<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-21391
TURBODYNE TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4699061
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
21700 Oxnard Street, Suite 1550, Woodland Hills, California 91367
(Address of Principal Executive Offices) (Zip Code)
(818) 593-2282
(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
----- -----
Shares of Common Stock, par value $0.001, outstanding as of August 10, 1998:
41,154,772 shares
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations - Three and
Six months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-10
Items 2. Management's Discussion and Analysis of Financial Condition
Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default Upon Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash 11,127,000 949,000
Trade accounts receivable, net 10,807,000 9,214,000
Employee advances receivable 834,000 568,000
Inventories 7,243,000 5,469,000
Prepaid expenses and other current assets 860,000 1,191,000
----------- -----------
Total current assets 30,871,000 17,391,000
Property, Plant and Equipment, at cost, net 19,771,000 18,122,000
Goodwill, net 13,366,000 13,740,000
Other Assets 603,000 473,000
----------- -----------
64,611,000 49,726,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt 486,000 607,000
Current maturities of obligations under capital leases 712,000 1,035,000
Accounts payable 5,326,000 5,283,000
Accrued liabilities 2,320,000 1,850,000
Income taxes payable 24,000 86,000
----------- -----------
Total current liabilities 8,868,000 8,861,000
Long term debt, less current maturities 10,008,000 8,155,000
Obligations under capital leases, less current maturities 3,009,000 1,867,000
----------- -----------
21,885,000 18,883,000
----------- -----------
Stockholders' Equity:
Class A preferred stock, no par value
Authorized 100,000,000 shares; none issued - -
Class B preferred stock, no par value
Authorized 100,000,000 shares; none issued - -
Preferred stock, no par value. Authorized
and issued 10,000 Series One Class A, 7%
cumulative convertible - 9,604,000
Common stock, no par value. Authorized
100,000,000 shares; issued and outstanding
40,034,423 shares in 1998 and 29,961,612
shares in 1997 - -
Additional paid in capital 74,765,000 45,290,000
Cumulative other comprehensive income (34,000) 22,000
Accumulated deficit (32,005,000) (24,073,000)
----------- -----------
Total Stockholders' Equity 42,726,000 30,843,000
----------- -----------
64,611,000 49,726,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
1998 1997 1998 1997
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Net sales $ 11,024,000 11,108,000 $ 20,750,000 20,153,000
Cost of goods sold 9,233,000 8,919,000 17,534,000 15,716,000
------------------------------ -----------------------------
Gross profit 1,791,000 2,189,000 3,216,000 4,437,000
Selling, research, general and administrative expenses 5,226,000 4,776,000 10,376,000 8,626,000
------------------------------ -----------------------------
Loss from operations (3,435,000) (2,587,000) (7,160,000) (4,189,000)
Other expense (income):
Interest expense, net 296,000 223,000 581,000 371,000
Other, net 4,000 (10,000) 4,000 (21,000)
------------------------------ -----------------------------
Loss before income taxes (3,735,000) (2,800,000) (7,745,000) (4,539,000)
Income tax expense 16,000 257,000 24,000 489,000
------------------------------ -----------------------------
Net loss $ (3,751,000) (3,057,000) $ (7,769,000) (5,028,000)
------------------------------ -----------------------------
------------------------------ -----------------------------
Net loss per common share:
Basic loss per share $ (0.11) (0.15) $ (0.23) (0.26)
Diluted loss per share (0.11) (0.15) (0.23) (0.26)
------------------------------ -----------------------------
------------------------------ -----------------------------
Weighted average shares used for basic and diluted
loss per share 34,736,000 20,250,000 33,704,000 19,709,000
------------------------------ -----------------------------
------------------------------ -----------------------------
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
4
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,769,000) (5,028,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 1,767,000 1,388,000
Stock compensation 375,000 --
(Increase) decrease in operating assets:
Trade accounts receivable (1,593,000) (2,556,000)
Employee advances receivable (266,000) (150,000)
Inventories (1,774,000) (3,314,000)
Prepaid expenses and other current assets 331,000 (143,000)
Other assets (130,000) (301,000)
Increase (decrease) in operating liabilities:
Trade accounts payable 43,000 3,465,000
Accrued expenses 663,000 (521,000)
Income taxes payable (62,000) 369,000
-------------- --------------
Net cash used in operating activities (8,415,000) (6,791,000)
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (3,042,000) (3,113,000)
-------------- --------------
Net cash used in investing activities (3,042,000) (3,113,000)
-------------- --------------
Cash flows from financing activities:
Net proceeds from long-term borrowings $ 2,551,000 3,845,000
Proceeds from subordinated convertible debentures 3,000,000 --
Proceeds from exercise of stock options and warrants 16,299,000 3,806,000
Issuance costs paid (159,000) (99,000)
-------------- --------------
Net cash provided by financing activities 21,691,000 7,552,000
-------------- --------------
Effect of exchange rate changes on cash (56,000) (25,000)
-------------- --------------
Net increase (decrease) in cash 10,178,000 (2,377,000)
Cash at beginning of period 949,000 3,143,000
-------------- --------------
Cash at end of period $ 11,127,000 766,000
-------------- --------------
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 644,000 377,000
Income taxes -- 119,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Turbodyne Technologies Inc., a Delaware corporation, and subsidiaries (the
Company) manufactures aluminum cast automotive products, including engine
components and specialty wheels, and develops products to enhance performance
and reduce emissions of internal combustion engines.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries,
Turbodyne Systems, Inc., Turbodyne U.K. Ltd. and Pacific Baja Light Metals
Corp. (Pacific Baja). All material intercompany accounts and transactions
have been eliminated in consolidation.
Effective July 18, 1997, the Company formally delisted its shares from
trading on the Vancouver Stock Exchange. On March 24, 1997, the Company's
shares became listed on the Nasdaq Small Capital Market and continued to
trade in that market. As a result, effective January 1, 1998, the Company
changed its reporting currency from the Canadian dollar (Cdn$) to the U.S.
dollar (U.S.$). Accordingly, the unaudited condensed consolidated financial
statements for the six months and three months ended June 30, 1997 have been
restated to the new reporting currency of U.S.$.
Additionally, a cumulative translation adjustment of $56,000 has been
included as other comprehensive income in stockholders' equity reflecting the
translation of the Cdn$ reporting currency consolidated financial statements
to the newly adopted and retroactively applied U.S.$ reporting currency.
There are no other items of comprehensive income in the six months ended June
30, 1998. The adoption of Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") did not have a
material impact on the Company's unaudited condensed consolidated financial
statements.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting
principles. These unaudited consolidated financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the full year ending
December 31, 1998. For further information refer to the consolidated
financial statements and
6
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footnotes thereto included in the Company's annual report on Form 20-F for
the year ended December 31, 1997.
GOODWILL
Goodwill is associated with the purchase of Pacific Baja on July 2, 1996 by
the Company and is being amortized on a straight-line basis over 20 years.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the balance over the remaining life can be recovered
through undiscounted future operating cash flows of the Company's operations.
Accumulated amortization was $1,556,000 and $1,182,000 at June 30, 1998 and
December 31, 1997, respectively.
RECOGNITION OF REVENUE AND SIGNIFICANT CUSTOMERS
The Company recognizes revenue upon shipment of product. The Company had
sales to three significant customers constituting approximately 47%, 15% and
12% and 44%, 17% and 12%, respectively, of net sales for the six months and
three months ended June 30, 1998, respectively. The Company had sales to two
significant customers constituting approximately 29% and 23% and 28% and 23%,
respectively, of net sales for the six months and three months ended June 30,
1997, respectively. Additionally, these customers comprised 41%, 14% and
13% and 31%, 23% and 12%, respectively, of accounts receivable at June 30,
1998 and December 31, 1997, respectively. The loss of any of these customers
could have a material adverse effect on the Company.
EARNINGS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. For the six months ended June 30, 1998 and 1997, options
and warrants to purchase 6,074,502 and 8,193,333 common stock, respectively,
at prices ranging from $2.35 to $8.50 were outstanding during the periods but
were not included in the computation of diluted loss per share because the
options and warrants would have an antidilutive effect on net loss per share.
RESEARCH AND DEVELOPMENT
Research and development costs related to present and future products are
charged to operations in the year incurred. Research and development costs
aggregated $3,125,000 and $3,136,000 for the six months ended June 30, 1998
and 1997, respectively, and $1,719,000 and $1,240,000 for the three months
ended June 30, 1998 and 1997, respectively.
NOTE 2. INVENTORIES
Inventories are comprised of the following at June 30, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
1998 1997
------------ ---------------
<S> <C> <C>
Raw materials $ 3,049,000 2,123,000
Work in process 1,932,000 686,000
Finished goods 2,262,000 2,660,000
------------ ---------------
$ 7,243,000 5,469,000
------------ ---------------
------------ ---------------
</TABLE>
7
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NOTE 3. LONG-TERM DEBT
Long-term debt at June 30, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Revolving bank lines of credit (A) $ 10,000,000 8,144,000
Notes payable to bank, principal of $15,625 plus interest payable
monthly at prime plus .25% through October 1, 1998, with
the remaining principal due November 1, 1998 453,000 547,000
Other 41,000 71,000
------------- -------------
Total long-term debt 10,494,000 8,762,000
Less current maturities 486,000 607,000
------------- -------------
Long-term debt, excluding current maturities $ 10,008,000 8,155,000
------------- -------------
------------- -------------
</TABLE>
(A) The Company's wholly owned subsidiary, Pacific Baja, has a revolving line
of credit with a bank permitting borrowings up to $10 million, secured by
all receivables and inventory. The borrowings bear interest at the
Company's option at LIBOR plus 2% or at prime. The line of credit expires
June 1, 1999. The Company is a guarantor on this line of credit.
The Company was not in compliance with all of its financial covenants related
to its debt facilities at June 30, 1998, but has received an appropriate
waiver from its lender.
NOTE 4. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
On March 3, 1997, the Company established an incentive stock option plan (the
Stock Option Plan). Under the plan, the Company may grant options to its
directors, officers and employees for up to 2,840,000 shares of common stock.
The exercise price of each option shall be determined by the Stock Option
Committee but shall in no instance be less than the fair market value of the
shares of the Company, determined as the average closing price of the common
shares of the Company for the ten days trading preceding the date of grant.
The option's maximum term is ten years. The Stock Option Committee shall
determine the grant date of any option.
Options granted under the Stock Option Plan to participants, other than the
Chairman, President, Chief Executive Officer, the Chief Financial Officer,
Secretary and any directors of the Company or its subsidiaries, shall be
subject to a vesting formula. The vesting formula will provide that options
shall vest equally over a three-year period commencing on the date of the
grant so that the options can only be exercised as to an aggregate of 33.3%
in the first year, 66.6% in the second year and 100% in the third year and
each year thereafter. No options granted to an employee of the Company or an
affiliate of the Company shall be exercisable until the optionee has been
employed by the Company or affiliate for a period of six months. The
directors have the discretion to waive the vesting requirements at their
discretion in appropriate circumstances.
At June 30, 1998, the Company had 5,357,066 stock options outstanding. The
holders of these options are entitled to receive one share of common stock of
the Company for one option exercised. The options have exercise prices
ranging from $3.28 to $8.50 and expiration dates between August 1998 and
April 2003.
8
<PAGE>
Subsequent to June 30, 1998, a total 1,044,800 stock options with exercise
prices ranging from $3.23 to $6.15 were exercised for total proceeds to the
Company of $3,739,000.
SPECIAL WARRANTS
On July 2, 1996, the Company completed a private placement of 3,750,000
Series "A" Special Warrants at a price of $5.00 (Cdn$) per special warrant.
Commission paid to the brokers was 10% of the gross proceeds and the brokers
elected to receive the commission in special warrants (375,000 Series "A"
Special Warrants issued). Each Series "A" Special Warrant can be exercised
into one unit of the common stock for no additional consideration. Each unit
consists of one common stock and one nontransferable stock purchase warrant.
The stock purchase warrant entitles the holder to purchase one share of
common stock at $5.50 (Cdn$) until July 2, 1997.
During 1997, all of the Series "A" Special Warrants were exercised for an
aggregate of 4,125,000 shares of common stock and stock purchase warrants for
the purchase of an additional 4,125,000 shares. Total net proceeds of
$12,943,000, received upon the issuance of these special warrants less
issuance costs, were transferred to paid-in capital. During 1997, 705,000 of
the Series "A" stock purchase warrants were exercised for common stock for
total proceeds of $2,791,800. The remaining Series "A" stock purchase
warrants expired in 1997.
On December 6, 1996, the Company completed a brokered private placement of
500,000 Series "C" Special Warrants at a price of $9.00 (Cdn$) per special
warrant. Each Series "C" Special Warrant can be exercised into one unit of
the Company for no additional consideration. Each unit consists of one
common stock and one stock purchase warrant. Each Series "C" stock purchase
warrant will entitle the holder to purchase one common stock at $9.50 (Cdn$)
per share for a period of one year. During 1997, a warrant amendment was
signed to change the exercise price of the Series "C" stock purchase warrant
from $9.50 (Cdn$) to $4.50 (U.S.$) and extend the exercise date of the Series
"C" Special Warrants and Series "C" stock purchase warrant.
During 1997, all of the Series "C" Special Warrants were exercised into
common stock with stock purchase warrants for an aggregate of 500,000 common
stock and stock purchase warrants. Total net proceeds of $2,845,000,
received upon the issuance of these special warrants, were transferred to
paid-in capital. For the six months ended June 30, 1998, 272,000 Series "C"
stock purchase warrants were exercised for common stock. At June 30, 1998,
no Series "C" stock purchase warrants were outstanding.
STOCK PURCHASE WARRANTS
At June 30, 1998, the Company had 717,436 stock purchase warrants
outstanding. These warrants were issued in connection with private placements
and other means of financing. The holders of these warrants are entitled to
receive one share of common stock of the Company for one warrant exercised.
The warrants have exercise prices ranging from $3.50 to $5.00 and expiration
dates between December 1998 and March 2003.
PREFERRED STOCK
On September 19, 1997, the Company completed a private placement of 10,000
shares of Series One Convertible Class A Preference stock, no par value (the
Class A Preferred), for net proceeds of $9,604,000. Conversion of the Class
A Preferred stock into common stock is at the option of the holder for any or
all the outstanding stock after January 8, 1998 or at the option of the
Company after September 8, 2000. Each share of the Class A Preferred stock
may be converted into common stock at a conversion price based on a floating
price formula. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, holders of the Class A Preferred stock shall be
paid the redemption price plus all accrued dividends to the date of
liquidation, dissolution or winding up of affairs before any payment to other
stockholders. These shares have
9
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no voting rights and have a redemption price of $1,000 per share, together
with accrued and unpaid dividends thereon. Redemption of these shares is at
the option of the Company. Dividends on the Class A Preferred stock is
cumulative and at the rate of 7% per annum payable in cash or common stock at
the date of conversion.
During 1998, all the holders of the Class A Preferred stock elected to
exercise the conversion rights under this class of shares. The $10 million
face value amounts were converted into 4,742,522 common shares. The total
stock issued on conversion also includes the pay-out of 7% cumulative
dividends in the form of additional common stock. Dividends paid out for the
Class A Preferred stock amounted to $356,000.
SHARES IN ESCROW
Of the Company's issued and outstanding shares, 4,150,000 are held in escrow
to be released in accordance with a formula based on cumulative cash flow of
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
GENERAL
Turbodyne Technologies Inc. and subsidiaries (the "Company" or "Turbodyne")
designs, develops, manufactures and markets proprietary products that enhance
performance and reduce emissions of internal combustion engines (the "Engine
Technology Division") and manufactures aluminum cast automotive products,
including automotive engine components and aftermarket specialty wheels (the
"Light Metals Division").
The Company has developed a patented technology (the "Turbodyne Technology")
designed to optimize air flow to internal combustion engines resulting in
efficient fuel combustion in both diesel and gasoline engines. The Company
has incorporated the Turbodyne Technology into its two primary products: the
Turbopac-TM- and the Dynacharger-TM- (collectively, the "Turbodyne Products").
Through Pacific Baja Light Metals Corp. ("Pacific Baja"), a wholly owned
subsidiary, the Company manufactures critical engine components and
assemblies including intake manifolds, oil pans, rocker arm covers,
turbocharger and compressor housings for OEMs in the automotive industry and
aluminum wheels for the automotive aftermarket. The Company also
manufactures engineered aluminum components for the Turbodyne Products.
From the date of the acquisition of the Turbodyne Technology in April 1993 to
the completion of the acquisition of Pacific Baja, the Company was engaged,
through Turbodyne Systems, a wholly owned subsidiary, principally in
researching and developing products incorporating the Turbodyne Technology.
During this period, the Company commenced development of the Turbodyne
System, the Turbopac-TM- product and the Dynacharger-TM- product. In
addition, the Company's research and development activities resulted in the
filing of patent applications in respect of the Turbodyne Products. The
Company undertook low volume production of its products, for the purpose of
testing and evaluation with OEMs and major retrofit customers. The Company
did not record any revenues during this period and at June 30, 1998 had
expended $16,259,000 as research and development costs for the Turbodyne
Products. The development of the Turbodyne Products was financed during this
period primarily from private placement equity financing. The Company
commenced
10
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limited sales of the Turbopac-TM- 2500 model in the second quarter of fiscal
1998 pursuant to a contract with Detroit Diesel Corporation, a major global
diesel engine producer.
RESULTS OF OPERATIONS
Net sales for the six months ended June 30, 1998 increased to $20,750,000
from $20,153,000 for the six months ended June 30, 1997, an increase of
$597,000 or 3% and for the three months ended June 30, 1998 decreased to
$11,024,000 from $11,108,000 for the three months ended June 30, 1997, a
decrease of $84,000 or 1%. Sales in these periods were primarily
attributable to the Light Metals Division. Sales attributable to the Engine
Technology Division were minimal during these periods.
The less than expected sales for the first six months of 1998 primarily is
the result of weaker than expected aftermarket wheel orders. The aftermarket
demand for wheels has been forcasted to be a slow-growth or declining market
as a result of the OEMs providing more custom wheels on production cars.
This has been a driving force for the Light Metals Division's strategy to
aggressively pursue the growing OEM demand for precision cast aluminum
components and assemblies for engine application.
Aftermarket wheel products represented over 60% of the Light Metals Divisions
sales in the last six months of 1996, with engine components representing
slightly less than 40%. For the fiscal year 1997 engine components grew to
47% of sales and aftermarket wheels declined to 53%. In the first six months
of 1998 engine components have increased to 62% of sales, while aftermarket
wheels have declined to only 38%.
Although the automotive components segment of the Light Metals Division grew
faster than expected in the first six months of the year, it did not grow
fast enough to offset the decline in the aftermarket wheel segment. The
Company expects a continued growth in the automotive components segment of
its business and a continued decline in the aftermarket wheel segment as a
percentage of its total business. This is a forward looking statement
however and actual results may differ. For example, if the Company's
strategy to pursue the growing OEM demand for precision cast aluminum
components and assemblies is not successful, the automotive engine components
segment may not continue to grow as expected.
Even though the aftermarket wheel segment is not a growing business, the
Company believes that it is financially advantageous to remain in that
industry and accordingly has developed a plan designed to ensure that
Turbodyne obtains a significant and profitable market share position as one
of the leading remaining wheel producers.
Profitability of the Light Metals Division is affected by seasonal factors as
sales of aftermarket wheel products typically peak in the spring of each year
while operating costs continue throughout the year and by increasing aluminum
costs as the prices of its cast aluminum products are fixed under contract in
advance of production. See "Cautionary Statements -- Potential Fluctuations
in Quarterly Results and Seasonality" and "Cautionary Statements -- Raw
Materials" in the registrant's Annual Report on Form 20-F for the fiscal year
ended December 31, 1997.
Cost of goods sold consists primarily of material and labor costs
attributable to the Light Metals Division. Cost of goods sold for the six
months ended June 30, 1998 increased to $17,534,000 from $15,716,000 for the
six months ended June 30, 1997, an increase of $1,818,000 or 11.6%, and for
the three months ended June 30, 1998 increased to $9,233,000 from $8,919,000
for the three months ended June 30, 1997, an increase of $314,000 or 3.5%.
Cost of goods sold as a percentage of net sales for the six months ended June
30, 1998 increased to 84.5% from 78% for the six months ended June 30, 1997
and for the three months ended June 30, 1998 increased to 83.8% from 80.3%
for the three months ended June 30, 1998. The increase in costs of goods
11
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sold is attributable primarily to the relocation of all wheel production to
the new Ensenada, Mexico plant, a slower start to Turbodyne's North American
wheel sales and increased manufacturing costs at the La Mirada plant to meet
increasing customer production schedules for the automotive components
segment of the business.
During the first six months of 1998, the Light Metals Division incurred costs
and expenses attributable to the modernization and relocation of all existing
aluminum foundry and machining operations currently in place in its La
Mirada, California facility to its newly acquired facility in Ensenada,
Mexico. The Company expects that the modernization and relocation will
result in significant improvements in the quality of its products, greater
productivity and reduced costs. In addition, the Company anticipates that
the new facility will provide the Company with adequate capacity to meet
current production volume and expected growth from both new third party
customers as well as increased production for the Turbodyne Products. These
are forward looking statements however and actual results may differ. For
example, if the modernization and relocation of the manufacturing operations
of the Company does not timely occur or if the costs associated with these
activities exceed management's expectations, the Company's results of
operations may be adversely effected. The Company believes that its
investment in modernization and relocation of the aluminum foundry and
machining operations to Ensenada is essential to support the expected growth
in both the engine technology and light metals divisions over at least the
next three years.
Phase I of the relocation which consists of the relocation and modernization
of all wheel machining operations from the existing La Mirada facility to the
newly acquired facility in Ensenada was completed during the first six months
of 1998. The Company expects that Phase II, the final phase of the relocation
to Ensenada, which consists of the relocation and modernization of the
remaining automotive engine components foundry and machining operations
located in La Mirada to the new Ensenada facility, will be completed by the
end of the fourth quarter of fiscal 1998. These are forward looking
statements however and actual results may differ from those discussed herein.
For example, if the set up of operations in the new facility in not
completed timely, the Company may incur additional costs of production and
its results of operations may be adversely effected.
The Company experienced an acceleration of orders in the automotive engine
components segment in the first six months of 1998. These orders were
received by the Company prior to the relocation of its automotive components
manufacturing operations to the Company's new Ensenada facility and therefore
the Company incurred extraordinary costs to ensure the customer orders were
timely met.
The Company also incurred costs in the first six months of 1998 due to a ramp
up of production activities relating to the Turbopac 2500 product line to
satisfy the Company's commitments under its contract with Detroit Diesel.
The Company continues to ramp up production activities relating to the
Turbopac product line during the third fiscal quarter in preparation for
further shipments pursuant to its contract with Detroit Diesel and the
purchase order from, and initial deliveries to, the TransBusiness Group of
Moscow, Russia. The first shipment to the TransBusiness Group currently is
anticipated to begin in the fourth fiscal quarter of 1998. This is a forward
looking statement however and actual results may differ. For example, if the
financing arrangements with respect to the TransBusiness purchase order are
not finalized or if other conditions to the placement of a purchase order
with the Company are not met, then the Company may not commence shipment to
the TransBusiness Group in the fourth fiscal quarter.
Gross profit for the six months ended June 30, 1998 decreased to $3,216,000
from $ 4,437,000 for the six months ended June 30, 1997, a decrease of
$1,221,000, or 27.5% and for the three months ended June 30, 1998 decreased
to $1,791,000 from $2,189,000 for the three months ended June 30, 1997, a
decrease of $398,000, or 18.2%.
12
<PAGE>
Gross profit improved to 16.3% of sales for the three months ended June 30,
1998 from 14.7% for the three months ended March 31, 1998. This improvement
primarily is attributed to the completion of Phase I of the relocation.
Selling, research, general and administrative expenses for the six months
ended June 30, 1998 increased to $10,376,000 from $8,626,000 for the six
months ended June 30, 1997, an increase of $1,750,000, or 20.3% and for the
three months ended June 30, 1998 increased to 5,226,000 from $4,776,000 for
the three months ended June 30, 1997, an increase of $450,000 or 9.4%.
Selling, research, general and administrative expenses as a percentage of
sales increased to 50% from 42.8% for the comparable six month periods and
increased to 47.4% from 43% for the comparable three month periods. These
changes primarily are attributable to additional expenses associated with
overseas travel in conjunction with the Company's pursuit of strategic
relationships. Also, the Company incurred additional expenses associated
with start-up costs related to the Navistar machining work, increased
training for the new labor force and lower than expected yield rate while
launching the new product lines. The increase was also attributable to
finalizing the Turbopac-TM- 1500 and 2500 models, final validation testing of
the Turbopac-TM- 2500 model, on-going development of the Dynacharger-TM-
product and preparing for full scale commercial production of the
Turbopac-TM- 2500 and 1500 models. Research and development costs also
included the operation of the Company's quality control laboratory at
Turbodyne Systems. Based on the Company's historical expenditures related to
research and development and its current development goals, the Company
anticipates for the foreseeable future, research and development expenses
will continue to be significant.
Loss from operations for the six and three months ended June 30, 1998
increased $2,971,000 or 70.9% and $848,000 or 32.8%, respectively, over the
comparable periods a year earlier.
Other income and expense consists primarily of interest expense on bank
operating lines of credit and equipment finance contracts. Interest expense
for the six and three months ended June 30, 1998 increased $210,000 or 56.6%
and $73,000 or 32.7%, respectively, over the comparable periods a year
earlier. The increase was primarily attributable to additional borrowings
and financing for property and equipment purchases.
Net loss for the six and three months ended June 30, 1998 increased
$2,741,000 or 54.5% and $694,000 or 22.7%, respectively, over the comparable
periods a year earlier, due to items mentioned above.
The Company's balance sheet has strengthened from December 31, 1997 to June 30,
1998. Cash on hand has increased by $10.2 million to $11.1 million. Total
current assets have increased by $13.5 million or 77.6% to $30.9 million,
while total assets of the company have increased by $14.9 million or 30% to
$64.6 million. Current liabilities have remained flat at $8.9 million
resulting in a very strong Current Ratio of 3.48 compared to 1.96 on December
31, 1997. Both the debt to equity and debt to assets ratios improved from 61%
to 51% and from 38% to 33.9% respectively. Total shareholders' equity
increased by $11.9 million or 38.5% to $42.7 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been financed principally through a combination
of private and public sales of equity and debt securities, borrowings under a
bank credit facility and cash flows from the operations of Pacific Baja. At
June 30, 1998, the principal source of liquidity for the Company was
$11,127,000 of cash as compared to $949,000 at December 31, 1997.
13
<PAGE>
Cash used in operating activities for the six months ended June 30, 1998 and
1997, was $8,415,000 and $6,791,000, respectively, primarily as a result of
net losses from operations and the finance of the increase in accounts
receivable and inventory.
Cash used in investing activities for the six months ended June 30, 1998, and
1997, was $3,042,000 and $3,113,000, respectively, resulting primarily from
the purchase of property and equipment.
Cash provided by financing activities for the six months ended June 30, 1998
and 1997 was $21,961,000 and $7,552,000, respectively, resulting primarily
from the sale of equity and convertible debt securities as well as bank
borrowings.
The Company believes that funds generated from Pacific Baja, existing working
capital, and its existing financing activities will be sufficient to satisfy
its anticipated operating requirements for at least the next twelve months.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is
assessing the internal readiness of its computer systems for handling the
year 2000. The Company expects to implement successfully the systems
programming changes necessary to address year 2000 issues, and does not
believe that the cost of such actions will have a material effect on the
Company's results of operations or financial condition. There can be no
assurance, however, that there will not be delay in, or increased costs
associated with the implementation of such changes, and the inability to
implement such changes could have an adverse effect on future results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 did not have a material
impact on the Company's financial reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for public business
enterprises to report information about operating segments in annual
financial statements and selected information in the notes thereto. SFAS No.
131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS No. 131 need not be
applied to interim financial statements in the year of adoption, but
comparative information is required in the second year of application. The
Company believes that the adoption of SFAS No. 131 will not have a material
impact on the Company's financial reporting.
In 1998, the FASB issued Statement of Financial Statements No.133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 modifies the accounting for derivative and hedging
activities and is effective for fiscal years beginning after December 15,
1999. The Company believes that the adoption of SFAS No. 133 will not have a
material impact on the Company's financial reporting.
14
<PAGE>
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use." The
Company believes that the adoption of SOP 98-1 will not have a material
impact on the Company's financial reporting.
FORWARD LOOKING STATEMENTS
The foregoing discussion contains "forward-looking statements" within the
meaning of Section 21E of the Exchange Act and Section 27A of the Securities
Act. The words "expect", "estimate", "anticipate", "predict", "believe" and
similar expressions and variations thereof are intended to identify forward
looking statements. Such statements appear in a number of places in this
filing and included statements regarding the intent, belief or current
expectations of the Company, or its directors or officers with respect to,
among other things (a) trends affecting the financial condition or results of
operations of the Company, and (b) the business and growth strategies of the
Company. Readers are cautioned that any such forward looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in this
filing. Reference is hereby made to the registrant's Annual Report on Form
20-F for the fiscal year ended December 31, 1997 for a discussion of
important factors that could cause actual results to differ materially from
the forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
3.1 Certificate of Incorporation
3.2 Bylaws of the Company
27.1. Financial Data Schedule
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Rule 12b-15 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TURBODYNE TECHNOLOGIES INC.
AND SUBSIDIARIES
Date: August 11, 1998 by /s/ Walter F. Ware
-----------------------------
Walter F. Ware
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1998 by /s/ Khal A. Kader
-----------------------------
Khal A. Kader
Chief Financial Officer
(Principal Financial Officer)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation
3.2 Bylaws of the Company
27.1 Financial Data Schedule
</TABLE>
18
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TURBODYNE TECHNOLOGIES INC.
I. The name of the Corporation is Turbodyne Technologies Inc.
II. The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
III. The purpose of this Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware Law").
IV. This Corporation is authorized to issue two classes of shares,
designated, respectively, "Preferred Stock" and "Common Stock." Each class
of stock shall have a par value of $.001 per share. The number of shares of
Preferred Stock authorized to be issued is 1,000,000 and the number of shares
of Common Stock authorized to be issued is 60,000,000. The rights,
preferences, privileges and restrictions granted to or imposed upon the first
two series of Preferred Stock, designated "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock") and "Series B Convertible Preferred
Stock" (the "Series B Preferred Stock" and together with the Series A
Preferred Stock, the "Convertible Preferred Stock"), of which the Corporation
is authorized to issue 10,000 shares and 10,000 shares, respectively, are set
forth in Article V below.
Any shares of Preferred Stock, other than the Convertible Preferred
Stock, may be issued from time to time in one or more series. The Board of
Directors is hereby authorized to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such series
including, without limitation, the voting powers and the qualifications,
limitations or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares constituting any such
series or any of them; and to increase or decrease the number of shares of
any series subsequent to the issuance of shares of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be decreased in accordance with the foregoing
sentence, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number
of shares of such series.
V. The relative rights, preferences, privileges and restrictions
granted to or imposed upon the Convertible Preferred Stock and the holders
thereof are as follows:
<PAGE>
Section 1. DIVIDENDS.
(a) Holders of the Convertible Preferred Stock shall be entitled to
receive cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 7% per annum. Such dividends shall be
payable in arrears on the Conversion Date in cash or Common Stock out of
funds legally available therefore. Dividends on the Series A Preferred Stock
shall accrue daily commencing September 8, 1997 and dividends on the Series B
Preferred Stock shall accrue daily commencing on the Series B Issue Date. No
dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends in the total amount per share
(as a percentage of the Stated Value per share) equal to 7% per annum (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) on the Convertible Preferred Stock shall have been paid or declared
and set apart during that fiscal year and any prior year in which dividends
accumulated but remain unpaid.
(b) So long as any Convertible Preferred Stock shall remain
outstanding, neither the Corporation nor any subsidiary thereof, shall
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare
any dividend or make any distribution (other than a dividend or distribution
described in Section 1) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
Junior Securities unless all dividends on the Convertible Preferred Stock for
all past dividend periods shall have been paid. Each Holder shall be deemed
to have consented, for the purposes of the Delaware Law, to repurchase of
shares of Common Stock by the Corporation issued to or held by employees or
consultants upon termination of their employment or services pursuant to
pre-existing agreements between the Corporation and such persons providing
for the Corporation's rights of said repurchase.
Section 2. VOTING RIGHTS
(a) Except as otherwise provided for herein or in the Delaware Law, the
Convertible Preferred Stock shall have no voting rights. Notwithstanding the
foregoing, so long as any shares of Convertible Preferred Stock remain
outstanding, the Corporation shall not, (i) without the affirmative vote of
the holders of a majority of the shares of the Series A Preferred Stock then
outstanding alter or change adversely the rights, privileges, restrictions
and conditions attaching to the Series A Preferred Stock, and (ii) without
the affirmative vote of the holders of a majority of the shares of the Series
B Preferred Stock then outstanding alter or change adversely the rights,
privileges, restrictions and conditions attaching to the Series B Preferred
Stock.
Section 3. LIQUIDATION
(a) Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, the holders of Convertible Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the
2
<PAGE>
Corporation to the holders of Junior Securities by reason of their ownership
thereof, for each share of Convertible Preferred Stock, an amount equal to
the Stated Value, plus an amount equal to accrued but unpaid dividends per
share, whether declared or not, but without interest (as adjusted for any
stock dividends, combinations or splits with respect to such shares). All
of the preferential amounts to be paid to the holders of Convertible
Preferred Stock under this Section 3(a) shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the
Junior Securities in connection with any such liquidation, dissolution or
winding up. After the payment or the setting apart for payment to the
holders of Convertible Preferred Stock of the preferential amounts so payable
to them, the remaining assets of the Corporation available for distribution
shall be distributed in accordance with the provisions of Section 3(b). If
upon the occurrence of any liquidation, dissolution or winding-up of the
Corporation, the assets and funds thus distributed among the holders of
Convertible Preferred Stock shall be insufficient to permit the payment to
the holders of Convertible Preferred Stock of the full aforesaid preferential
amount, then the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of
Convertible Preferred Stock in proportion to the preferential amount each
such holder is otherwise entitled to receive.
(b) In the event of a liquidation, dissolution or winding-up of the
Corporation, after the distribution to holders of Convertible Preferred Stock
in the amounts set forth in Section 3(a) above, the remaining assets of the
Corporation legally available for distribution, if any, to stockholders shall
be distributed ratably to the holders of the Common Stock then outstanding.
(c) For purposes of this Section 3, (i) any transaction or series of
related transactions in which the stockholders of the Corporation shall own
less than 50% of the voting securities of the surviving corporation or (ii) a
sale of all or substantially all of the assets of the Corporation, shall, at
the option of the holder, be treated as a liquidation, dissolution or winding
up of the Corporation and shall entitle the holders of Convertible Preferred
Stock and Common Stock to receive at the closing in cash, securities or other
property amounts as specified in Sections 3(a) and 3(b) above; provided
however, that a consolidation or merger of the Corporation with or into any
other Corporation shall not be treated as a liquidation, but instead shall be
subject to the provisions of Section 4(j). The Corporation shall mail
written notice of any such liquidation, not less than 60 days prior to the
payment date stated therein, to each record holder of Convertible Preferred
Stock.
Section 4. CONVERSION
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible into shares of Common Stock at the Series A Conversion Ratio at
the option of the holder in whole or in part at any time after January 5,
1998 and on or prior to the fifth day prior to the Redemption Date, if any,
as may have been fixed in any Redemption Notice with respect to the Series A
Preferred Stock. Each share of Series B Preferred Stock shall be convertible
into shares of Common Stock at the Series B Conversion Ratio at the option of
the holder in whole or in part at any time after the expiration of 120 days
after the Series B Issue Date and on or prior
3
<PAGE>
to the fifth day prior to the Redemption Date, if any, as may have been fixed
in any Redemption Notice with respect to the Series B Preferred Stock. Any
conversion under this Section 4(a) shall be of a minimum amount of at least
ten (10) shares of Convertible Preferred Stock.
(b) CONVERSION PRICE.
(i) The conversion price for each share of Series A Preferred
Stock in effect on any Conversion Date shall be the LESSER of X or Y where:
X is the greater of:
(x) $5.00 (the "Series A Fixed Price"); or
(y) C
---------------
[(C DIVIDED BY Series A Fixed Price) + 1.75] DIVIDED BY 2
where
C = the average Per Share Market Value of the five (5) Trading
Days immediately preceding the Conversion Date; and
Y = 90% less 1% multiplied by the number of whole calendar
months from September 8, 1997 to the Conversion Date (subject to a minimum of
80%) multiplied by the average Per Shares Market Value of the five (5)
Trading Days immediately preceding the Conversion Date (the "Five Day
Average") (e.g., if the Conversion date is five (5) months after September 8,
1997, then Y is 85% multiplied by the Five Day Average)(the "Series A
Floating Price).
(ii) The conversion price for each share of Series B Preferred
Stock in effect on any Conversion Date shall be the LESSER of A or B where:
A is the greater of:
(x) $110% of the Per Share Market Value on the Trading Day
immediately preceding the Series B Issue Date (the "Series B Fixed Price"); or
(y) C
---------------
[(C DIVIDED BY Series B Fixed Price) + 1.75] DIVIDED BY 2
where
C = the average Per Share Market Value of the five (5) Trading
Days immediately preceding the Conversion Date; and
4
<PAGE>
B = 90% less 1% multiplied by the number of whole calendar
months from Series B Issued Date to the Conversion Date (subject to a minimum
of 80%) multiplied by the average Per Shares Market Value of the five (5)
Trading Days immediately preceding the Conversion Date (the "Five Day
Average") (e.g., if the Conversion date is five (5) months after the Series B
Issue Date, then Y is 85% multiplied by the Five Day Average)(the "Series B
Floating Price);
provided, however, if the registration statement to be filed by the
Corporation in accordance with the registration rights agreement executed
between the Corporation and the purchasers of the Series B Preferred Stock
(the "Series B Registration Rights Agreement") is not declared effective by
the Commission for any reason by the Effective Date, as defined in the Series
B Registration Rights Agreement, then clauses (A) and (B) above shall be
decreased by 3% on the Effective Date and, if the registration statement
shall still not be effective, by an additional 3% on each of the 30th and
60th days following the Effective Date (i.e., if such registration statement
is declared effective after the Effective Date and within 30 days of the
Effective Date then a 3% reduction, between 31 and 60 days then a 6%
reduction, or between 61 and 90 days, a 9% reduction).
(c) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock
outstanding on September 8, 2000 shall automatically be converted into shares
of Common Stock at the then effective Series A Conversion Ratio. Each share
of Series B Preferred Stock outstanding on January 10, 2001 shall
automatically be converted into shares of Common Stock at the then effective
Series B Conversion Ratio.
(d) MECHANICS OF CONVERSION. Before any holder of Convertible
Preferred Stock shall be entitled to convert shares of Convertible Preferred
Stock into shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for such stock, and shall give written notice (the "Holder
Conversion Notice") to the Corporation at such office that he elects to
convert the same and shall state therein the name or names in which he wishes
the certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, within three Trading Days after the Conversion Date, issue
and deliver to such holder, (i) a certificate or certificates, free of
restrictive legends and trading restrictions (other than those then required
by law) representing the number of shares of Common Stock to which he shall
be entitled as aforesaid; and (ii) if the holder is converting less than all
Convertible Preferred Stock represented by the certificate or certificates
tendered by the holder, a certificate for such number of shares of
Convertible Preferred Stock as have not been converted. Such conversion
shall be deemed to have been made immediately prior to the close of business
on the date of surrender of the shares of Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(e) LIMITATION ON CONVERSION. In no event shall a Holder be entitled
to convert shares of Convertible Preferred Stock in excess of that number of
shares of Convertible Preferred Stock which, upon giving effect to such
conversion, would cause the aggregate
5
<PAGE>
number of shares of Common Stock Beneficially Owned by such holder and its
affiliates to exceed 4.9% of the outstanding shares of Common Stock of the
Corporation following conversion. A holder may waive the foregoing
limitations upon delivery of not less than 61 days prior written notice to
the Corporation.
(f) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES
(i) If the Corporation, at any time while any shares of
Convertible Preferred Stock are outstanding, (a) shall pay a stock dividend
or otherwise make a distribution or distributions on shares of Junior
Securities payable in shares of its capital stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares of Common Stock, (c)
combine outstanding shares of Common Stock into a smaller number of shares of
Common Stock, or (d) issue by reclassification of shares of Common Stock any
shares of the Corporation, then in each such case, the Conversion Price
designated in Section 4(b) shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock outstanding before such
event and the denominator of which shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section 4(f) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or reclassification.
(ii) If the Corporation, at any time while any shares of
Convertible Preferred Stock are outstanding, shall issue rights or warrants
to all holders of shares of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Per Share
Market Value of a share of Common Stock at the record date for the
determination of stockholders entitled to receive such rights or warrants,
the Conversion Price designated in Section 4(b) shall be multiplied by a
fraction, the denominator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance
of such rights or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase, and the numerator of which shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of
Common Stock the issuance of which resulted in an adjustment in the
Conversion Price designated in Section 4(b) pursuant to this Section 4(f) if
any such right or warrant shall expire and shall not have been exercised, the
Conversion Price designated in Section 4(b) shall immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions
of this Section 4(f) after the issuance of such rights or warrants) had the
adjustment of the Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering the subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
6
<PAGE>
(iii) If the Corporation at any time while shares of Convertible
Preferred Stock are outstanding, shall distribute to all holders of shares of
Common Stock (and not to holders of the Convertible Preferred Stock)
evidences of its indebtedness or assets or right or warrants to subscribe for
or purchase any security (excluding those referred to in Section 4(f)(ii)
above) then in each such case the Conversion Price at which each share of
Convertible Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction the denominator of which shall be the Per
Share Market Value of a share of Common Stock determined as of the record
date fixed for determination of stockholders entitled to receive such
distribution, and the numerator of which shall be such Per Share Market Value
of a share of Common Stock less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding 25% of the net assets of the Corporation, such fair
market value shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified accountants of
recognized standing (which may be the firm that regularly examines the
financial statements of the Corporation) (an "Appraiser") selected in good
faith by the holders of a majority in interest of the Convertible Preferred
Stock, voting as a single class; and provided further that the Corporation
after receipt of the determination by such Appraiser shall have the right to
select an additional Appraiser, in which case the fair market value shall be
equal to the average of the determination by each such Appraiser. In either
case the adjustments shall be described in a statement provided to all
holders of Convertible Preferred Stock of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable on a
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(iv) All calculations under this Section 4(f) shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(v) Whenever the Conversion Price is adjusted pursuant to
Section 4(f)(i), (ii) or (iii), the Corporation shall promptly mail to each
holder of Convertible Preferred Stock, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(g) NO FRACTIONAL SHARES. No fractional shares of Common shall be
issued upon conversion of the Convertible Preferred Stock. If more than one
certificate shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares so
surrendered. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation at its election shall either pay cash
equal to such fraction multiplied by the then effective Per Share Market
Value at such time or issue one whole share for each fraction of a share
outstanding, after aggregating all fractional shares held by each stockholder.
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h) RESERVATION OF SHARES OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Convertible Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Convertible Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Convertible Preferred Stock, the Corporation will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to this
Certificate of Incorporation.
(i) ISSUE TAXES. The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Convertible Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(j) RECLASSIFICATION; MERGER; CONSOLIDATION. In the case of any
reclassification of shares of Common Stock, any consolidation or merger of
the Corporation with or into another Person, or the sale or transfer of all
or substantially all of the assets of the Corporation, the holders of the
Convertible Preferred Stock then outstanding shall have the right thereafter
to convert such shares only into the shares and other securities and property
receivable upon or deemed to be held by holders of shares of Common Stock
following such reclassification, consolidation, merger, sale or transfer and
the holders of the Convertible Preferred Stock shall be entitled upon such
transfer to receive such amount of securities or property as the shares of
Common Stock of the Corporation into which such shares of Convertible
Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale or transfer would have been
entitled. The terms of any such reclassification, consolidation, merger,
sale or transfer shall include such terms so as to continue to give to the
holder of the Convertible Preferred Stock the right to receive the securities
or property set forth in this Section 4(j) upon any conversion following such
reclassification, consolidation, merger, sale or transfer. This provision
shall similarly apply to successive reclassifications, consolidations,
mergers, sales and transfers.
(k) NOTICE OF CERTAIN EVENTS. In the event that:
(i) the Corporation declares a dividend (or any other
distribution) on its shares of Common Stock; or
(ii) the Corporation shall declare a special nonrecurring cash
dividend on or a redemption of its shares of Common Stock; or
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(iii) the Corporation shall authorize the granting to all holders
of shares of Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Corporation shall be
required in connection with any reclassification of the shares of Common
Stock of the Corporation (other than a subdivision or combination of the
outstanding shares of Common Stock) any consolidation or merger to which the
Corporation is a party or any sale or transfer of all or substantially all of
the assets of the Corporation; or
(v) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the Corporation
including, without limitation, any of the events described in Section 3
herein, then the Corporation shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Convertible Preferred Stock,
and shall cause to be mailed to the holders of the Convertible Preferred
Stock at their last addresses as they shall appear upon the share register of
the Corporation, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as of which the holders of shares of Common Stock of record to be entitled to
such dividend, distribution, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of
shares of Common Stock of record shall be entitled to exchange entire shares
of Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up; provided, however, if the notice referred to
herein will contain material non-public information if distributed at the
time period specified herein, then the notice shall be distributed to the
holders of the Convertible Preferred Stock on the later to occur of (a) 30
calendar days prior to the applicable record or effective date specified
herein or (b) the date that such information is made publicly available or
(c) at such time as such information otherwise ceases to be material
non-public information; provided further that the notice requirement to be
distributed pursuant to this section shall be distributed at least five (5)
calendar days prior to the applicable record or effective date.
(l) NOTICES. Each Holder Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the attention of the Chief
Financial Officer of the Corporation at the facsimile number and address of
the principal place of business of the Corporation. Any such notice shall be
deemed given and effective upon the earlier to occur of (i)(a) if such Holder
Conversion Notice is delivered via facsimile at the facsimile number
specified in this Section 4(l) prior to 4:30 p.m. (New York time) on any
Trading Day, such Trading Day or such later date as is specified in the
Holder Conversion Notice, and (b) if such Holder Conversion Notice is
delivered via facsimile at the facsimile number specified in this Section
4(l) after 4:30 p.m. (New York time) on any Trading Day, the next Trading Day
or such later date as specified in the Holder Conversion Notice, (ii) five
(5) days after deposit in the
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United States mails or (iii) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. REDEMPTION
(a) CORPORATION REDEMPTION. The Corporation may redeem, from any
source of funds legally available therefor, at any time any or all shares of
the Convertible Preferred Stock then outstanding by delivering a notice (the
"Redemption Notice") to the holders of the Convertible Preferred Stock being
redeemed setting forth the date of such redemption (the "Redemption Date")
(which shall be no less than thirty days following the date of the Redemption
Notice) and paying to the holder (x) a cash payment (the "Redemption Price")
equal to the product of (i) the greater of: (a) the Per Share Market Value on
the Trading Day immediately preceding the Redemption Date; or (b) the average
of the Per Share Market Values for the five (5) Trading Days immediately
preceding the Redemption Date, (ii) the number of shares of Convertible
Preferred Stock to be redeemed, and (iii) the Series A Conversion Ratio or
the Series B Conversion Ratio, as applicable; and (y) a warrant (the
"Redemption Warrant") to purchase a number of shares of Common Stock equal to
the Stated Value plus unpaid accrued dividends of the Convertible Preferred
Stock being redeemed divided by the Series A Fixed Price or the Series B
Fixed Price, as applicable, exercisable at the Series A Fixed Price or the
Series B Fixed Price, as applicable, with an expiration date of the third
anniversary of the Series A Issue Date or the Series B Issue Date, as
applicable. The Redemption Price shall be payable by the Corporation on the
Redemption Date. Any redemption effected pursuant to this Section 5(a) shall
be made on a pro-rata basis among the holders of the Series A Preferred Stock
and Series B Preferred Stock in proportion to the shares of Series A
Preferred Stock and Series B Preferred Stock then held by them.
(b) HOLDER REDEMPTION. Each holder of Convertible Preferred Stock has
the right to require the Corporation to redeem any or all of the shares of
Convertible Preferred Stock then held by the holder (a "Forced Redemption")
upon the occurrence of one of the following events (each a "Forced
Redemption Event"):
(i) the registration statement required to be filed by the
Corporation pursuant to the registration rights agreements dated September 8,
1997 and September 19, 1997 between the Corporation and each holder of Series
A Preferred Stock (the "Series A Registration Rights Agreement") or the
Series B Registration Rights Agreement has not been filed and declared
effective by the date which is 210 days from the Series A Issue Date or the
Series B Issue Date, as applicable, or there is a lapse in the effectiveness
of the registration statement filed pursuant to the Series A Registration
Rights Agreement or the Series B Registration Rights Agreement which
continues for an aggregate of 40 Trading Days, excluding from such time
calculation any Blackout Periods, as defined in each of the Series A
Registration Rights Agreement and the Series B Registration Rights Agreement;
(ii) the shares of Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock)
shall (a) cease to be listed or authorized for trading on any of the Nasdaq
National Market, the Nasdaq Small Cap
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Market, the American Stock Exchange or the New York Stock Exchange
(collectively, the "Exchanges"), or (b) are suspended from trading on any of
the Exchanges, each for a consecutive 20 calendar day period; or
(iii) the Corporation fails to deliver stock certificates
representing the shares of Common Stock to be issued upon conversion of the
Convertible Preferred Stock within 30 Trading Days of the Conversion Date.
In the event of a Forced Redemption, the holder will deliver written notice
to the Corporation and, within thirty (30) days of receipt of such notice,
the Corporation will redeem the shares of Convertible Preferred Stock by
paying to the holder a payment in cash, check or wire transfer equal to the
Redemption Price.
(c) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of
shares of Convertible Preferred Stock designated for redemption in the
Redemption Notice as holders of Convertible Preferred Stock (except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Convertible Preferred Stock on any Redemption Date are insufficient to redeem
the total number of shares of Convertible Preferred Stock to be redeemed on
such date, those funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of the
Convertible Preferred Stock to be redeemed. The shares of Convertible
Preferred Stock or Series B Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Convertible Preferred Stock such
funds will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on an Redemption Date, but which
it has not redeemed.
Section 6. GENERAL PROVISIONS
The Corporation shall not, without first obtaining the approval by vote
or written consent, in the manner provided under applicable law, of the
holders of a majority of the Series A Preferred Stock then outstanding create
(by reclassification of an existing class or series, or otherwise) any new
class or series of shares of Preferred Stock senior to the Series A Preferred
Stock as to voting rights, dividends, redemption or distribution of assets of
the Corporation in liquidation. The Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided
under applicable law, of the holders of a majority of the Series B Preferred
Stock then outstanding create (by reclassification of an existing class or
series, or otherwise) any new class or series of shares of Preferred Stock
senior to the Series B Preferred Stock as to voting rights, dividends,
redemption or distribution of assets of the Corporation in liquidation.
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Section 7. DEFINITIONS
(a) "BENEFICIALLY OWNED" means and includes the number of shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock with
respect to which the determination of such provision is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, non-converted shares of Convertible Preferred
Stock beneficially owned by a holder and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities
of the Corporation (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein Beneficially Owned by a holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this definition, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended.
(b) "COMMON STOCK" means shares of common stock, par value $.001 of the
Corporation.
(c) "CONVERSION DATE" means the date of surrender of the shares of
Convertible Preferred Stock to be converted pursuant to Section 4(d) of
Article V.
(d) "JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Corporation, except the Convertible Preferred Stock.
(e) "PER SHARE MARKET VALUE" means on any particular date (i) the
closing bid price per share of the Common Stock on such date on the Nasdaq
Stock Market or other stock exchange on which the shares of Common Stock have
been listed or if there is no such price on such date, then the closing bid
price on such exchange on the date nearest preceding such date, or (ii) if
the shares of Common Stock are no longer publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser selected in
good faith by the holders of a majority in interest of the Convertible
Preferred Stock; provided, however, that the Corporation, after receipt of
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average
of the determinations by each such Appraiser.
(f) "PERSON" means a corporation, association, partnership, limited
liability company, organization, business, individual, government or
political subdivision thereof or a government agency.
(g) "SERIES A CONVERSION RATIO" means, at any time, a fraction, the
numerator of which is the Stated Value plus accrued but unpaid dividends, and
the denominator of which is the Series A Conversion Price at such time.
(h) "SERIES A ISSUE DATE" means September 8, 1997.
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(i) "SERIES B CONVERSION RATIO" means, at any time, a fraction, the
numerator of which is the Stated Value plus accrued but unpaid dividends, and
the denominator of which is the Series B Conversion Price at such time.
(j) "SERIES B ISSUE DATE" means the date of the first issuance of any
Series B Preferred Stock regardless of the number of any particular shares of
Series B Preferred Stock and regardless of the number of certificates which
may be issued to evidence such shares of Series B Preferred Stock.
(k) "STATED VALUE" means $1,000 per share of Convertible Preferred
Stock.
(l) "TRADING DAY" means a day on which the shares of Common Stock are
traded on the Nasdaq Stock Market or on an exchange on which the shares of
Common Stock have then been listed.
VI. Except and to the extent designated with respect to the Preferred
Stock, all rights to vote and all voting power shall be vested in the Common
Stock and the holders thereof shall be entitled at all elections of directors
to one (1) vote per share. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called only by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President of the Corporation.
VII. The directors of the Corporation shall be divided into three
classes, designated Class I, Class II and Class III. The term of the initial
Class I directors shall terminate on the date of the 1998 annual meeting of
stockholders; the term of the Class II directors shall terminate on the date
of the 1999 annual meeting of stockholders and the term of the Class III
directors shall terminate on the date of the 2000 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1998,
successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors
is changed, any increase or decease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
reasonably possible, and any additional directors of any class elected to
fill a vacancy resulting form an increase in such class shall hold for a term
that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
directors. A director shall hold office until the annual meeting for the
year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of
Directors, however resulting, shall be filled only by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director and not by the stockholders. Any director elected to fill a
vacancy shall hold office for a term that shall coincide with the terms of
the class to which such director shall have been elected.
Subject to the rights, if any, of the holders of shares of Preferred
Stock then outstanding, any or all of the directors of the Corporation may be
removed from office at any time, for cause only, by the affirmative vote of
the holders of a majority of the outstanding
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shares of the Corporation then entitled to vote generally in the election of
the directors, considered for purposes of this Article VII. as one class.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to the second paragraph of Article
V applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article VII. unless expressly provided by such terms.
VIII. Elections of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the
Corporation shall otherwise provide.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the stockholders
at an annual or special meeting duly noticed and called, as provided in the
Bylaws of the Corporation, and may not be taken by written consent of the
stockholders pursuant to the Delaware Law; PROVIDED, HOWEVER, if the
Corporation has only one stockholder, then any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken by
the written consent of such stockholder.
IX. The officers of the Corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as
are determined solely by the Board of Directors, subject to the right of the
Board of Directors to remove any officer or officers at any time with or
without cause.
X. The Corporation shall indemnify to the fullest extent authorized
or permitted by law (as now or hereafter in effect) any person made, or
threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact
that she or he, her or his testator or intestate, is or was a director,
officer, employee or agent of the Corporation or by reason of the fact that
any person is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or enterprise. Nothing contained
herein shall affect any rights to indemnification to which employees other
than directors and officers may be entitled by law. No amendment or repeal
of this paragraph of Article X shall apply to or have any effect on any right
to indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional
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misconduct or a knowing violation of law, (iii) pursuant to Section 174 of
the Delaware Law, or (iv) for any transaction from which such director
derived an improper personal benefit. No amendment to or repeal of this
paragraph of Article X shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
In furtherance and not in limitation of the powers conferred by statute:
(i) the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer, employee or
agent of the Corporation, or is serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power
to indemnify against such liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation,
letters of credit, surety bonds and/or other similar arrangements), as
well as enter into contract providing indemnification to the full extent
authorized or permitted by law and including as part thereof provisions
with respect to any or all of the foregoing to ensure the payment of
such amounts as may become necessary to effect indemnification as
provided therein, or elsewhere.
XI. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the corporation
shall have the authority to adopt, repeal, alter, amend or rescind the Bylaws
of the Corporation.
XII. The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; PROVIDED, HOWEVER,
that, notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote, but in addition to any vote of the holders of any class or series
thereof of the stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at least
66 2/3 percent of the combined voting power of the outstanding shares of
stock of all classes and series thereof of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required to amend, repeal or adopt any provision inconsistent with
(i) the second sentence of Article VI, (ii) Article VII, (iii) the second
paragraph of Article VIII, (iv) Article XI or (v) this Article XII.
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XIII.
Section 1.
In addition to the rights granted under Section 262 of the Delaware Law,
and subject to the provisions of this Article XIII, a holder of shares of any
class or series of capital stock of the Corporation is hereby empowered to
dissent, and thereafter exercise the appraisal rights contemplated in Section
262 of the Delaware Law, in the event that the Board of Directors resolves
(i) to amend this Certificate of Incorporation to add, change or remove any
provisions restricting or constraining the issue, transfer, or ownership of
shares of that class or series of capital stock; (ii) to amend this
Certificate of Incorporation in any manner which would require a vote of
stockholders of the outstanding shares of such class or series under Section
242 of the Delaware Law; (iii) to amend this Certificate of Incorporation to
add, change or remove any restriction upon the business or businesses in
which the Corporation may engage; (iv) to sell, lease or exchange all or
substantially all of its assets; (v) to amend the provisions of this Article
XIII; or (vi) to effect any merger or consolidation in which the Corporation
is a constituent corporation, whether or not any appraisal rights are
otherwise available under Section 262 of the Delaware Law. Upon the passage
of any such resolution, the procedures of Section 262 of the Delaware Law
shall apply as nearly as is practicable, with the provisions of Section
262(d)(1) being applicable if the proposed action is to be submitted or
approval at a meeting of stockholders, and the provisions of Section
262(d)(2) being applicable if not such meeting or vote of stockholders is
required to implement such action.
Section 2.
Subject to any contrary provisions of the laws of the State of Delaware,
a beneficial or record stockholder may apply to a court for leave to
institute a cause of action in the name and on behalf of the Corporation, or
to intervene in an action to which the Corporation is a party for the purpose
of prosecuting, defending or discontinuing the action on behalf of the
Corporation, provided that no such action may be brought and no intervention
in any action may be made unless the court is satisfied that (i) the
complainant has given reasonable notice to the Board of Directors of its
intention to apply to the court to bring a derivative action if the
Corporation does not itself bring, diligently prosecute or defend or
discontinue the action; (ii) the complainant is acting in good faith; and
(iii) it appears to be in the interest of the Corporation that the action be
brought, prosecuted, defended or discontinued.
Section 3.
Subject to any contrary provisions of the laws of the State of Delaware,
a beneficial or record stockholder is hereby empowered to apply to a court of
appropriate jurisdiction for an order to remedy a result that is oppressive
or unfairly prejudicial to or that unfairly disregards the interest of any
security holder, director or officer of the Corporation arising from (i) any
act or omission of the Corporation; (ii) the carrying on or conduct of the
business or affairs of the Corporation; or (iii) the exercise of the powers
of the Board of
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Directors of the Corporation. In connection with an action brought pursuant
to rights granted under this Article XIII, the court may make an interim or
final order it thinks fit including, without limiting the generality of the
foregoing:
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-manager;
(c) an order directing an issue or exchange of securities;
(d) an order directing a corporation, subject to the last
paragraph of this Section 3, or any other person, to purchase securities of a
security holder;
(e) an order directing a corporation, subject to the last
paragraph of this Section 3, or any other person, to pay a security holder
any part of the monies paid by him for securities;
(f) an order varying or setting aside a transaction or contract
to which a corporation is a party and compensating the corporation aor any
other party of the transaction or contract;
(g) an order requiring a corporation, within a time specified by
the court, to produce to the court or an interested person financial
statements for accounting in such other form as the court may determine;
(h) an order compensating an aggrieved person;
(i) an order directing rectification of the stock register or
other records of the Corporation;
(j) an order liquidating and dissolving the Corporation;
(k) an order directing an investigation into the affairs of the
Corporation;
(l) an order requiring the trial of any issue;
provided, however, that the Corporation shall not be compelled to make a
payment to a stockholder under paragraph (d) or (e) above if there are
reasonable grounds for believing that the Corporation is or would after that
payment be unable to pay its liabilities as they become due, or that the
realizable value of the Corporation's assets would thereby be less than
aggregate of its liabilities.
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Section 4. The Corporation shall remain incorporated under the Delaware
General Corporation Law or any statutory modification or replacement thereof
and shall not merge or consolidate with any entity except as provided in this
Article XIII.
Section 5. The provisions of this Article XIII may only be amended:
(a) Where the effective date of such amendment occurs on or before a
specified date which is 5 years from the date of issue of the
Director's Letter of Satisfaction, by a resolution passed by the
affirmative vote of stockholders holding not less than 90% of the
shares of each class or series of stock, whether or not such class
or series of stock otherwise has voting rights;
(b) Where the effective date of such amendment occurs after a specified
date which is 5 years from the date of issue of the Director's
Letter of Satisfaction, by a resolution passed by the affirmative
vote of stockholders holding not less than 66-2/3% of the shares of
each class or series of stock, whether or not such class or series of
stock otherwise has voting rights.
Section 6. Notwithstanding Sections 4 and 5 of this Article XIII, the
corporation may merge or consolidate with another entity if:
(a) the entity surviving such merger or consolidation is a corporation
subject to the Delaware General Corporation Law and its Certificate
of Incorporation includes all of the provisions of this Article XIII;
or
(b) Such entity owns or operates a significant business and is not
controlled by, or under common control with, the Corporation, and
such merger or consolidation does not have as its primary purpose,
the avoidance of this Article XIII;
and, in either case:
(c) Such merger or consolidation is approved in the same manner and by
the same majority of stockholders as is required by the Delaware
General Corporation Law; and
(d) Dissent and appraisal rights are provided to stockholders on the
same basis in respect of such merger or consolidation as is set
forth in Section 1 of this Article XIII.
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XIV. The name and mailing address of the incorporator of the
Corporation is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- --------
<S> <C>
Leon Nowek 21700 Oxnard Street, Suite 1550
Woodland Hills, California 91367
</TABLE>
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IN WITNESS WHEREOF, the undersigned being the sole incorporator has
executed this Certificate of Incorporation this __ day of July, 1998.
-----------------------------
Leon Nowek
Sole Incorporator
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BYLAWS
OF
TURBODYNE TECHNOLOGIES INC.
(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 Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business 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 MEETINGS. 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.
(a) 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.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before
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meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than
the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that
in the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from the
date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not earlier than the
close of business on the ninetieth (90th) day prior to such annual meeting
and not later than the close of business on the later of the sixtieth (60th)
day prior to such annual meeting or, in the event public announcement of the
date of such annual meeting is first made by the corporation fewer than
seventy (70) days prior to the date of such annual meeting, the close of
business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) 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, (ii) the
name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b).
The chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this paragraph (b), and, if
he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(c) Only persons who are confirmed in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of directors at the meeting who complies with the
notice procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the corporation
in accordance with the provisions of paragraph (b) of this Section 5. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (c) the class and
number
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of shares of the corporation which are beneficially owned by such person, (D)
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 nominations are to be made by the stockholder,
and (E) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section
5. At the request of the Board of Directors, any person nominated by a
stockholder for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so
declare at the meeting, and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "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 corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), and shall be held at such place, on such
date, and at such time as the Board of Directors, shall determine.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the
notice is not given within sixty (60) days after the receipt of the request,
the person or persons requesting the meeting may set the time and place of
the meeting and give the notice.
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Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action
of the Board of Directors may be held.
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 not less than one-third of the outstanding shares of stock
entitled to vote shall constitute a quorum for the transaction of business.
In the absence of a quorum, any meeting of stockholders may be adjourned,
from time to time, either by the chairman of the meeting or 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 votes cast, excluding abstentions,
at any meeting at which a quorum is present shall be valid and binding upon
the corporation; provided, however, that directors shall be elected by a
plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors.
Where a separate vote by a class or classes or series is required, except
where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to
time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes, excluding abstentions. 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
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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 shall have the right to do so either in person
or by an agent or agents authorized by a proxy granted in accordance with
Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the
proxy provides for a longer period.
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 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. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the
stockholders by written consent.
SECTION 14. ORGANIZATION.
(a) 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, a
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chairman of the meeting chosen by a majority in interest of the stockholders
entitled to vote, present in person or by proxy, shall act as chairman. The
Secretary, or, in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, 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 judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business
for the meeting, rules and procedures for maintaining order at the meeting
and the safety of those present, limitations on participation in such meeting
to stockholders of record of the corporation and their duly authorized and
constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the
polls for balloting on matters which are to be voted on by ballot. Unless
and to the extent determined by the Board of Directors or the chairman of the
meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND QUALIFICATION. The authorized number of
directors of the corporation shall be not less than two (2) nor more than
twelve (12) as fixed from time to time by resolution of the Board of
Directors; PROVIDED that no decrease in the number of directors shall shorten
the term of any incumbent directors. 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. ELECTION AND TERM OF OFFICE OF DIRECTORS. Members of the
Board of Directors shall hold office for the terms specified in the
Certificate of Incorporation, as it may be amended from time to time, and
until their successors have been elected as provided in the Certificate of
Incorporation.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such
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vacancies or newly created directorships shall be filled by stockholder vote,
be filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Bylaw in the case of the death, removal or resignation of
any director.
SECTION 19. 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 20. REMOVAL. Subject to any limitations imposed by law and the
provisions of the Certificate of Incorporation, the Board of Directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of a majority of the then-outstanding shares
of voting stock of the corporation entitled to vote at an election of
directors ("Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or 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 Chairman of the Board, the President or any two of the directors.
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(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 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. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days 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. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation 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) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. 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.
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SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a 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.
SECTION 25. 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 provided in the
resolution of the Board of Directors 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, including without limitation the
power or authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(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 such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board
of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw 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 from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of
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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 25 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 any place which has been determined from
time to time by such committee, 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 26. 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.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer, the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Direction. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign
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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 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. If there is no President,
then the Chairman of the Board of Directors shall also serve as the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in paragraph (c) of this Section 28.
(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. Unless
some other officer has been elected Chief Executive Officer of the
corporation, 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 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
11
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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 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 the
Treasurer or any Assistant Treasurer, or the Controller or any Assistant
Controller to assume and perform the duties of the Chief Financial Officer in
the absence or disability of the Chief Financial Officer, and each Treasurer
and Assistant Treasurer and each Controller and Assistant Controller 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. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. 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. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent 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 32. EXECUTION OF CORPORATE INSTRUMENT. 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
12
<PAGE>
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 Treasurer or any Assistant Secretary
or Assistant Treasurer. All other instruments and documents requiting 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.
All checks and drafts drawn on banks or other depositaries 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.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 33. 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 Chief Executive
Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. 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 Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. 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. Each certificate shall state upon the face or back thereof, in
full or in summary, all of the powers, designations, preferences, and rights,
and the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back
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<PAGE>
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. 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 36. TRANSFERS.
(a) 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.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) 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, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
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. A determination of
14
<PAGE>
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.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
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 record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
filed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 38. 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 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), 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 Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated
by the manual signature, or where permissible facsimile 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
Treasurer or an Assistant Treasurer 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 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.
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<PAGE>
ARTICLE IX
DIVIDENDS
SECTION 40. 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 41. DIVIDEND RESERVE. Before payment of any dividend, there
may be set 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 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS OFFICERS. The corporation shall indemnify its directors
and officers to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required
to indemnify any director or officer in connection with any proceeding (or
part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law or (iv)
such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
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(c) EXPENSE. The corporation shall advance to any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said mounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer
is or was a director of the corporation in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
officers 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 or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer 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. In connection with any claim for indemnification,
the corporation shall be entitled to raise as a defense to any such action
that the claimant has not met the standard of conduct that make it
permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. In connection with any claim
by an officer of the corporation (except in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that such officer is or was a director of the corporation) for advances,
the corporation shall be entitled to raise a defense as to any such action
clear and convincing evidence that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed in the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that
his conduct was lawful. 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
17
<PAGE>
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. In any suit brought
by a director or officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
officer is not entitled to be indemnified, or to such advancement of
expenses, under this Article XI or otherwise shall be on the corporation.
(e) 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 not prohibited by the Delaware General
Corporation Law.
(f) 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.
(g) 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.
(h) 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.
(i) SAVING 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 director and officer to the
full extent not prohibited by any applicable portion of this Bylaw that shall
not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or
18
<PAGE>
judgment and any other costs and expenses of any nature or kind incurred
in connection with any proceeding.
(iii) 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
or 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.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer,
officer, employee, trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
(v) 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 44. 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 (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall
19
<PAGE>
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such director.
(c) 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 in the absence of fraud, be
prima facie evidence of the facts therein contained.
(d) 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 facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) 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.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which 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 ill 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.
(g) 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 Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be require 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.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
20
<PAGE>
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. 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 need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3 %) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee
or other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing
in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
21
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0
0
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<TOTAL-REVENUES> 20,750,000
<CGS> 17,584,000
<TOTAL-COSTS> 27,910,000
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> 581,000
<INCOME-PRETAX> 7,245,000
<INCOME-TAX> 24,000
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<NET-INCOME> (7,769,000)
<EPS-PRIMARY> 0.23
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</TABLE>