any annual or special meeting of stockholders.
Nominations of persons for election as directors may be made only by or at the
direction of the Board of Directors, or by any stockholder entitled to vote for
the election of directors at the meeting in compliance with the notice
procedures set forth in this Section 6. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Chairman of the Board, if any, the President or
the Secretary. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation by the
close of business on the Advance Notice Date. For the purposes of these by-laws,
the "Advance Notice Date" shall be one of the following:
(a) in the case of an annual meeting only, the date 75 days before the
anniversary date of the prior year's meeting, if (i) there was an
annual meeting in the prior year and (ii) the date of the current
year's annual meeting is not more than 30 days before or after the
anniversary date of the prior year's annual meeting; or
(b) if clause (a) does not apply, the date 45 days prior to the date of
the current year's annual meeting or a special meeting if at least 60
days' notice or prior public disclosure of the date of the current
year's annual meeting or the special meeting is given or made; or
(c) if neither clause (a) nor clause (b) applies, the date 15 days
after the day on which notice of the date of the current year's annual
meeting or the special meeting was mailed or public disclosure was
made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the corporation that are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, or any
successor provision thereto; and (b) as to the stockholder giving the notice,
(i) the name and record address of such stockholder and (ii) the class and
number of shares of capital stock of the corporation that are beneficially owned
by such stockholder.
2
<PAGE> 3
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
SECTION 7. ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any
annual meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be brought properly
before an annual meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
President or the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be brought properly before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Chairman of the Board, if any, the President or the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation by the close of business on the
Advance Notice Date as defined in Section 6 of Article I hereof. A stockholder's
notice shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and record address of the stockholder
proposing such business, (c) the class and number of shares of the corporation
that are beneficially owned by the stockholder and (d) any material interest of
the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7, PROVIDED, HOWEVER, that nothing in this
Section 7 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the foregoing procedure, and if the
chairman should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
SECTION 8. VOTING LIST. The officer who has charge of the stock
ledger of the corporation shall make or have made, at least 10 days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days before the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
3
<PAGE> 4
SECTION 9. QUORUM OF STOCKHOLDERS. At any meeting of the
stockholders, the holders of a majority in interest of all stock issued and
outstanding and entitled to vote upon a question to be considered at the
meeting, present in person or represented by proxy, shall constitute a quorum
for the consideration of such question, but in the absence of a quorum a smaller
group may adjourn any meeting from time to time. When a quorum is present at any
meeting, a majority of the votes properly cast shall, except where a different
vote is required by law, by the Certificate of Incorporation or by these
by-laws, decide any question brought before such meeting. Any election by
stockholders shall be determined by a plurality of the vote cast by the
stockholders entitled to vote at the election.
SECTION 10. PROXIES AND VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 11 CONDUCT OF MEETING. Meetings of the stockholders shall
be presided over by one of the following officers in the order specified and if
present and acting: the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice-President (and, in the event there be more
than one person in any such office, in the order of their seniority), or, if
none of the foregoing is in office and present and acting, a chairman designated
by the Board of Directors or, in the absence of such designation, a chairman
chosen by the stockholders at the meeting. The Secretary of the corporation, if
present, or an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present the chairman of
the meeting shall appoint a secretary of the meeting.
The Board of Directors may adopt such rules, regulations and procedures
for the conduct of the meeting of stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted by
the Board of Directors, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgement of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, (i) the establishment of an agenda or order of
business for the meeting, (ii) rules and procedures for maintaining order at the
meeting and the safety of those present, (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting shall determine, (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof, and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings of
4
<PAGE> 5
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation that are not by law
required to be exercised by the stockholders. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. Subject to
any restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the whole Board shall be fixed by resolution of
the Board of Directors but in no event shall be less than one. The directors
shall be elected in the manner provided in the Certificate of Incorporation, by
such stockholders as have the right to vote thereon. The number of directors may
be increased or decreased by action of the Board of Directors. Directors need
not be stockholders of the corporation.
SECTION 3. ENLARGEMENT OF THE BOARD. Subject to any restrictions
contained in the Certificate of Incorporation, the number of the Board of
Directors may be increased at any time, such increase to be effective
immediately unless otherwise specified in the resolution, by vote of a majority
of the directors then in office.
SECTION 4. VACANCIES. Unless and until filled by the stockholders
and except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by the holders of such series,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director, may be filled by vote of a majority of the
directors then in office although less than a quorum, or by the sole remaining
director. Each director so chosen to fill a vacancy shall serve for a term
determined in the manner provided in the Certificate of Incorporation. When one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective. If at any
time there are no directors in office, then an election of directors may be held
in accordance with the General Corporation Law of the State of Delaware.
SECTION 5. RESIGNATION. Any director may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time specified therein, or if no time is specified, at the time of its receipt
by the Chairman of the Board, if any, the President or the Secretary.
SECTION 6. REMOVAL. Directors may be removed from office only as
provided in the Certificate of Incorporation. The vacancy or vacancies created
by the removal of a director
5
<PAGE> 6
may be filled by the stockholders at the meeting held for the purpose of removal
or, if not so filled, by the directors in the manner provided in Section 4 of
this Article II.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee to replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. The Board of Directors shall have the power to change the members of any
such committee at any time, to fill vacancies therein and to discharge any such
committee, either with or without cause, at any time.
Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors or in these by-laws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it.
A majority of all the members of any such committee may fix its rules
of procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. Each committee shall keep regular minutes of its meetings
and make such reports as the Board of Directors may from time to time request.
SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of
the Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place
either within or without the State of Delaware at any time when called by the
Chairman of the Board, if any, the President, the Secretary or two or more
directors. Reasonable notice of the time and place of a special meeting shall be
given to each director unless such notice is waived by attendance or by written
waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram or fax at least forty-eight
hours, before the meeting, addressed to such director at his or her usual or
last known business or home address.
6
<PAGE> 7
Directors or members of any committee may participate in a meeting of
the Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 9. QUORUM AND VOTING. A majority of the total number of
directors shall constitute a quorum, except that when a vacancy or vacancies
exist in the Board, a majority of the directors then in office (but not less
than one-third of the total number of the directors) shall constitute a quorum.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting from time to time. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except where a different vote is required by law, by the
Certificate of Incorporation or by these by-laws.
SECTION 10. COMPENSATION. The Board of Directors may fix fees for
their services and for their membership on committees, and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. 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 and without notice if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee.
ARTICLE III
OFFICERS
SECTION 1. TITLES. The officers of the corporation shall consist of
a President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, who may include without
limitation a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, Assistant Treasurers or Assistant Secretaries.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. Each officer shall
hold office until his or her successor is elected and qualified, unless a
different term is specified in the vote electing such officer, or until his or
her earlier death, resignation or removal.
SECTION 3. QUALIFICATION. Unless otherwise provided by resolution
of the Board of Directors, no officer, other than the Chairman or Vice-Chairman
of the Board, need be a director. No officer need be a stockholder. Any number
of offices may be held by the same person, as the directors shall determine.
SECTION 4. REMOVAL. Any officer may be removed, with or without
cause, at any time, by resolution adopted by the Board of Directors.
7
<PAGE> 8
SECTION 5. RESIGNATION. Any officer may resign by delivering a
written resignation to the corporation at its principal office or to the
Chairman of the Board, if any, the President or the Secretary. Such resignation
shall be effective upon receipt or at such later time as may be specified
therein.
SECTION 6. VACANCIES. The Board of Directors may at any time fill
any vacancy occurring in any office for the unexpired portion of the term and
may leave unfilled for such period as it may determine any office other than
those of President, Treasurer and Secretary.
SECTION 7. POWERS AND DUTIES. The officers of the corporation shall
have such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors and shall have such
additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. PRESIDENT AND VICE-PRESIDENTS. Except to the extent that
such duties are assigned by the Board of Directors to the Chairman of the Board,
or in the absence of the Chairman or in the event of his or her inability or
refusal to act, the President shall be the chief executive officer of the
corporation and shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall preside at each meeting of the stockholders and
the Board of Directors unless a Chairman or Vice-Chairman of the Board is
elected by the Board and is assigned the duty of presiding at such meeting.
The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors. In the absence of the President or in the event of his
or her inability or refusal to act, the duties of the President shall be
performed by the Executive Vice-President, if any, Senior Vice President, if
any, or Vice President, if any, in that order (and, in the event there be more
than one person in any such office, in the order of their seniority), and when
so acting, such officer shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal, which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
Any Assistant Secretary may, in the absence of the Secretary or in the
event of the Secretary's inability or refusal to act, perform the duties and
exercise the powers of the Secretary.
8
<PAGE> 9
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have the custody of the corporate funds and securities, shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by or pursuant to resolution of the Board of Directors. The Treasurer shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, the Chairman of the Board, if any, or the President, taking proper
vouchers for such disbursements, and shall render to the Chairman of the Board,
if any, the President and the Board of Directors, at its regular meetings or
whenever they may require it, an account of all transactions and of the
financial condition of the corporation.
Any Assistant Treasurer may, in the absence of the Treasurer or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the Treasurer.
SECTION 11. BONDED OFFICERS. The Board of Directors may require any
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of the duties of such officer and for the
restoration to the corporation of all property in his or her possession or
control belonging to the corporation.
SECTION 12. SALARIES. Officers of the corporation shall be entitled
to such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors or any committee thereof appointed
for the purpose.
ARTICLE IV
STOCK
SECTION 1. CERTIFICATES OF STOCK. One or more stock certificates,
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by the stockholder in the corporation. Any
or all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent or registrar who shall have signed or whose facsimile
signature shall have 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 by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Each certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
by-laws, applicable securities laws, or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the
restrictions, if any, stated or noted on the stock certificates, shares of stock
may be transferred on the books of the
9
<PAGE> 10
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. The corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to that stock, regardless of any transfer, pledge or other disposition of that
stock, until the shares have been transferred on the books of the corporation in
accordance with the requirements of these by-laws.
SECTION 3. LOST CERTIFICATES. A new stock certificate may be issued
in the place of any certificate theretofore issued by the corporation and
alleged to have been lost, stolen, destroyed or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. FRACTIONAL SHARE INTERESTS. The corporation may, but
shall not be required to, issue fractions of a share. If the corporation does
not issue fractions of a share, it shall (i) arrange for the disposition of
fractional interests by those entitled thereto, (ii) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form, which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions that the Board of Directors may impose.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify
each person who may serve or who has served at any time as a director or officer
of the corporation or of any of its subsidiaries, or who at the request of the
corporation may serve or at any time has served as a director, officer or
trustee of, or in a similar capacity with, another organization or an employee
10
<PAGE> 11
benefit plan, against all expenses and liabilities (including counsel fees,
judgments, fines, excise taxes, penalties and amounts payable in settlements)
reasonably incurred by or imposed upon such person in connection with any
threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative or investigative, in which he may become
involved by reason of his serving or having served in such capacity (other than
a proceeding voluntarily initiated by such person unless he is successful on the
merits, the proceeding was authorized by the corporation or the proceeding seeks
a declaratory judgment regarding his own conduct); provided that no
indemnification shall be provided for any such person with respect to any matter
as to which he shall have been finally adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation or, to the extent such matter relates to service
with respect to any employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan; and provided,
further, that as to any matter disposed of by a compromise payment by such
person, pursuant to a consent decree or otherwise, the payment and
indemnification thereof have been approved by the corporation, which approval
shall not unreasonably be withheld, or by a court of competent jurisdiction.
Such indemnification shall include payment by the corporation of expenses
incurred in defending a civil or criminal action or proceeding in advance of the
final disposition of such action or proceeding, upon receipt of an undertaking
by the person indemnified to repay such payment if he shall be adjudicated to be
not entitled to indemnification under this article, which undertaking may be
accepted without regard to the financial ability of such person to make
repayment.
A person entitled to indemnification hereunder whose duties include
service or responsibilities as a fiduciary with respect to a subsidiary or other
organization shall be deemed to have acted in good faith in the reasonable
belief that his action was in the best interests of the corporation if he acted
in good faith in the reasonable belief that his action was in the best interests
of such subsidiary or organization or of the participants or beneficiaries of,
or other persons with interests in, such subsidiary or organization to whom he
had a fiduciary duty.
Where indemnification hereunder requires authorization or approval by
the corporation, such authorization or approval shall be conclusively deemed to
have been obtained, and in any case where a director of the corporation approves
the payment of indemnification, such director shall be wholly protected, if:
1. the payment has been approved or ratified (l) by a majority
vote of a quorum of the directors consisting of persons who are not at that time
parties to the proceeding, (2) by a majority vote of a committee of two or more
directors who are not at that time parties to the proceeding and are selected
for this purpose by the full board (in which selection directors who are parties
may participate), or (3) by a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the proceeding; or
2. the action is taken in reliance upon the opinion of
independent legal counsel (who may be counsel to the corporation) appointed for
the purpose by vote of the directors or in the manner specified in clauses (l),
(2) or (3) of subparagraph (i); or
3. the payment is approved by a court of competent
jurisdiction; or
11
<PAGE> 12
4. the directors have otherwise acted in accordance with the
standard of conduct set forth in the Delaware General Corporation Law.
Any indemnification or advance of expenses under this article shall be
paid promptly, and in any event within 30 days, after the receipt by the
corporation of a written request therefor from the person to be indemnified,
unless with respect to a claim for indemnification the corporation shall have
determined that the person is not entitled to indemnification. If the
corporation denies the request or if payment is not made within such 30 day
period, the person seeking to be indemnified may at any time thereafter seek to
enforce his rights hereunder in a court of competent jurisdiction and, if
successful in whole or in part, he shall be entitled also to indemnification for
the expenses of prosecuting such action. Unless otherwise provided by law, the
burden of proving that the person is not entitled to indemnification shall be on
the corporation.
The right of indemnification under this article shall be a contract
right inuring to the benefit of the directors, officers and other persons
entitled to be indemnified hereunder and no amendment or repeal of this article
shall adversely affect any right of such director, officer or other person
existing at the time of such amendment or repeal.
The indemnification provided hereunder shall inure to the benefit of
the heirs, executors and administrators of a director, officer or other person
entitled to indemnification hereunder. The indemnification provided hereunder
may, to the extent authorized by the corporation, apply to the directors,
officers and other persons associated with constituent corporations that have
been merged into or consolidated with the corporation who would have been
entitled to indemnification hereunder had they served in such capacity with or
at the request of the corporation.
The right of indemnification under this article shall be in addition to
and not exclusive of all other rights to which such director or officer or other
persons may be entitled. Nothing contained in this article shall affect any
rights to indemnification to which corporation employees or agents other than
directors and officers and other persons entitled to indemnification hereunder
may be entitled by contract or otherwise under law.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of the General Corporation Law of the State of
Delaware.
12
<PAGE> 13
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise designated from time
to time by the Board of Directors, the fiscal year of the corporation shall
begin on the first day of January and end on the last day of December.
SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form
as shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal, and a duplicate seal may be kept and used by each
Assistant Secretary and by any other officer the Board of Directors may
authorize.
SECTION 3. CERTIFICATE OF INCORPORATION. All references in these
by-laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as in effect from time to time.
SECTION 4. EXECUTION OF INSTRUMENTS. The President, the Treasurer
and the Secretary shall have power to execute and deliver on behalf and in the
name of the corporation any instrument requiring the signature of an officer of
the corporation, including deeds, contracts, mortgages, bonds, notes,
debentures, checks, drafts and other orders for the payment of money. In
addition, the Board of Directors, the President, the Treasurer and the Secretary
may expressly delegate such powers to any other officer or agent of the
corporation.
SECTION 5. VOTING OF SECURITIES. The President, the Treasurer and
the Secretary, and each other person authorized by the Board of Directors, each
acting singly, may waive notice of, and act as, or appoint any person or persons
to act as, proxy or attorney-in-fact for this corporation (with or without power
of substitution) at any meeting of stockholders or owners of other interests of
any other corporation or organization the securities of which may be held by
this corporation. In addition, the Board of Directors, the President and the
Treasurer may expressly delegate such powers to any other officer or agent of
the corporation.
SECTION 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary,
an Assistant Secretary or a temporary secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of the directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for that reason or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors that authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
such committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
13
<PAGE> 14
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that authorizes the contract or transaction.
SECTION 8. BOOKS AND RECORDS. The books and records of the
corporation shall be kept at such places within or without the State of Delaware
as the Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
SECTION 2. BY THE STOCKHOLDERS. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of the
holders of a majority of votes properly cast at any regular meeting of
stockholders, or at any special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such special meeting.
14
<PAGE> 1
EXHIBIT 10.1
ARQULE, INC.
Amended and Restated 1996 Employee Stock Purchase Plan
------------------------------------------------------
As amended and restated by the Board of Directors on May 27, 1999 and subject to
approval by the shareholders prior to May 27, 2000.
1. PURPOSE.
The purpose of this 1996 Employee Stock Purchase Plan (the "Plan") is
to provide employees of ArQule, Inc. (the "Company"), and its subsidiaries, who
wish to become shareholders of the Company an opportunity to purchase Common
Stock of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ELIGIBLE EMPLOYEES.
Subject to the provisions of Sections 7, 8 and 9 below, any individual
who is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. OFFERING DATES.
From time to time, the Company, by action of the Board of Directors,
will grant rights to purchase Shares to employees eligible to participate in the
Plan pursuant to one or more offerings (each of which is an "Offering") on a
date or series of dates (each of which is an "Offering Date") designated for
this purpose by the Board of Directors.
4. PRICES.
The price per share for each grant of rights hereunder shall be the
lesser of:
(a) eighty-five percent (85%) of the fair market value of a
Share on the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a
Share on the date such right is exercised.
At its discretion, the Board of Directors may determine a higher price for a
grant of rights.
1
<PAGE> 2
5. EXERCISE OF RIGHTS AND METHOD OF PAYMENT.
(a) Rights granted under the Plan will be exercisable
periodically on specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise
of rights granted hereunder shall be through regular payroll deductions or by
lump sum cash payment or both, as determined by the Board of Directors. No
interest shall be paid upon payroll deductions unless specifically provided for
by the Board of Directors.
(c) Any payments received by the Company from a participating
employee and not utilized for the purchase of Shares upon exercise of a right
granted hereunder shall be promptly returned to such employee by the Company
after termination of the right to which the payment relates.
6. TERM OF RIGHTS.
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. SHARES SUBJECT TO THE PLAN.
No more than the sum of (i) one hundred twenty thousand (120,000)
Shares and (ii) three hundred thousand (300,000) Shares (the "Additional
Shares") may be sold pursuant to rights granted under the Plan. Appropriate
adjustments in the above figure, in the number of Shares covered by outstanding
rights granted hereunder, in the exercise price of the rights and in the maximum
number of Shares which an employee may purchase (pursuant to Section 9 below)
shall be made to give effect to any mergers, consolidations, reorganizations,
recapitalizations, stock splits, stock dividends or other relevant changes in
the capitalization of the Company occurring after the effective date of the
Plan, provided that no fractional Shares shall be subject to a right and each
right shall be adjusted downward to the nearest full Share. Any agreement of
merger or consolidation will include provisions for protection of the then
existing rights of participating employees under the Plan. Either authorized and
unissued Shares or issued Shares heretofore or hereafter reacquired by the
Company may be made subject to rights under the Plan. If for any reason any
right under the Plan terminates in whole or in part, Shares subject to such
terminated right may again be subjected to a right under the Plan.
8. LIMITATIONS ON GRANTS.
(a) No employee shall be granted a right hereunder if such
employee, immediately after the right is granted, would own stock or rights to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company, or of any subsidiary,
computed in accordance with Section 423(b)(3) of the Code.
2
<PAGE> 3
(b) No employee shall be granted a right which permits his
right to purchase shares under all employee stock purchase plans of the Company
and its subsidiaries to accrue at a rate which exceeds twenty-five thousand
dollars ($25,000) (or such other maximum as may be prescribed from time to time
by the Code) of the fair market value of such Shares (determined at the time
such right is granted) for each calendar year in which such right is outstanding
at any time in accordance with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an
Offering, when aggregated with rights granted under any other Offering still
exercisable by the participating employee, shall cover more shares than may be
purchased at an exercise price equal to fifteen percent (15%) of the employee's
annual rate of compensation on the date the employee elects to participate in
the Offering or such lesser percentage as the Board of Directors may determine.
9. LIMIT ON PARTICIPATION.
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. CANCELLATION OF ELECTION TO PARTICIPATE.
An employee who has elected to participate in an Offering may cancel
such election as to all (but not part) of the unexercised rights granted under
such Offering by giving written notice of such cancellation to the Company
before the expiration of any exercise period. Any amounts paid by the employee
for the Shares or withheld for the purchase of Shares from the employee's
compensation through payroll deductions shall be paid to the employee, without
interest, unless otherwise determined by the Board of Directors, upon such
cancellation.
11. TERMINATION OF EMPLOYMENT.
Upon the termination of employment for any reason, including the death
of the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest unless otherwise determined by the
Board of Directors.
12. EMPLOYEES' RIGHTS AS SHAREHOLDERS.
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. RIGHTS NOT TRANSFERABLE.
Rights under the Plan are not assignable or transferable by a
participating employee and are exercisable only by the employee.
3
<PAGE> 4
14. AMENDMENTS TO OR DISCONTINUATION OF THE PLAN.
The Board of Directors of the Company shall have the right to amend,
modify or terminate the Plan at any time without notice; provided, however, that
the then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan. Notwithstanding the foregoing, if the stockholders of
the Company do not approve the increase in the total number of shares which may
be offered under the Plan by the total number of Additional Shares prior to May
27, 2000, such Additional Shares shall nonetheless be treated as issued under
the Plan although not entitled to the tax benefits of Section 423 of the Code.
15. EFFECTIVE DATE AND APPROVALS.
This Plan became effective on August 14, 1996, the date it was adopted
by the Board of Directors. The shareholders of the Company approved the Plan
within twelve (12) months of the date of adoption.
The Company's obligation to offer, sell and deliver its Shares under
the Plan is subject to (i) the approval of any governmental authority required
in connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel with, all applicable federal and state securities and other
laws.
16. TERM OF PLAN.
No rights shall be granted under the Plan after August 14, 2006.
17. ADMINISTRATION OF THE PLAN.
The Board of Directors or any committee or person(s) to whom it
delegates its authority (the "Administrator") shall administer, interpret and
apply all provisions of the Plan as it deems necessary to meet special
circumstances not anticipated or covered expressly by the Plan. Nothing
contained in this Section shall be deemed to authorize the Administrator to
alter or administer the provisions of the Plan in a manner inconsistent with the
provisions of Section 423 of the Code.
4
<PAGE> 1
11.1
ArQule, Inc.
Statement Re Computation of Unaudited Net Loss Per Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) (Unaudited)
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (3,594) $ (638) $ (7,560) $ (567)
======== ======== ======== ========
Weighted average shares outstanding:
Common Stock 12,560 12,000 12,438 11,938
Weighted average common shares outstanding 12,560 12,000 12,438 11,938
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.29) (0.05) (0.61) (0.05)
======== ======== ======== ========
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,716
<SECURITIES> 26,821
<RECEIVABLES> 2,560
<ALLOWANCES> 0
<INVENTORY> 556
<CURRENT-ASSETS> 34,191
<PP&E> 34,625
<DEPRECIATION> 11,870
<TOTAL-ASSETS> 58,603
<CURRENT-LIABILITIES> 5,751
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 47,554
<TOTAL-LIABILITY-AND-EQUITY> 58,603
<SALES> 8,603
<TOTAL-REVENUES> 8,603
<CGS> 7,593
<TOTAL-COSTS> 16,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 670
<INCOME-PRETAX> (7,560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,560)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
