SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number: 0-22401
BIONX IMPLANTS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 22-3198032
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1777 Sentry Parkway West
Gwynedd Hall, Suite 400
Blue Bell, Pennsylvania 19422
(Address of principal executive office, including zip code)
215-643-5000
(Registrant's telephone number, including area code)
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At November 5, 1999, there were 8,897,500 shares of Common Stock, par
value $.0019 per share, outstanding.
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1998
and September 30, 1999 (Unaudited) 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1999
(in thousands, except share amounts)
December 31, September 30,
1998 1999
(Unaudited)
Assets:
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14,213 $ 2,926
Inventory, net 9,778 13,423
Trade accounts receivable, net of
allowance of $142 and $394 as of December 31,
1998 and September 30, 1999 4,643 3,794
Grants receivable 189 145
Due from related parties 239 297
Prepaid expenses and other current assets 726 482
Deferred tax assets 829 1,184
----- -----
Total current assets 30,617 22,251
Investments 87 87
Plant and equipment, net 2,561 3,321
Goodwill and intangibles, net 3,684 3,738
---- -----
Total assets $ 36,949 $29,397
======== =======
Liabilities and Stockholders' Equity:
Current Liabilities:
Trade accounts payable $ 4,176 $ 2,814
Long-term debt, current portion 41 -
Current income tax liability 578 395
Accrued and other current liabilities 1,839 1,682
----- -----
Total current liabilities 6,634 4,891
Long-term debt 75 60
Stockholders' equity:
Preferred stock, par value $0.001 per share,
8,000,000 authorized and none issued - -
Common stock, par value, $0.0019 per share,
31,600,000 shares authorized, 8,924,000 shares issued
and outstanding as of December 31, 1998 and
September 30, 1999 17 17
Treasury stock, 20,500 and 26,500 shares as of December 31,
1998 and September 30, 1999, respectively (128) (161)
Additional paid-in capital 35,642 35,642
Accumulated deficit (4,266) (10,027)
Foreign currency translation adjustment (1,025) (1,025)
------ -------
Total stockholders' equity 30,240 24,446
------ ------
Total liabilities and stockholders' equity $ 36,949 $29,397
======== =======
</TABLE>
See accompanying notes to the unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Product Sales $5,265 $4,802 $14,781 $14,917
Grant revenues 128 90 290 256
------- ------- -------- -------
Total revenues 5,393 4,892 15,071 15,173
------- ------- ------- -------
Cost of goods sold 1,157 1,032 3,200 3,834
Special charge related to instrument inventory - - - 929
------- ------ ------ ------
Gross profit 4,236 3,860 11,871 10,410
------- ------ ------ ------
Selling, general and administrative 3,274 3,781 9,416 12,779
Research and development 533 778 1,464 2,050
Severance charges - - - 275
Patent litigation - 633 - 1,726
------- ------- --------- -------
Total operating expenses 3,807 5,192 10,880 16,830
------- ------- --------- ------
Operating income (loss) 429 (1,332) 991 (6,420)
------- -------- --------- -------
Other income and expense 161 45 729 709
------ ------- --------- -------
Income (loss) before provision for
income taxes 590 (1,287) 1,720 (5,711)
Provision for income taxes 171 50 50 529
----- ------ --------- -------
Net income (loss) $ 419 $1,337 $ 1,191 $ (5,761)
===== ======= ========= =========
Earnings (loss) per share:
Basic $ 0.05 $ (0.15) $ 0.13 $ (0.65)
Diluted 0.05 (0.15) 0.13 (0.65)
Shares used in computing earnings (loss) per share:
Basic 8,922 8,895 8,921 8,895
Diluted 9,227 8,895 9,261 8,895
</TABLE>
See accompanying notes to the unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
-------------------------------
1998 1999
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,191 $(5,761)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 427 648
Change in assets and liabilities:
(Increase) in inventory, net (3,789) (3,645)
Decrease (increase) in trade accounts receivable, net (867) 849
Decrease in grants receivable 26 44
(Increase) in related parties (74) (58)
(Increase) decrease in prepaid expense and other current assets (371) 244
(Increase) in deferred tax asset (252) (355)
Increase (decrease) in trade accounts payable 458 (1362)
(Decrease) in current income tax liability (477) (183)
(Decrease) in accrued and other current liabilities (100) (157)
----- -----
(5,019) (3,975)
Net cash used in operating activities (3,828) (9,736)
------- -------
Cash flows from investing activities
Purchase of plant and equipment (1,625) (1,348)
Purchase of intangible assets - (114)
-------- -------
Net cash used in investing activities (1,625) (1,462)
------- -------
Cash flows from financing activities:
Capitalization of patents (104) -
Repayment of long-term debt (32) (56)
Proceeds from exercise of employee stock options 26 -
Purchase of treasury shares - (33)
--------- -----
Net cash used in financing activities (110) (89)
Net decrease in cash and cash equivalents (5,563) (11,287)
Cash and cash equivalents at beginning of period 22,632 14,213
------ ------
Cash and cash equivalents at end of period $ 17,069 $ 2,926
====== =======
Supplementary cashflow information:
Cash paid for interest $ 1 $ 1
Cash paid for taxes $ 1,154 $ 383
======= ======
</TABLE>
See accompanying notes to the unaudited Consolidated Financial Statements.
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared by Bionx
Implants, Inc. (the "Company") and are unaudited. In the opinion of the
Company's management, all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position as of December 31, 1998 and September 30, 1999, and the Company's
consolidated results of operations and cash flows for the three and nine months
ended September 30, 1998 and 1999, have been made. Certain information and
footnote disclosures required under generally accepted accounting principles
have been condensed or omitted from the consolidated financial statements and
notes thereto presented herein pursuant to the rules and regulations of the SEC.
The consolidated financial statements and notes thereto presented herein should
be read in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 1998 and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
(SEC file no. 0-22401) filed with the SEC. The results of operations and the
cash flows for the three, and nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for any other interim
period or the entire fiscal year.
2. Inventory
Inventory consists of the following components (000's):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
<S> <C> <C>
Raw materials/Semi-finished implants $1,781 $ 996
Finished goods - implants 2,570 3,597
Instruments 2,457 6,190
Instruments on consignment 3,944 6,180
----- -----
10,752 16,963
Inventory reserve (174) (503)
Special instrument inventory charge (a) -- (929)
Accumulated amortization
- consigned instruments (800) (2,108)
----- ------
$ 9,778 $13,423
======= =======
</TABLE>
(a) This special charge of $929,000 was taken in the second quarter of 1999 as
a result of the reevaluation of the current value of certain of the Company's
instrument inventory due to changes in technology and the introduction of new
instruments.
3. Net Income (loss) Per Share
Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding during the period. Diluted earnings per
share is computed using the weighted average number of common and dilutive
potential common shares outstanding during the period. Potential common shares
consist of stock options and warrants using the treasury stock method and are
excluded if their effect is antidilutive.
The following table sets forth the calculation of the total number of
shares used in the computation of net earnings (loss) per common share for the
three and nine months ended September 30, 1998 and 1999 (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months Three and Nine
Ended September Ended Months Ended
30, September 30, September 30,
1998 1998 1999
---- ---- ----
<S> <C> <C> <C>
Shares used in computing basic 8,922 8,922 8,895
earnings per share
Incremental shares from assumed 344 339 --
exercise of dilutive options and
warrants
Shares used in computing diluted 9,227 9,261 8,895
earnings per share
</TABLE>
4. Severance Charges
During the second quarter of 1999, the Company incurred a one-time
severance charge of $275,000. This severance charge relates to the
organizational restructuring of the Company, including severance payments to the
Company's former chief executive officer, chief financial officer and vice
president of sales. As of September 30, 1999 the balance of these charges was
$150,000. The remaining charges will be paid on or before March 31, 2000.
5. Reincorporation
On August 27, 1999, the Company reincorporated, changing its state of
incorporation from Delaware to Pennsylvania. It effected this reincorporation by
creating a wholly-owned subsidiary as a Pennsylvania corporation and then
merging the parent corporation (a Delaware corporation) into that subsidiary.
The subsidiary was the surviving corporation in this transaction. The
reincorporation was approved by the Company's stockholders at the Company's
annual meeting of stockholders on August 13, 1999. Upon consummation of the
transaction, each share of Common Stock of the Company as a Delaware
corporation, par value $.0019 per share, was converted into one share of Common
Stock of the Company as a Pennsylvania corporation, par value $.0019 per share.
There was no change in the name, business, management, benefit plans, location,
assets, liabilities or net worth of the Company as a result of the
reincorporation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business
Statements regarding future performance in this Quarterly Report on
Form 10-Q constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995 ("Forward looking Statements"). The Company's
actual results could differ materially from those anticipated by such
forward-looking statements as a result of certain factors, including those set
forth in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
The Company was founded in 1984 to develop certain resorbable polymer
implants for orthopedic uses. The Company had incurred substantial operating
losses from its inception through December 31, 1996, with an accumulated deficit
of approximately $7.7 million as of December 31, 1996. Such losses resulted
principally from expenses associated with the development, patenting and
clinical testing of the Company's Self-Reinforcing technologies and resorbable
implant designs, preparation of submissions to the U.S. Food and Drug
Administration (the "FDA") and foreign regulatory agencies, the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development, and the development of its manufacturing capabilities.
After recording profitable results for a number of quarters, the Company has
again recorded losses in recent periods. As of September 30, 1999, the
accumulated deficit was approximately $10 million. The Company may incur
significant operating losses in the future as it continues its product
development efforts, expands its marketing, sales and distribution activities,
develops strategies for competing with other manufacturers, and scales up its
manufacturing capabilities. There can be no assurance that the Company will be
able to successfully commercialize its products or that profitability will again
be achieved.
The Company first introduced its polyglycolic acid ("PGA") polymer pins
in 1984 and its PGA screws in 1986. In 1987, the Company introduced its first
poly-l-lactic acid ("PLLA") polymer products, PLLA pins. PLLA screws were
introduced in 1989. Since the introduction of these products, the Company has
expanded its PGA and PLLA pin and screw product lines to address additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company launched its Meniscus Arrow and PLLA tacks. Prior to
1996, the Company derived substantially all of its revenue from sales of its
PLLA and PGA screws and pins. A substantial portion of the Company's revenues in
more recent periods has resulted from U.S. sales of the Meniscus Arrow, which
received FDA clearance in March 1996. To date, all products sold by the Company
have been launched first in international markets. During the three months ended
September 30, 1999, international product sales represented 14% of the Company's
total product sales.
The Company typically sells or consigns implant grade, stainless steel
surgical instruments for use with each of its Self-Reinforced, resorbable
products. The sale of these instruments results in margins which are typically
lower than the margins applicable to the Company's implant products. However,
since orthopedic companies operating in the U.S. have traditionally loaned
rather than sold instruments to their customers, the Company anticipates that in
the future it will be necessary for the Company to provide an increasing
proportion of its instrumentation in the U.S. on a loan basis. In most cases
instrumentation is provided on a consignment basis to customers that commit to a
certain purchase level of implant products. For financial statement purposes,
revenues from the sale of instrumentation systems are included within product
sales and costs associated with such systems are included within cost of goods
sold. In the case of a consigned product, the Company amortizes the cost of the
instrumentation over a three to four year period as cost of goods sold. The
Company's instrumentation systems are reusable. Accordingly, sales and loans of
such systems are likely to be most pronounced in periods shortly after product
launches and are likely to be less prevalent as penetration of the market
increases over the long term.
The Company sells its products through managed networks of independent
sales agents, direct sales representatives, distributors and dealers. In the
U.S., the Company handles all invoicing functions directly and pays commissions
to its sales agents or representatives. Outside the U.S., the Company sells its
products directly to distributors and dealers at discounts that vary by product
and by market. Accordingly, the Company's U.S. sales result in higher gross
margins than its international sales. The Company anticipates that during the
next few years, the relative percentage of its international product sales to
total product sales are expected to increase.
<PAGE>
The Company has entered into agreements pursuant to which the Company
is obligated to pay royalties based on net sales of certain of the Company's
products, including the Meniscus Arrow. To the extent that sales of the Meniscus
Arrow products and other licensed products increase in future periods, the
Company's royalty obligations are expected to increase.
The Company invoices more than 85% of its consolidated revenues in U.S.
dollars. Approximately 80% of the expenses incurred by the Company are
denominated in U.S. dollars. The remaining portion of revenues and expenses are
denominated in European currencies, predominantly Finnish Markka. The Company
seeks to manage its foreign currency risk for these other currencies through the
purchase of foreign currency options and forward contracts. No assurances can be
given that such hedging techniques will protect the Company from exposure
resulting from relative changes in the economic strength of the foreign
currencies applicable to the Company. Foreign exchange transaction gains and
losses can vary significantly from period to period.
While the Company's operating losses have resulted in net operating
loss carryforwards of approximately $900,000 for income tax reporting purposes,
the extent to which such carryforwards are available to offset future U.S.
taxable income is significantly limited as a result of various ownership changes
that have occurred in recent years. Additionally, because U.S. tax laws limit
the time during which these carryforwards may be applied against future taxes,
the Company may not be able to take full advantage of the U.S. carryforwards for
federal income tax purposes. Furthermore, income earned by a foreign subsidiary
may not be offset against operating losses of Bionx Implants, Inc. or its U.S.
subsidiaries. As a result, the Company may incur tax obligations during periods
when it reflects a consolidated net operating loss. The statutory tax rates
applicable to the Company and its foreign subsidiaries vary substantially,
presently ranging from approximately 40% in the U.S. to 28% in Finland. Tax
rates have fluctuated in the past and may do so in the future.
The Company's results of operations have fluctuated in the past on an
annual and quarterly basis and may fluctuate significantly from period to period
in the future, depending on several factors, many of which are outside of the
Company's control. Such factors include the timing of government approvals, the
medical community's acceptance of the Company's products, the success of
competitive products, the ability of the Company to enter into strategic
alliances with corporate partners, expenses associated with patent matters, the
results of regulatory inspections and the timing of expenses related to product
launches.
In April, 1999 Bionx entered into a distribution agreement with Mentor
Corporation. Under the terms of the agreement, Mentor has exclusive distribution
rights for all current and future Bionx bioabsorbable stent products for urology
applications in all areas of the world other than the U.S. and Japan. In
exchange for exclusive distribution rights, Mentor must achieve certain minimum
market penetration objectives, and pay Bionx a pre-agreed upon percentage of the
customer sales price on all stent products sold.
In late 1998, the Company entered into an expansion phase building
inventory levels and personnel in anticipation of continued growth in its core
business and the introduction of new products in the Craniofacial surgical
market. Actual sales results were less than planned; thus these increased
expenditures, together with legal costs incurred to protect the Company's
intellectual property, resulted in operating losses during 1999.
During the second quarter of 1999, the Company began to implement
initiatives to refocus its business and reallocate critical resources with a
goal to achieve sales growth, profit improvement and a positive cash flow
position. Management initiatives include: development of a
management-restructuring plan to add critical resources in areas that will have
the greatest impact on sales growth and profit improvement; consolidation of
sales efforts for craniofacial and orthopedic products designed to improve sales
efficiencies, increase in market coverage and reduction of the Company's cost of
sales; reduction in sales administration to reduce the Company's overall cost of
sales; refocus of R&D investments on new product introductions that will provide
complementary product offerings for orthopedic and craniofacial products that
are planned to be introduced during 1999 and 2000; consolidation of global
inventories to reduce the Company's overall investment in inventories and
improve customer service levels; reduction in inventory levels to improve
inventory turn rates thereby reducing the Company's cash requirements to support
inventory investments; increases in sales and marketing efforts designed to
expand sales contributions from markets outside of the US; and the
implementation of surgeon educational programs designed to increase surgeon
awareness and use of the Company's products. In addition to these initiatives,
during the second quarter of 1999, four new patents were issued for the
application of the Company's technology for orthopedic indications. During the
<PAGE>
third quarter of 1999, the Company continued to implement these initiatives and
refocus its business in an attempt to improve its profitability and operations
performance. No assurances can be given that the Company's initiatives will
result in profitable operations.
During the third quarter of 1999, Innovasive Devices agreed to settle
the patent infringement claim brought by the Company regarding Innovasive's
clear fix Meniscal Dart. Under the terms of the settlement, Innovasive Devices
will license the Company's Miniscus Implants patent for the field of sports
medicine.
Results of Operations
Product sales. The Company's product sales decreased by 9% from $5.3
million during the quarter ended September 30, 1998 to $4.8 million during the
quarter ended September 30, 1999, and increased by 1% from $ 14.8 million during
the first nine months of 1998 to $14.9 million during the first nine months of
1999. Consolidated revenues for the company are comprised of three specific
product categories: Sports Medicine (which includes the Meniscus Arrow),
Orthopedic Trauma and Craniofacial.
Consolidated sales of Sport Medicine products during the third of 1999
were $2.9 million, down from $3.7 million in the third quarter of 1998, a 22%
decrease. During the first nine months of 1999, Sports Medicine products
revenues were $9.3 million, down from $10.3 million in the first nine months of
1998, a 10% decrease. The Company believes that the reduction of sales of Sport
Medicine products reflects the effect of competition and may reflect lower unit
usage of Company products in particular procedures.
Consolidated sales of Orthopedic Trauma products during the third
quarter of 1999 were $1.1 million, up from the $1.0 million in the third quarter
of 1998, a 10% increase. During the first nine months of 1999, Orthopedic Trauma
products revenues were $3.7 million, up from $2.9 million in the first nine
months of 1998, a 28% increase.
Consolidated sales of Craniofacial products during the third quarter of
1999 were $404,000, up from $310,000 in the third quarter of 1998, a 30%
increase. During the first nine months of 1999, Craniofacial products revenues
were $1.4 million, up from $400,000 in the first nine months of 1998, a 250%
increase. The Company commenced sales of Craniofacial products in May 1998.
Grant and License revenues. Grant and license revenues totaled $90,000
for the three months ended September 30, 1999, compared with revenue of $128,000
recorded during the three-month period ended September 30, 1998. Grant and
license revenues decreased to $256,000 for the first nine months of 1999
compared to $290,000 for the comparable period in 1998. This revenue is
generated primarily from grants obtained from a Finnish government research
organization which funds certain research and development projects.
Gross profit; gross margin. The Company's gross profit decreased from
$4.2 million during the third quarter of 1998 to $3.9 million during the third
quarter of 1999, and from $11.9 million during the first nine months of 1998 to
$10.4 million during the first nine months of 1999. For the three months ended
September 30, 1999, the decline in gross profit relates primarily to the decline
in revenues. For the nine months ended September 30, 1999, the decline in gross
profit reflects a change in the mix of revenue, from higher margin products to
lower margin products, and a special charge taken during the second quarter of
1999 relating to instrument inventory. The inventory charge reflects a reduction
of current carrying values of certain of the Company's instrument inventory due
to changes in technology and the introduction of new instruments. Overall, the
Company's gross margin (including the effects of grant revenue) remained
unchanged at 80% for the third quarter of 1998 and 1999, and, including the
effects of a special charge related to instrument inventory taken in the second
quarter of 1999, declined from 80% during the first nine months of 1998 to 69%
during the comparable period of 1999. The decrease in gross margin in 1999 is
primarily attributable to the inventory charge noted above and to a change in
the mix of product revenues toward products with lower gross margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of distributor commissions paid on
product sales in the U.S., patent and license related expenses, costs incurred
in connection with the regulatory process, and expenses associated with
supporting the Company's managed networks of independent sales agents,
distributors and dealers. Selling, general and administrative expenses for the
third quarter were $3.8 million, a decrease of 24% from the previous quarter's
activity of $5.0 million and an increase of $507,000 or 15% from the third
quarter of 1998. For the nine months ended September 30, 1999, selling, general
and administrative expenses were $12.8 million, an increase of $3.4 million or
36% over the nine months ended September 30, 1998. During the third quarter of
1999 the Company was successful in reducing its selling expenses. Selling
expenses for the third quarter were $2.5 million, down $829,000 or 25% compared
to the prior quarter of 1999, and down 6% from the comparable period in 1998.
These decreases reflect a restructuring of the commissions paid to the Company's
distributors. Selling expenses for the nine months ended September 30, 1999 were
$ 9.3 million, representing an increase of 29%; this increase was primarily
attributable to salaries paid to newly employed sales persons (including sales
persons hired to sell the Company's craniofacial products), commissions paid and
increased expenses associated with establishing and supporting a managed network
of independent sales agents in the U.S., and increases in employee benefits,
travel and entertainment, and marketing expenses. The increase in the percentage
relationship of general and administrative expenses to product sales for the
periods described herein reflects the increased general and administrative
expenses incurred in the second and third quarters of 1999 in connection with
the Company's implementation of new business initiatives related to the
restructuring of the Company's operations and organization, and the anticipation
of new product launches.
Research and development. Research and development expenses totaled
$778,000 or 16% of sales for the third quarter, up from $533,000 or 10% of sales
for the same period of 1998 and increased by 40% to $2.1 million during the
first nine months of 1999 from $1.5 million during the comparable period in
1998. The increase in research and development expense reflects the increased
levels of research and development activities to accelerate new product
introductions.
Severance charges. During the second quarter of 1999, the Company
incurred a one-time severance charge of $275,000. This severance charge relates
to the organizational restructuring of the Company, including severance payments
to the Company's former chief executive officer, chief financial officer and
vice president of sales. A majority of the severance accrual will be paid on or
before November 30, 1999, and the remainder will be paid within eight months
thereafter.
Patent litigation. In the third quarter of 1999, the Company incurred
$633,000 in legal fees to prosecute (and in one instance settle) three patent
infringements suits. The Company has incurred $1.7 million in such legal fees
for the first nine months of 1999. The Company did not incur substantial patent
litigation legal fees in the first three quarters of 1998. The patent litigation
legal fees incurred during 1999 are part of the Company's efforts to protect and
strengthen its proprietary intellectual property position.
Other income and expense. In the third quarter of 1999, the Company
generated interest income of $45,000, compared to interest income of $161,000 in
the comparable period of 1998. For the nine month periods, other income and
expenses, including interest income and foreign exchange gains, decreased from
$729,000 to $709,000. Funds obtained from the proceeds of the Company's initial
public offering in April 1997 ("IPO") generated the interest income in both the
1998 and 1999 periods, but the average invested balance has decreased during
1999.
Income taxes. The Company recorded a $50,000 tax provision for the
three and nine months ended September 30, 1999, compared to a tax provision of
$171,000 and $529,000 for the three and nine months ended September 30, 1998.The
difference is due to the change in pre tax income.
Net (loss) income. The Company reported a net loss of ($1.3) million or
($.15) per share (basic and diluted) for the third quarter of 1999, as compared
with net income of $419,000 or $.05 per share (basic and diluted) for the third
quarter of 1998. The Company reported a net loss of ($5.8) million or ($.65) per
share (basic and diluted) for the first nine months of 1999, as compared with
net income of $1.2 million or $.13 per share (basic diluted) during the first
nine months of 1998.
Liquidity and Capital Resources
The Company has relied primarily upon external (private and public)
sources of equity to fund operations and development. In addition, the Company
has made arrangements for a $4 million credit line, secured by the personal
property of the Company and its Biostent, Inc. subsidiary. Amounts to be
advanced thereunder are subject to the lender's discretion and are limited to
specific percentages of certain domestic receivables and inventory.
To date, no amounts have been borrowed pursuant to this facility.
At December 31, 1998 and September 30, 1999, cash and cash equivalents
totaled $14.2 million and $2.9 million, respectively. The decrease in cash and
cash equivalents of approximately $11.2 million is primarily attributable to the
Company's operating losses, investments of approximately $1.5 million in
patents, machinery and equipment in the Finnish manufacturing facility and
computer systems upgrades, and a $3.6 million increase in inventory levels in
anticipation of new product launches and consignment of instrumentation.
As of September 30, 1999, the Company had working capital of $17.4
million, compared with $24.0 million as of December 31, 1998. This reduction
reflects the decrease in the Company's cash and related assets. Long-term debt
(including the current portion) was reduced by $56,000 from the level at the
beginning of the year to $60,000 as of September 30, 1999. This debt represents
loans obtained from the Finnish government and carries interest rates ranging
from 1-3% per annum.
The Company's liquidity has been weakened substantially during 1999.
The Company's liquidity is dependent primarily upon its ability to improve
operating results and thereby generate adequate cash flow from operations.
Management has taken several steps designed to improve future financial results
and reduce the amount of cash used by operations, including (i) developing a
management restructuring plan to add critical resources to areas having the
greatest impact in sales growth, (ii) consolidating sales efforts to improve
sales efficiencies, increase market coverage and reduce the cost of sales, (iii)
refocusing research and development investments on new product introductions,
(iv) consolidating and reducing inventory levels, (v) increasing sales and
marketing efforts outside the U.S., and (vi) where possible, reducing other
operating expenses. However, there can be no assurance that these steps will be
successful. The Company's operations may not provide sufficient internally
generated cash flows to meet the Company's projected requirements. The Company's
ability to continue to finance its operations will depend on its ability to
achieve profitability by improving sales and margins, Its ability to reduce cash
outflows and, if necessary, its ability to obtain other sources of funding
sufficient to support the Company's operations. No assurances can be given that
such funding will be available on satisfactory terms or at all.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including management's ability to reverse
recent trends, market acceptance of the Company's existing and future products,
the successful commercialization of products in development, progress in its
product development efforts, the magnitude and scope of such efforts, progress
with preclinical studies, clinical trials and product clearances by the FDA and
other agencies, the cost and timing of the Company's efforts to expand its
manufacturing capabilities, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, and the development of strategic
alliances for the marketing of certain of its products. The Company's operations
did not produce positive cash flows during 1994, 1995, 1996, 1998 or during the
first nine months of 1999. To the extent that funds generated from the Company's
operations, together with its existing capital resources (including its credit
facility), and the net interest earned thereon, are insufficient to meet current
or planned operating requirements, the Company will be required to obtain
additional funds through equity or debt financing, strategic alliances with
corporate partners and others, or through other sources. The terms of any equity
financing may be dilutive to stockholders and the terms of any debt financing
may contain restrictive covenants, which limit the Company's ability to pursue
certain courses of action. The Company does not have any committed sources of
additional financing beyond that described above, and there can be no assurance
that additional funding, if necessary, will be available on acceptable terms, if
at all. If adequate funds are not available, the Company may be required to
delay, scale-back or eliminate certain aspects of its operations or attempt to
obtain funds through arrangements with strategic partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. If adequate funds are not available,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
Year 2000 Compliance
Readiness
The Company's centralized corporate business and technical information
systems have been fully assessed as to year 2000 compliance and functionality.
Presently, these systems are nearly complete with respect to required software
changes, tests and migration to the production environment. The Company
anticipates that internal business and technical information system year 2000
compliance issues is substantially remedied by the end of November 1999. This
expectation constitutes a Forward-Looking Statement. Actual results could differ
materially from this expectation as a result of a number of factors, including
unanticipated technological difficulties, the availability of technological
support, the readiness of others and the risk factors set forth in Exhibit 99,
to the Company's Annual Report on Form 10-K for the year ended December 1998.
The Company has satisfactorily completed the identification and review
of computer hardware and software suppliers and is in the process of verifying,
reviewing and logging year 2000 preparedness of general business partners,
suppliers, vendors, and/or service providers that the Company has identified as
critical. The Company expects to complete its review of these third parties by
November 30, 1999.
Costs
The Company incurred costs of approximately $250,000 in fiscal 1998
associated with the purchase of and modifications to the Company's existing
systems to make them year 2000 ready. The Company expects to incur costs between
$100,000 and $200,000 in fiscal year 1999 for a total project cost of less than
$500,000. Most of these costs relate to the implementation of a new internal
business system, which will be depreciated over its estimated life. Any other
cost relating to this undertaking will be expensed as incurred. Based on the
estimates and information currently available, the Company does not anticipate
that the cost associated with year 2000 compliance issues will be material to
the Company's consolidated financial position or results of operations.
Risks and Contingency Plans
Considering the substantial progress made to date, the Company does not
anticipate delays in finalizing internal year 2000 remediation within the
remaining time schedules. There can be no assurances, however, that the
Company's internal systems or those of a third party on which the Company relies
will be year 2000 compliant by the year 2000. An interruption of the Company's
ability to conduct its business due to a year 2000 readiness problem could have
a material adverse effect on the Company, its operations, financial condition
and liquidity.
Pending the results of the Company's review of the year 2000
preparedness of its critical third parties, the Company will then determine what
course of action and contingencies will need to be made, if any. The Company has
not yet developed a worst case contingency plan, although the Company
anticipates that its worst case analysis will involve the failure of outside
entities to be Year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No change since filing of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
On August 27, 1999, the Company reincorporated, changing its state of
incorporation from Delaware to Pennsylvania. It effected this reincorporation by
creating a wholly-owned subsidiary as a Pennsylvania corporation and then
merging the parent corporation (a Delaware corporation) into that subsidiary,
The subsidiary was the surviving corporation in this transaction.
The reincorporation was approved by the Company's stockholders at the
Company's annual meeting of stockholders on August 13, 1999. Upon consummation
of the transaction, each share of Common Stock of the Company as a Delaware
corporation, par value $.0019 per share, was converted into one share of Common
Stock of the Company as a Pennsylvania corporation, par value $.0019 per share.
The rights of the Company's stockholders and the internal affairs of the Company
are now governed by the Company's articles of incorporation and bylaws and by
the Pennsylvania Business Corporation Law of 1988, as amended (the "Pennsylvania
BCL"). While the rights of stockholders under the Pennsylvania BCL and the
Delaware General Corporation Law differ in a number of respects, the Company's
articles of incorporation and bylaws were designed to minimize these
differences. The proxy statement submitted to stockholders in connection with
the annual meeting describes the differences between the rights of the Company's
stockholders as stockholders of a Delaware corporation and the rights of the
Company's stockholders as stockholders of a Pennsylvania corporation.
There was no change in the name, business, management, benefit plans,
location, assets, liabilities or net worth of the Company as a result of the
reincorporation.
The Company's initial public offering was effected pursuant to a
registration statement on Form S-1 (No. 333-22359) declared effective by the SEC
on April 24, 1997. The offering commenced on April 25, 1997 and terminated after
all securities were sold.
From April 25, 1997 through September 30, 1999, the Company has used
the following amounts of the net proceeds from the initial public offering for
the following categories enumerated by the SEC:
<TABLE>
<CAPTION>
Reasonable Estimated Amount
(in thousands)
Category
<S> <C>
Construction of plant, building and facilities 2,017
Purchase and installation of machinery and equipment 2,670
Purchases of real estate -
Acquisition of other businesses -
Repayment of indebtedness 790
Working capital 17,359
Short term investments (Cash Equivalents) 2,926
Other purposes for which at least $100,000 has been used -
</TABLE>
None of the above-mentioned uses of proceeds represented direct or indirect
payments to directors or officers of the Company or their associates, to persons
owning ten percent or more of any class of equity security of the Company or to
affiliates of the Company. Such uses do not represent a material change in the
use of proceeds described in the above-mentioned registration statement.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company conducted its annual meeting of stockholders on August
13, 1999.
(b) David J. Bershad and Pertti Tormala were re-elected as directors
for three year terms. In the aggregate, 5,782,261 shares were voted in favor of
David J. Bershad and 5,783,061 shares were voted in favor of Pertti Tormala. No
shares were voted in favor of either of the nominees. Anthony J. Dimun, David H.
MacCallum and Terry Wall continued in office after the meeting.
(c) The stockholders also authorized a proposal to re-incorporate the
Company in Delaware. In the aggregate, 4,923,661 shares were voted in favor of
this proposal, 70,185 shares were voted against this proposal, 1,325 shares
abstained and there were broker non-votes covering 801,654 shares.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly Report
on Form 10-Q:
No. 3.1 Articles of Incorporation of the Registrant, a Pennsylvania
corporation, and Articles of Merger which amend Article 1 of such
Articles of Incorporation
No. 3.2 By-laws of the Registrant, as reincorporated in Pennsylvania.
No. 27.1 Financial Data Schedule
(b) The Registrant did not file any Current Reports on Form 8-K during
the quarter ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIONX IMPLANTS, INC.
By: /s/ Gerard Carlozzi
___________________________
Gerard Carlozzi, President
and Chief Executive Officer
By: /s/ Jim Hayden
___________________________
Jim Hayden, Controller and
Principal Financial Officer
Dated: November 15, 1999
<PAGE>
EXHIBIT INDEX
Exhibit
3.1 Articles of Incorporation of the Registrant, a Pennsylvania
corporation, and Articles of Merger which amend Article 1 of such
Articles of Incorporation.
3.2 By-laws of the Registrant, as reincorporated in Pennsylvania.
27.1 Financial Data Schedule
ARTICLES OF INCORPORATION
OF
BIONX IMPLANTS MERGER SUBSIDIARY, INC.
(A PENNSYLVANIA COMPANY)
ARTICLE 1: The name of the corporation (the "Company") is Bionx
Implants Merger Subsidiary, Inc.
ARTICLE 2: The address of the registered office of the Company in the
Commonwealth of Pennsylvania is 1777 Sentry Parkway West, Gwynedd Hall, Suite
400, Blue Bell, Pennsylvania 19422.
ARTICLE 3: The Company is incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988 (the "BCL") for any lawful purpose
and may engage in any lawful business for which corporations may be organized
under the BCL with all the powers of such corporations.
ARTICLE 4: The aggregate number of shares which the Company shall have
authority to issue is thirty nine million six hundred thousand (39,600,000),
divided into thirty one million six hundred thousand (31,600,000) shares of
common stock with par value of $.0019 per share and eight million (8,000,000)
shares of preferred stock with par value of $.001 per share.
The preferred stock may be issued from time to time in one or
more series. The Board of Directors of the Company is hereby expressly
authorized to provide, by resolution or resolutions duly adopted by it prior to
issuance, for the creation of each such series and to fix the designation and
the powers, preferences, rights, qualifications, limitations and restrictions
relating to the shares of each such series. The authority of the Board of
Directors with respect to each series of preferred stock shall include, but not
be limited to, determining the following:
(a) the designation of such series, the number of shares to
constitute such series and the stated value if different from the par
value thereof;
(b) whether the shares of such series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of preferred stock;
(d) whether the shares of such series shall be subject to
redemption either by the Company or the holders thereof, and, if so,
the times, prices and other conditions of such redemption;
<PAGE>
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Company;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
the manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms and provisions
relating to the operation thereof;
(g) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or any
other series of preferred stock or any other securities and, if so, the
price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding, upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Company of, the common
stock or shares of stock of any other class or any other series of
preferred stock;
(i) the conditions or restrictions, if any, upon the creation
of indebtedness of the Company or upon the issue of any additional
stock, including additional shares of such series or of any other
series of preferred stock or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other specific rights, and any qualifications, limitations
and restrictions, thereof.
The powers, preferences and relative, participating, optional
and other special rights of each series of preferred stock, and the
qualification, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any one
series of preferred stock shall be identical in all respects with all other
shares of such series, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereof shall be
cumulative.
ARTICLE 5: The following provisions of the BCL shall not be applicable
to the Company:
(a) Section 1715 (relating to exercise of powers generally);
(b) Section 2538 (relating to approval of transactions with interested
shareholders);
<PAGE>
(c) Subchapter 25E (relating to control transactions);
(d) Subchapter 25F (relating to business combinations);
(e) Subchapter 25G (relating to control-share acquisitions); and
(f) Subchapter 25H (relating to disgorgement by certain controlling
shareholders following attempts to acquire control).
ARTICLE 6: The shareholders of the Company shall not have the right to
cumulate their votes for the election of directors of the Company.
ARTICLE 7:
(a) No action shall be taken by the shareholders of the
Company except at an annual or special meeting of the shareholders
called in accordance with the Bylaws of the Company and no action shall
be taken by the shareholders by written consent.
(b) Special meetings of shareholders of the Company may be
called only by (i) the Chairman of the Board ("Chairman"), (ii) the
Secretary of the Company ("Secretary") within 10 calendar days after
receipt of the written request of a majority of the total number of
Directors that the Company would have if there were no vacancies, and
(iii) as provided in Section 5 of the Company's Bylaws.
(c) At any annual meeting or special meeting of shareholders
of the Company, only such business will be conducted or considered as
has been brought before such meeting in the manner provided in the
Bylaws of the Company. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of at
least 66-2/3% of the Voting Stock, voting together as a single class,
will be required to amend or repeal, or adopt any provision
inconsistent with, this Article Seven. For the purposes of these
Articles of Incorporation (except Article Eleven), "Voting Stock" means
stock of the Company of any class or series entitled to vote generally
in the election of Directors.
ARTICLE 8:
Section 1. The Board of Directors of the Company shall be divided into
three classes, the respective terms of office of which shall end in successive
years. Such classes shall be designated as "Class I", "Class II" and "Class
III". The number of directors on the Board shall be determined in accordance
with the Bylaws of the Company. The number of directors in each class shall be
as nearly equal as possible, except that no director shall be moved from one
class to another class in order to attain equality or near equality in the size
of the respective classes. For the initial Board of Directors of the Company,
the term of office of the Class I directors shall expire at the first annual
meeting of shareholders, the term of the Class II directors shall expire at the
second annual meeting of shareholders and the term of the Class III directors
shall expire at the third annual meeting of shareholders. Thereafter, the
<PAGE>
directors in each class shall hold office until the third successive annual
meeting of shareholders after their election and until their successors shall
have qualified, such that at each annual meeting of shareholders only one class
of directors shall be elected. In the event that a director is elected to fill a
vacancy, the term of such director shall expire at the next annual meeting of
shareholders.
Section 2. Notwithstanding anything contained in these Articles of
Incorporation to the contrary, the affirmative vote of at least 66-2/3% of the
Voting Stock, voting together as a single class, will be required to amend or
repeal, or adopt any provision inconsistent with, this Article Eight.
ARTICLE 9:
Section 1. To the fullest extent permitted by the BCL as the same
exists or as may hereafter be amended, a director of the Company shall not be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director.
Section 2. Neither any amendment nor repeal of this Article Nine, nor
the adoption of any provision of the Company's Articles of Incorporation
inconsistent with this Article Nine, shall eliminate or reduce the effect of
this Article Nine, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article Nine, would accrue
or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
ARTICLE 10:
Section 1. Every person who is or was a director or officer of the
Company shall be indemnified by the Company to the fullest extent allowed by the
BCL against all liabilities and expenses imposed upon or incurred by that person
in connection with any proceeding in which that person may be made, or
threatened to be made, a party, or in which that person may become involved by
reason of that person being or having been a director or officer or of serving
or having served in any capacity with any other enterprise at the request of the
Company, whether or not that person is a director or officer or continues to
serve the other enterprise at the time the liabilities or expenses are imposed
or incurred.
Section 2. To the fullest extent permitted by applicable law, the
Company is authorized to provide indemnification of (and advancement of expenses
to) agents of the Company (and any other persons to which Pennsylvania law
permits the Company to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, votes of shareholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by the BCL subject only to limits created by
applicable Pennsylvania law (statutory or non-statutory), with respect to
actions for breach of duty to the Company, its shareholders and others.
Section 3. Neither any amendment nor repeal of this Article Ten, nor
the adoption of any provision of the Company's Articles of Incorporation
<PAGE>
inconsistent with this Article Ten, shall eliminate or reduce the effect of this
Article Ten, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article Ten, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE 11:
(a) Business Combinations. Notwithstanding any other
provisions of these Articles of Incorporation, the Company shall not
engage in any Business Combination (as defined herein) with any
Interested Shareholder (as defined herein) for a period of three (3)
years following the time that such shareholder became an Interested
Shareholder, unless:
(1) prior to such time the Board of Directors of the
Company approved either the Business Combination or the
transaction which resulted in the shareholder becoming an
Interested Shareholder, or
(2) upon consummation of the transaction which
resulted in the shareholder becoming an Interested
Shareholder, the Interested Shareholder owned at least 85% of
the Voting Stock of the Company outstanding at the time the
transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (i) by
persons who are directors and also officers and (ii) employee
stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer, or
(3) at or subsequent to such time the Business
Combination is approved by the Board of Directors of the
Company and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative
vote of at least 66-2/3% of the outstanding Voting Stock which
is not owned by the Interested Shareholder.
(b) Inapplicability of Restrictions. The restrictions
contained in this Article Eleven shall not apply if:
(1) a shareholder becomes an Interested Shareholder
inadvertently and (i) as soon as practicable divests itself of
ownership of sufficient shares so that the shareholder ceases
to be an Interested Shareholder and (ii) would not, at any
time within the three (3) year period immediately prior to a
Business Combination between the Company and such shareholder,
have been an Interested Shareholder but for the inadvertent
acquisition of ownership; or
(2) the Business Combination is proposed prior to the
consummation or abandonment of, and subsequent to the earlier
of the public announcement or the notice required hereunder
of, a proposed transaction which (i) constitutes one of the
transactions described in the second sentence of this
paragraph; (ii) is with or by a person who either was not an
<PAGE>
Interested Shareholder during the previous three (3) years or
who became an Interested Shareholder with the approval of the
Company's Board of Directors and (iii) is approved or not
opposed by a majority of the members of the Board of Directors
then in office (but not less than 1) who were directors prior
to any person becoming an Interested Shareholder during the
previous three (3) years or were recommended for election or
elected to succeed such directors by a majority of such
directors. The proposed transactions referred to in the
preceding sentence are limited to (x) a merger or
consolidation of the Company (except for a merger in respect
of which, pursuant to Section 1924(b) of the BCL, no vote of
the shareholders of the Company is required); (y) a sale,
lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions),
whether as part of a dissolution or otherwise, of assets of
the Company or of any direct or indirect majority-owned
subsidiary of the Company (other than to any direct or
indirect wholly-owned subsidiary or to the Company) having an
aggregate market value equal to 50% or more of either that
aggregate market value of all of the assets of the Company
determined on a consolidated basis or the aggregate market
value of all the outstanding stock of the Company; or (z) a
proposed tender or exchange offer for 50% or more of the
outstanding Voting Stock of the Company. The Company shall
give not less then 20 days notice to all Interested
Shareholders prior to the consummation of any of the
transactions described in clauses (x) or (y) of the second
sentence of this paragraph.
(c) As used in this Article Eleven only the term:
(1) "affiliate" means a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, another
person.
(2) "associate," when used to indicate a relationship
with any person, means (i) any company, partnership,
unincorporated association or other entity of which such
person is a director, officer or partner or is, directly or
indirectly, the owner of 20% or more of any class of Voting
Stock, (ii) any trust or other estate in which such person has
at least a 20% beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of such person, or any relative
of such spouse, who has the same residence as such person.
(3) "Business Combination," when used in reference to
the Company and any Interested Shareholder of the Company
means:
(i) any merger or consolidation of the
Company or any direct or indirect
majority-owned subsidiary of the Company
with (A) an Interested Shareholder, or (B)
with any other company, partnership,
incorporated association or other entity if
<PAGE>
the merger or consolidation is caused by the
Interested Shareholder and as a result of
such merger or consolidation subsection (a)
of this Article Eleven is not applicable to
the surviving entity;
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in
one transaction or a series of
transactions), except proportionately as a
shareholder of the Company, to or with the
Interested Shareholder, whether as part of a
dissolution or otherwise, of assets of the
Company or of any direct or indirect
majority-owned subsidiary of the Company
which assets have an aggregate market value
equal to 10% or more of either the aggregate
market value of all the assets of the
Company determined on a consolidated basis
or the aggregate market value of all the
outstanding stock of the Company;
(iii) any transaction which results in the
issuance or transfer by the Company or by
any direct or indirect majority-owned
subsidiary of the Company of any stock of
the Company or of such subsidiary to the
Interested Shareholder, except (A) pursuant
to the exercise, exchange or conversion of
securities exercisable for, exchangeable for
or convertible into stock of the Company or
any such subsidiary which securities were
outstanding prior to the time that the
Interested Shareholder became such, (B)
pursuant to a dividend or distribution paid
or made, or the exercise, exchange or
conversion of securities exercisable for,
exchangeable for or convertible into stock
of the Company or any such subsidiary which
security is distributed, pro rata to all
holders of a class or series of stock of the
Company subsequent to the time the
Interested Shareholder became such, (C)
pursuant to an exchange offer by the Company
to purchase stock made on the same terms to
all holders of said stock, or (D) any
issuance or transfer of stock by the
Company, provided however, that in no case
under (B) - (D) above shall there be an
increase in the Interested Shareholder's
proportionate share of the stock of any
class or series of the Company or of the
Voting Stock of the Company;
(iv) any transaction involving the Company
or any direct or indirect majority-owned
subsidiary of the Company which has the
effect, directly or indirectly, of
increasing the proportionate share of the
stock of any class or series, or securities
convertible into the stock of any class or
series, of the Company or of any such
subsidiary which is owned by the Interested
Shareholder, except as a result of
<PAGE>
immaterial changes due to fractional share
adjustments or as a result of any purchase
or redemption of any shares of stock not
caused, directly or indirectly, by the
Interested Shareholder; or
(v) any receipt by the Interested
Shareholder of the benefit, directly or
indirectly (except proportionately as a
shareholder of the Company) of any loans,
advances, guarantees, pledges, or other
financial benefits (other than those
expressly permitted in subparagraphs
(i)-(iv) above) provided by or through the
Company or any direct or indirect majority
owned subsidiary.
(4) "control," including the term "controlling,"
"controlled by" and "under common control with," means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by
contract, or otherwise. A person who is the owner of 20% or
more of the outstanding Voting Stock of any company,
partnership, unincorporated association or other entity shall
be presumed to have control of such entity, in the absence of
proof by a preponderance of the evidence to the contrary.
Notwithstanding the foregoing, a presumption of control shall
not apply where such person holds Voting Stock, in good faith
and not for the purpose of circumventing this section, as an
agent, bank, broker, nominee, custodian or trustee for one or
more owners who do not individually or as a group have control
of such entity.
(5) "Interested Shareholder" means any person (other
than the Company and any direct or indirect majority-owned
subsidiary of the Company) that (i) is the owner of 15% or
more of the outstanding Voting Stock of the Company, or (ii)
is an affiliate or associate of the Company and was the owner
of 15% or more of the outstanding Voting Stock of the Company
at any time within the 3-year period immediately prior to the
date on which it is sought to be determined whether such
person is an Interested Shareholder; and the affiliates and
associates of such person; provided, however, that the term
"Interested Shareholder" shall not include any person whose
ownership of shares in excess of the 15% limitation set forth
herein is the result of action taken solely by the Company
provided that such person shall be an Interested Shareholder
if thereafter such person acquires additional shares of Voting
Stock of the Company, except as a result of further corporate
action not caused, directly or indirectly, by such person. For
the purpose of determining whether a person is an Interested
Shareholder, the Voting Stock of the Company deemed to be
outstanding shall include stock deemed to be owned by the
person through application of paragraph (9) of this subsection
but shall not include any other unissued stock of the Company
which may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(6) "person" means any individual, corporation,
partnership, unincorporated association or other entity.
<PAGE>
(7) "Stock" means, with respect to any corporation,
capital stock and, with respect to any other entity, any
equity interest.
(8) "Voting Stock" means, with respect to any
corporation, stock of any class or series entitled to vote
generally in the election of directors and, with respect to
any entity that is not a corporation, any equity interest
entitled to vote generally in the election of the governing
body of such entity.
(9) "owner", including the terms "own" and "owned",
when used with respect to any stock means a person that
individually or with or through any of its affiliates or
associates:
(i) beneficially owns such stock, directly
or indirectly; or
(ii) has (A) the right to acquire such stock
(whether such right is exercisable
immediately or only after the passage of
time) pursuant to any agreement, arrangement
or understanding, or upon the exercise of
conversion rights, exchange rights, warrants
or options, or otherwise; provided, however,
that a person shall not be deemed the owner
of stock tendered pursuant to a tender or
exchange offer made by such person or any of
such person's affiliates or associates until
such tendered stock is accepted for purchase
or exchange; or (B) the right to vote such
stock pursuant to any agreement, arrangement
or understanding; provided, however, that a
person shall not be deemed the owner of any
stock because of such person's right to vote
such stock if the agreement, arrangement or
understanding to vote such stock arises
solely from a revocable proxy or consent
given in response to a proxy or consent
solicitation made to 10 or more persons; or
(iii) has any agreement, arrangement or
understanding for the purpose of acquiring,
holding, voting (except voting pursuant to a
revocable proxy or consent as described in
item (B) of clause (ii) of this paragraph),
or disposing of such stock with any other
person that beneficially owns, or whose
affiliates or associates beneficially own,
directly or indirectly, such stock.
ARTICLE 12: The name and address of the incorporator is: Gerard
Carlozzi, c/o Bionx Implants Merger Subsidiary, Inc., 1777 Sentry Parkway West,
Gwynedd Hall, Suite 400, Blue Bell, Pennsylvania 19422.
<PAGE>
IN TESTIMONY WHEREOF, the incorporator has signed these Articles of
Incorporation this 8th day of July, 1999.
/s/ Gerard Carlozzi
<PAGE>
Secretary of the Commonwealth
ARTICLES OF MERGER-DOMESTIC BUSINESS CORPORATION
DSCB:15-1926 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. Section 1926
(relating to articles of merger or consolidation), the undersigned business
corporations, desiring to effect a merger, hereby state that:
1. The name of the corporation surviving the merger is: Bionx Implants Merger
Subsidiary, Inc.
2. (Check and complete one of the following):
X The surviving corporation is a domestic business corporation and the
(a) address of its current registered office in this Commonwealth or
(b) name of its commercial registered office provider and the county
of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
<TABLE>
<S> <C> <C> <C>
(a) 1777 Sentry Parkway West, Gwynedd Hall, Suite 400, Blue Bell, Pennsylvania 19422 Montgomery
Number and Street City State Zip County
</TABLE>
(b) c/o: ________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
____ The surviving corporation is a qualified foreign business corporation
incorporated under the laws of ______________________________ and the
(a) address of its current registered office in this Commonwealth or
(b) name of its commercial registered office provider and the county
of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a)_________________________________________________________________
Number and Street City State Zip County
(b) c/o:____________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
____ The surviving corporation is a nonqualified foreign business
corporation incorporated under the laws of __________________________
and the address of its principal office under the laws of such
domiciliary jurisdiction is:
_____________________________________________________________________
Number and Street City State Zip
3. The name and the address of the registered office in this Commonwealth
or name of its commercial registered office provider and the county of
venue of each other domestic business corporation and qualified
foreign business corporation which is a party to the plan of merger
are as follows:
<PAGE>
<TABLE>
<S> <C>
Name of Corporation Address of Registered Office or Name of Commercial Registered Office Provider County
Bionx Implants, Inc., 1777 Sentry Parkway West, Gwynedd Hall, Suite 400, Blue Bell, PA 19422 Montgomery
</TABLE>
4. (Check, and if appropriate complete, one of the following):
[X] The plan of merger shall be effective upon filing these Articles of
Merger in the Department of State.
[ ] The plan of merger shall be effective on: __________________ at _______
Date Hour
5. The manner in which the plan of merger was adopted by each domestic
corporation is as follows:
<TABLE>
Name of Corporation Manner of Adoption
<S> <C>
Bionx Implants Merger Subsidiary, Inc. Adopted by action of the board of directors of the parent corporation
pursuant to 15 Pa. C.S. Section 1924(b)(3)
Bionx Implants, Inc. Adopted by the directors and shareholders pursuant to 15 Pa. C.S.
Section 1924(a)
</TABLE>
6. (Strike out this paragraph if no foreign corporation is a party to the
merger). The plan was authorized, adopted or approved, as the case may be,
by the foreign business corporation (or each of the foreign business
corporations) party to the plan in accordance with the laws of the
jurisdiction in which it is incorporated.
7. (Check, and if appropriate complete, one of the following):
____ The plan of merger is set forth in full in Exhibit A attached hereto
and made a part hereof.
X Pursuant to 15 Pa.C.S. Section 1901 (relating to omission of certain
provisions from filed plans) the provisions, if any, of the plan of
merger that amend or constitute the operative Articles of Incorporation
of the surviving corporation as in effect subsequent to the effective
date of the plan are set forth in full in Exhibit A attached hereto and
made a part hereof. The full text of the plan of merger is on file at
the principal place of business of the surviving corporation, the
address of which is:
<TABLE>
<S> <C>
1777 Sentry Parkway West, Gwynedd Hall, Suite 400, Blue Bell, Pennsylvania 19422 Montgomery
Number and Street City State Zip County
</TABLE>
IN TESTIMONY WHEREOF, the undersigned corporation or each undersigned
corporation has caused these Articles of Merger to be signed by a duly
authorized officer thereof this 13th day of August , 19 99 .
BIONX IMPLANTS MERGER SUBSIDIARY, INC.
(Name of Corporation)
BY: /s/ Gerard Carlozzi
(Signature)
TITLE: President
BIONX IMPLANTS, INC.
(Name of Corporation)
BY: Gerard Carlozzi
(Signature)
TITLE: President
<PAGE>
EXHIBIT A
EXHIBIT A
to
ARTICLES OF MERGER
of
BIONX IMPLANTS, INC.,
a Delaware corporation
into
BIONX IMPLANTS MERGER SUBSIDIARY, INC.
a Pennsylvania corporation
The Articles of Incorporation of the surviving corporation are hereby
amended as follows:
ARTICLE 1. The name of the corporation (the "Company") is Bionx Implants, Inc.
BIONX IMPLANTS, INC.
(formerly BIONX IMPLANTS MERGER SUBSIDIARY, INC.)
* * * * *
BYLAWS
ARTICLE I
OFFICES
Section 1. The registered office shall be in such location within the
Commonwealth of Pennsylvania as shall be designated from time to time by the
corporation's board of directors.
Section 2. The corporation may also have offices at such other places
both within and without the Commonwealth of Pennsylvania as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders for the election of
directors shall be held in the City of Malvern, Commonwealth of Pennsylvania, at
such place as may be fixed from time to time by the board of directors, or at
such other place either within or without the Commonwealth of Pennsylvania as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of shareholders for any other purpose may be
held at such time and place, within or without the Commonwealth of Pennsylvania,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of shareholders shall be held on the
thirtieth day of March if not a legal holiday, and if a legal holiday, then on
the next secular day following, at 1 P.M., or at such other date and time as
<PAGE>
shall be designated from time to time by the board of directors and stated in
the notice of the meeting, at which they shall elect by a plurality vote a board
of directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each shareholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten 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 so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
Section 5. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the chairman of the board, if any, or the
president and shall be called by the chairman of the board, if any, president or
secretary at the request in writing of a majority of the board of directors or
at the request in writing of shareholders owning a majority of the voting power
of all outstanding shares of the corporation's voting stock, voting as a single
class. Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each shareholder entitled to vote at such meeting.
<PAGE>
Section 7. Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice of meeting.
Section 8. The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for the purposes of consideration and action on the matter.
Any regular or special meeting may be adjourned for such period and to such
place as the shareholders present and entitled to vote shall direct, but any
meeting at which directors are to be elected shall be adjourned only from day to
day, or for such longer periods not exceeding fifteen days each as the
shareholders present and entitled to vote shall direct, until the directors have
been elected. The shareholders present at a duly organized meeting can continue
to do business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If a meeting cannot be organized
because a quorum has not attended, those present may adjourn the meeting to such
time and place as they may determine. Notwithstanding the foregoing, (i) those
shareholders entitled to vote who attend a meeting of shareholders at which
directors are to be elected that has been previously adjourned for lack of a
quorum, although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of electing directors and (ii) those
shareholders entitled to vote who attend a meeting that has been previously
adjourned for one or more periods aggregating at least fifteen days because of
an absence of a quorum, although less than a quorum as fixed in this section,
shall nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the notice of the meeting if the notice states that those
shareholders who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
<PAGE>
the articles of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the articles of incorporation
each shareholder shall at every meeting of the shareholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such shareholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 11. At any annual or special meeting of shareholders,
proposals by shareholders and persons nominated for election as directors by
shareholders shall be considered only if advance notice thereof has been timely
given as provided herein and such proposals or nominations are otherwise proper
for consideration under applicable law and the articles of incorporation and
bylaws of the corporation. Notice of any proposal to be presented by any
shareholder or of the name of any person to be nominated by any shareholder for
election as a director of the corporation at any meeting of shareholders shall
be delivered to the secretary of the corporation at its principal executive
office not less than 60 nor more than 90 days prior to the date of the meeting;
provided, however, that if the date of the meeting is first publicly announced
or disclosed (in a public filing, in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service, or
otherwise) less than 70 days prior to the date of the meeting, such advance
notice shall be given not more than ten days after such date is first so
announced or disclosed. Public notice shall be deemed to have been given more
than 70 days in advance of the annual meeting if the corporation shall have
previously disclosed, in these bylaws or otherwise, that the annual meeting in
each year is to be held on a determinable date, unless and until the Board
<PAGE>
determines to hold the meeting on a different date. Any shareholder who gives
notice of any such proposal shall deliver therewith the text of the proposal to
be presented and a brief written statement of the reasons why such shareholder
favors the proposal and setting forth such shareholder's name and address, the
number and class of all shares of each class of stock of the corporation
beneficially owned by such shareholder and any material interest of such
shareholder in the proposal (other than as a shareholder). Any shareholder
desiring to nominate any person for election as a director of the corporation
shall deliver with such notice a statement in writing setting forth the name of
the person to be nominated, the number and class of all shares of each class of
stock of the corporation beneficially owned by such person, the information
regarding such person required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the Securities and Exchange Commission (or the
corresponding provisions of any regulation subsequently adopted by the
Securities and Exchange Commission applicable to the corporation), such person's
signed consent to serve as a director of the corporation if elected, such
shareholder's name and address and the number and class of all shares of each
class of stock of the corporation beneficially owned by such shareholder. As
used herein, shares "beneficially owned" shall mean all shares as to which such
person, together with such person's affiliates and associates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934 ("Exchange Act"), as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall determine whether such notice has been duly given and shall
direct that proposals and nominees not be considered if such notice has not been
given. Nothing in this section shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 of the Exchange Act. Notwithstanding Article
VIII of these bylaws or any provision of the articles of incorporation or the
fact that a lesser percentage may be specified by Pennsylvania law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the shareholders would be entitled to cast at any annual
<PAGE>
election of directors or class of directors shall be required to amend, repeal,
or adopt any provision inconsistent with this section.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than five nor more than nine. Within the limits above
specified, the number of directors shall be determined by resolution of the
board of directors or by the shareholders at the annual meeting. Directors need
not be shareholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the articles of incorporation or by these bylaws directed or required to
be exercised or done by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the Commonwealth of
Pennsylvania. The board of directors shall meet no less frequently than once
during each calendar quarter.
Section 5. The first meeting of each newly elected board of directors
shall be held immediately after the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure of
<PAGE>
the shareholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the shareholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the chairman
of the board, if any, or the president on three days' notice to each director,
either personally or by mail or by telegram; special meetings shall be called by
the chairman of the board, if any, or the president or secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director, in which case special meetings shall be called by
the chairman of the board, if any, or the president or secretary in like manner
and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the articles of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the articles 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 or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
<PAGE>
Section 10. Unless otherwise restricted by the articles of
incorporation or these bylaws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board 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.
Any such committee, to the extent 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, and may authorize the seal of the corporation to be affixed to all
papers which may require it, subject only to the limitations on the powers and
authority of board committees set forth under Pennsylvania law. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the articles of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
<PAGE>
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the articles of
incorporation or by-law, any director, class of the board of directors or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of shares entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of Pennsylvania law or of
the articles of incorporation or of these bylaws, notice is required to be given
to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of Pennsylvania law or of the articles of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose a chairman of the board,
additional vice-presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
articles of incorporation or these bylaws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of shareholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors; provided, however, if the board has
established a compensation committee, no increase in salary of the officers of
the corporation shall occur unless such increase is approved by such committee.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. If the board of directors elects a chairman of the board,
such person shall preside at all meetings of the board and at all meetings of
shareholders.
<PAGE>
THE PRESIDENT
Section 7. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the shareholders and the board of
directors if there is no chairman of the board, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
Section 8. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 9. In the absence of the president or in the event of the
president's inability or refusal to act, the vice-president (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or president, under whose supervision the secretary shall be. The secretary
shall have custody of the corporate seal of the corporation and the secretary,
<PAGE>
or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The board
of directors may give general authority to any other officer to affix the seal
of the corporation and to attest the affixing by such officer's signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of the secretary's inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 13. The treasurer shall disburse the funds of the corporation
as may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all transactions undertaken by such officer as treasurer and of the financial
condition of the corporation.
Section 14. If required by the board of directors, the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of the treasurer's office
and for the restoration to the corporation, in case of the treasurer's death,
<PAGE>
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the treasurer's possession or under
the treasurer's control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by
certificates. Certificates shall be signed by, or in the name of the corporation
by, the chairman or vice-chairman of the board of directors, or the president or
a vice-president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations, voting
rights, 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, so far as they
have been determined, shall be set forth in full or summarized on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by
Pennsylvania law, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each shareholder who so requests a full or summary
<PAGE>
statement of such powers, designations, voting rights, 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 Pennsylvania law or a statement that the corporation
will furnish without charge to each shareholder 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.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to 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. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require 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 and/or to give the corporation a
bond in such sum 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.
<PAGE>
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than ninety nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders 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.
REGISTERED SHAREHOLDERS
Section 6. 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
<PAGE>
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 Pennsylvania.
ARTICLE VII
GENERAL PROVISIONS
DISTRIBUTIONS
Section 1. The board of directors, to the extent permitted by law, may
authorize and the corporation may make distributions. Distributions may be paid
in cash, in property, or in shares of the capital stock, subject to the
provisions of the articles of incorporation.
Section 2. Before payment of any distribution, there may be set aside
out of any funds of the corporation available for distributions such sum or sums
as the directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing distributions,
or for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the shareholders when called for by vote
of the shareholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
<PAGE>
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by (i) a majority of the votes cast at a duly organized meeting of
shareholders or (ii) with respect to those matters that are not by statute
committed expressly to the shareholders, by the vote of a majority of the
directors of the corporation present and voting at any duly organized meeting of
directors. In the case of a meeting of shareholders, written notice shall be
given to each shareholder that the purpose, or one of the purposes, of the
meeting is to consider the adoption, amendment or repeal of the bylaws, and a
copy of the proposed amendment or a summary of the changes to be effected
thereby shall be included in, or enclosed with, the notice. No alteration,
amendment or repeal of these bylaws that limits indemnification rights,
increases the liability of directors or changes the manner or vote required to
make such alteration, amendment or repeal, shall be made except by the
affirmative vote of the shareholders entitled to cast at least a majority of the
votes which all shareholders are entitled to cast thereon.
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