<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended June 30, 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 0-23791
SONOSITE, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1405022
---------- ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
P.O. Box 3020
North Creek Parkway
Bothell, WA 98041-3020
(425) 951-1200
(Address and telephone number of registrant's principal executive offices)
------------------
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 [_]
As of August 10, 1999, there were 7,922,609 shares of the registrant's $.01 par
value Common Stock outstanding.
Page 1 of 12 sequentially numbered pages
<PAGE>
SONOSITE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
Part I Financial Information
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets -- June 30, 1999 and December 31, 1998............................... 3
Condensed Statements of Operations -- One and two quarters ended June 30, 1999 and July 3,
1998, and period from inception through June 30, 1999......................................... 4
Condensed Statements of Cash Flows -- Two quarters ended June 30, 1999 and July 3, 1998, and
period from inception through June 30, 1999................................................... 5
Notes to Condensed Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 10
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds..................................................... 11
Item 5. Other Information............................................................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................................................. 11
Signature..................................................................................... 12
</TABLE>
Page 2 of 12 sequentially numbered pages
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
SONOSITE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,538,045 $ 7,525,762
Investment in marketable securities 26,362,943 --
Receivable from ATL Ultrasound -- 12,000,000
Prepaid expenses and other current assets 578,996 304,599
------------ ------------
Total current assets 34,479,984 19,830,361
Investment in marketable securities 8,236,746 --
Property and equipment, net 4,312,817 3,379,815
Other assets 85,149 80,057
------------ ------------
Total assets $ 47,114,696 $ 23,290,233
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks drawn in excess of bank balances $ -- $ 601,629
Accounts payable 903,631 781,999
Accrued expenses 1,945,259 1,123,948
Current portion of long-term obligations 471,421 388,795
------------ ------------
Total current liabilities 3,320,311 2,896,371
Deferred rent 83,700 79,923
Long-term obligations, less current portion 253,006 480,964
------------ ------------
Total liabilities 3,657,017 3,457,258
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value
Authorized shares -- 6,000,000
Issued and outstanding shares - None -- --
Common stock, $.01 par value:
Authorized shares -- 50,000,000
Issued and outstanding shares:
As of December 31, 1998 -- 4,872,193
As of June 30, 1999 - 7,884,982 78,850 48,722
Additional paid-in-capital 76,528,903 40,693,195
Accumulated other comprehensive loss (92,800) --
Deficit accumulated during development stage (33,057,274) (20,908,942)
------------ ------------
Total shareholders' equity 43,457,679 19,832,975
------------ ------------
Total liabilities and shareholders' equity $ 47,114,696 $ 23,290,233
============ ============
</TABLE>
See accompanying notes.
Page 3 of 12 sequentially numbered pages
<PAGE>
SONOSITE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
Quarter Ended Two Quarters Ended February, 1994
--------------------------- ----------------------------- (inception)
June 30, July 3, June 30, July 3, through
1999 1998 1999 1998 June 30, 1999
----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Grant revenue $ -- $ 214,500 $ 124,506 $ 973,107 $ 5,074,208
Operating expenses:
Research and development 4,063,969 1,913,957 7,067,089 4,068,914 26,294,578
Sales and marketing 2,727,942 520,604 4,500,859 1,324,211 8,889,369
General and administrative 516,418 575,696 1,211,848 837,258 3,954,529
----------- ----------- ------------ ----------- ------------
Total operating expenses 7,308,329 3,010,257 12,779,796 6,230,383 39,138,476
Interest income, net 397,478 219,271 506,958 219,271 1,006,994
----------- ----------- ------------ ----------- ------------
Net loss $(6,910,851) $(2,576,486) $(12,148,332) $(5,038,005) $(33,057,274)
=========== =========== ============ =========== ============
Basic and diluted net loss per share $ (0.99) $ (0.53) $ (2.06) $ (1.05)
=========== =========== ============ ===========
Weighted average shares used in
computation of basic and diluted
net loss per share 6,962,987 4,862,716 5,909,147 4,815,192
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
Page 4 of 12 sequentially numbered pages
<PAGE>
SONOSITE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
Two Quarters Ended February 1994,
--------------------------------- (inception)
June 30, July 3, through June 30,
1999 1998 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Operating activities:
Net loss $(12,148,332) $(5,038,005) $(33,057,274)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 552,723 83,317 1,097,998
Amortization of deferred stock compensation 192,351 -- 251,265
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets (224,732) (502,526) (529,331)
Increase in accounts payable 121,632 690,381 903,631
Increase in accrued expenses 821,311 348,012 1,945,259
Increase in deferred rent 3,777 -- 83,700
------------ ----------- ------------
Net cash used in operating activities (10,681,270) (4,418,821) (29,304,752)
Investing activities:
Proceeds from maturity of marketable securities 500,000 -- 500,000
Purchase of marketable securities (35,192,489) -- (35,192,489)
Purchases of property and equipment (1,485,725) (365,226) (4,350,822)
Increase in other assets (5,092) (76,057) (85,149)
------------ ----------- ------------
Net cash used in investing activities (36,183,306) (441,283) (39,128,460)
Financing activities:
Decrease in checks drawn in excess of bank balances (601,629) -- --
Repayment of obligations (194,997) -- (385,231)
Exercise of stock options 147,230 -- 153,958
Proceeds from sale of common stock, net of costs 35,526,255 -- 35,526,255
Contributions from ATL 12,000,000 20,491,085 40,676,275
------------ ----------- ------------
Net cash provided by financing activities 46,876,859 20,491,085 75,971,257
Net increase in cash and cash equivalents 12,283 -- 7,538,045
Cash and cash equivalents at beginning of period 7,525,762 -- --
------------ ----------- ------------
Cash and cash equivalents at end of period $ 7,538,045 $15,630,981 $ 7,538,045
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 78,479 $ -- $ 119,543
============ =========== ============
Supplemental disclosure of non-cash investing and
financing activities:
Equipment acquired through long-term obligations $ -- $ 732,870 $ 1,059,993
============ =========== ============
Unrealized loss on investments $ 92,800 $ -- $ 92,800
============ =========== ============
</TABLE>
See accompanying notes.
Page 5 of 12 sequentially numbered pages
<PAGE>
SONOSITE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Interim financial Information
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information furnished reflects, in the opinion
of SonoSite, Inc. ("SonoSite") management, all adjustments necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature. The results of operations for the
quarter and two quarters ended June 30, 1999 are not necessarily indicative of
our results to be expected for the entire year ending December 31, 1999 or for
any other fiscal period. These financial statements do not include all
disclosures required by generally accepted accounting principles. For a
presentation including all disclosures required by generally accepted accounting
principles, these financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1998, included in
our Annual Report on Form 10-K/A.
SonoSite, a development stage enterprise, began operations in 1994 as a project
of ATL Ultrasound, Inc ("ATL"). The project was chartered to develop the design
and specifications for a hand-carried ultrasound device. During the period from
inception (February 1994) through April 6, 1998, the project was organized as a
separate division of ATL. On February 2, 1998, the ATL Board of Directors
approved a plan to spin off SonoSite as an independent publicly owned company
(the "Distribution"). This transaction was effected through a tax-free dividend
distribution of SonoSite's shares to ATL shareholders as of April 6, 1998 (the
"Distribution Date"). ATL shareholders received one share of SonoSite common
stock for each three shares of ATL common stock held. In addition, ATL option
holders were granted one option to purchase SonoSite shares for every six
options to purchase ATL shares.
The financial statement information for periods prior to the Distribution Date
represents the combination of the hand-carried ultrasound division of ATL and
the corporate entity, SonoSite, Inc. Such information has been derived from the
historical books and records of ATL and reflects the assets, liabilities,
revenues and expenses of SonoSite, as it was operated as a division of ATL, at
historical cost.
Financial statement information for subsequent periods consists solely of
SonoSite's activity as a separate company.
For periods prior to the Distribution Date, the statement of operations included
allocations for facilities and certain support services, such as engineering
overhead, administration, accounting, finance, human resources and regulatory
functions. The allocations were based on estimates of personnel time and effort
spent by ATL on behalf of SonoSite. Management believes these allocations were
made on a reasonable basis. Subsequent to the Distribution Date, items noted
above were incorporated into agreements with ATL and charges were based upon
actual time spent by ATL on behalf of SonoSite.
Reclassification of Prior Period Balances
Certain amounts reported in previous periods have been reclassified to conform
to the current period presentation.
Investments
Investments are managed by a third-party investment advisor and consist of high-
quality debt securities and commercial paper. The entire investment portfolio
is classified as available for sale and is classified based upon management's
intended liquidation date.
Risk Purchases
As part of our operations, we have permitted our manufacturer, ATL, to procure
certain raw material items with long lead-times that will be used for the
production of our products. If these procurements become obsolete, we would be
responsible for compensating ATL for these items.
Page 6 of 12 sequentially numbered pages
<PAGE>
Other Comprehensive Loss
Other comprehensive losses consist entirely of net unrealized gains and losses
on investment during the quarter ended June 30, 1999. As of June 30, 1999,
SonoSite had an unrealized loss of $92,800. No such gain or loss existed as of
March 31, 1999 or December 31, 1998.
Net Loss per Share
Basic and diluted net loss per share was computed by dividing the net loss by
the weighted average shares outstanding.
Weighted average shares outstanding represent weighted average shares of
SonoSite common shares outstanding from the Distribution Date forward and, for
the periods prior to the Distribution Date, weighted average shares outstanding
represent ATL weighted average shares as adjusted for the exchange ratio
established on the Distribution Date of one SonoSite share for every three
shares of ATL. All periods presented were restated to reflect this
distribution.
Options to purchase SonoSite shares and unvested restricted SonoSite shares
issued by ATL and options issued by SonoSite after the Distribution Date which
were outstanding were not included in the computations of diluted net loss per
share because to do so would be antidilutive. As of June 30, 1999 and July 3,
1998, outstanding SonoSite options and unvested restricted shares issued by ATL
through the Distribution totaled 276,491 and 333,871 and outstanding stock
options issued by SonoSite as of June 30, 1999 and July 3, 1998, totaled
1,877,865 and 992,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis should be read in conjunction with our condensed
financial statements and the related notes thereto appearing in Item 1 of this
report. In addition to historical information, this report contains and
incorporates forward-looking statements that are based on current expectations,
assumptions, estimates and projections about our industry and SonoSite. When
used in this discussion, the words "expects," "anticipates," "estimates" and
"intends" and similar expressions are intended to identify forward-looking
statements, but their absence does not mean that the statement is not forward-
looking. These statements include, but are not limited to, statements about:
-- our ability to develop, introduce and market our products in a timely
manner;
-- market acceptance of our products;
-- the ability of ATL Ultrasound to manufacture our products;
-- our ability to maintain our relationship with ATL Ultrasound;
-- our ability to provide sufficient support to our indirect sales and
distribution network;
-- future fluctuations in our operating results; and
-- our future capital expenditures and capital resources.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. The
cautionary statements made in this discussion should be read as being applicable
to all related forward-looking statements wherever they appear in this
discussion. Reference is made to our Annual Report on Form 10-K/A for a detailed
description of these and other factors. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. We assume no obligation to update such forward-looking statements
publicly for any reason, or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements, even if
new information becomes available in the future.
Page 7 of 12 sequentially numbered pages
<PAGE>
Overview
SonoSite, a development-stage enterprise, commenced operations in 1994 as a
project of ATL Ultrasound. We were formed to develop the design and
specifications for miniaturized ultrasound products for diagnostic imaging in a
variety of clinical settings. From the time we started on this project until we
became an independent company on April 6, 1998, we were organized as a separate
division within ATL Ultrasound. On February 2, 1998, the ATL Ultrasound board
of directors approved a plan to spin off our division as an independent publicly
owned company. This transaction was completed through the tax-free distribution
of one new share of SonoSite common stock for every three shares of ATL
Ultrasound common stock held on April 6, 1998, and options to purchase one share
of SonoSite common stock for every six shares of ATL Ultrasound common stock
subject to outstanding options on April 6, 1998.
ATL Ultrasound retained no ownership in us following the spin-off. In an
unrelated event, the Philips Medical Products Division of Philips Electronics,
B.V. of the Netherlands acquired ATL Ultrasound later in 1998.
To date, our capital requirements have been met primarily by contributions from
ATL Ultrasound in connection with our spin-off, funding from the U.S. Office of
Naval Research under a U.S. Government Defense Advanced Research Projects Agency
grant and net proceeds from our successfully completed public offering of
2,990,000 shares of common stock, which resulted in net proceeds of
approximately $35.5 million. ATL Ultrasound's funding obligations have been met
and any future grant revenue is expected to be insignificant. Future revenues
will depend on product and accessory sales, which we do not anticipate until the
latter part of 1999 at the earliest. At that time, we expect to have completed
product development activities on our initial product platform and to be in a
position to commence customer delivery of our initial ultrasound devices and
accessories. We will continue to incur operating losses until our product sales
generate sufficient revenue to fund our continuing operations. We may not
generate sufficient revenue to fund our operations in future periods.
Results of operations
Grant revenue
In prior periods, we received grant revenue from a contract with the U.S. Office
of Naval Research that was generally tied to the achievement of technological
milestones. As expected, no grant revenue for the quarter ended June 30, 1999
was received. During the comparable quarter ended July 3, 1998, grant revenue
was $214,500. Grant revenue for the six months ended June 30, 1999 and July 3,
1998 was $124,506 and $973,107. The decrease in grant revenue in recent periods
was consistent with our expectations, as the majority of technological
milestones had been achieved by the end of June 1998.
Research and development expenses
Research and development expenses for the quarter and two quarters ended June
30, 1999 were $4,063,969 and $7,067,089. In the comparable periods in 1998, we
reported research and development expenses of $1,913,957 and $4,068,914. The
increase in research and development expenses was primarily the result of
additional personnel and personnel-related expenses and increases in product
development and manufacturing expenses. We anticipate that spending levels in
research and development in 1999 will remain at the second quarter level or
slightly decrease over the remainder of 1999 as we complete development, design
validation and verification of our first product platform, continue to develop
future products and build inventory to support our anticipated product sales.
Sales and marketing expenses
Sales and marketing expenses for the quarter and six months ended June 30, 1999
were $2,727,942 and $4,500,859. In the comparable periods in 1998, we reported
sales and marketing expenses of $520,604 and $1,324,211. The increase was
primarily the result of increases in personnel and personnel-related expenses
and increases in consulting, travel and trade show related expenditures during
the second quarter of 1999 in connection with the formal launch of our product.
We expect sales and marketing expenses to increase as we continue promotional
activity and support our worldwide distribution network.
Page 8 of 12 sequentially numbered pages
<PAGE>
General and administrative expenses
General and administrative expenses for the quarter and six months ended June
30, 1999 were $516,418 and $1,211,848. In the comparable periods
in 1998, we reported general and administrative expenses of $575,696 and
$837,258. The comparable quarter decrease was primarily the
result of personnel being added in the general and administrative area rather
than subcontracting for the traditional general and administrative functions,
including accounting and finance, investor relations, human resources and
information services. The increase in the comparable two quarter period was
primarily the result of charges during the first quarter of 1999 relating to
annual report production and circulation and costs for the annual meeting of
shareholders. No such charges were incurred in the comparable period in 1998.
We intend to add administrative personnel to support the research and
development, manufacturing and selling and marketing activities, and,
consequently, expect that general and administrative expenses will increase at a
moderate rate.
Net loss
Net loss for the quarter and six months ended June 30, 1999 was $6,910,851 and
$12,148,332. In the 1998 comparable periods, we reported a net loss of
$2,576,486 and $5,038,005. The increase in net losses was primarily due to the
increase in expenses and reduction in grant revenue as noted above. We expect to
incur significant net losses in the near term as we continue research and
development activities relating to our initial and next generation products,
continue to establish our manufacturing processes, increase sales and marketing
efforts in anticipation of product release and continue to provide necessary
administrative support for increased activities throughout SonoSite.
Liquidity and Capital Resources
On April 6, 1998, the day we became an independent public company, ATL
Ultrasound contributed $18.0 million in cash and was obligated, without
contingency, to contribute an additional $12.0 million in cash on January 15,
1999. That payment was received on schedule. The $30.0 million cash transfer
from ATL Ultrasound, development grant revenues from the U.S. Office of Naval
Research of $5.1 million, lease financing of $1.1 million and net proceeds of
our public offering of common stock completed in the second quarter of 1999 have
funded our capital requirements. In April 1999, we received approximately
$35.5 million, net of underwriters' fees and other offering expenses, from our
public offering of 2,990,000 shares of common stock.
As of June 30, 1999, cash and cash equivalents on hand totaled $7.5 million and
investments in marketable securities totaled $34.6 million. Our cash
requirements have increased in recent quarters due to continued product
development, validation and verification activities, preproduction manufacturing
expenditures, sales and marketing activity and activity to support our worldwide
distribution network. As described above, our cash requirements are expected to
continue to increase in 1999 as we build inventories, continue those activities
discussed and begin to ship our first revenue products, anticipated in late
1999.
We believe that our existing cash and cash equivalents, together with interest
thereon and anticipated product revenue, should be sufficient to fund our
operations at least through 2000. However, it is difficult to accurately predict
the amount of cash that we may require in the future. The amount required will
depend, in part, upon factors beyond our control. Capital requirements could
exceed our estimates as a result of a variety of factors. These factors include
technical obstacles, delays in product development or introduction, cost
overruns in research and development programs or establishing manufacturing
activities, greater than anticipated administrative expenses or lower than
anticipated customer demand or revenues after product introduction. From time to
time, we may seek additional financing from various sources. Adequate financing
may not be available on a timely basis, on favorable terms, or at all. If we are
unable to meet our cash needs, we will be required to significantly alter our
operating plans. Activities that may be affected could include our research and
development programs, overall spending levels, marketing initiatives or product
introductions. We also may be required to seek to obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to aspects of our technology or products. Page 9 of 12
sequentially numbered pages
<PAGE>
Year 2000 Compliance
Overview
Many computer programs were written using two, rather than four, digits to
define the applicable year. Unless corrected, those systems that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000, potentially resulting in system failures or miscalculations.
This problem has been dubbed the "Year 2000 Problem." The Year 2000 Problem is
complex and pervasive in the general economy, as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value to 00.
Readiness
We conducted a review of our existing information technology infrastructure and
computer systems. Based on representations made by our software and hardware
suppliers, we believe that our existing information technology infrastructure
and computer systems are year 2000 compliant. We contacted other vendors via
direct mail or the internet and, to date, have received a response from over
sixty percent of those vendors, none of which noted any significant year 2000
issues. We will continue to contact new vendors throughout the year and follow-
up with vendors from which we do not receive a response.
We are also conducting a review of our products in development. We believe that
these products will be year 2000 compliant due to the design process employed in
their specifications and development. As one of the functional requirements of
our products, we state that they will "perform date recording and computations
accurately through and beyond the year 2000 and accommodate the leap year for
the year 2000 and beyond." We also state as one of the functional requirements
that "there will be no system hardware or software failures due to the year
2000."
Costs
To date, we have not incurred any significant costs directly associated with our
year 2000 compliance efforts. At this time, we cannot determine the full cost
of correcting any potential year 2000 issues. The full estimated cost of
correcting any year 2000 issues will not be known until after we complete our
initial survey of third-party vendors. We do not anticipate that these costs
will be significant.
Risks
In assessing the overall risks related to the Year 2000 Problem, we believe our
greatest potential exposures involve development activities relating to our
products. Additional areas of risk include equipment and materials that will be
used in manufacturing our products and accessories, vendors providing
distribution functions and software and hardware support for these and other
administrative functions. If the Year 2000 Problem exists in these areas, it
could significantly delay or eliminate our ability to bring our products to
market, which would have a material adverse effect on our business. Because
these areas of risk involve third parties, over which we have little or no
control, a contingency plan for these risks does not exist and we cannot assure
you that we will be able to develop one. We are not able to estimate the full
cost, if any, of correcting any potential Year 2000 Problems at this time. Full
estimated costs, if any, will not be known until we complete the survey and
review all responses received from vendors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk relating to changes in interest rates which could
adversely affect the value of our investments in marketable securities or
increase interest expense on outstanding debt.
Our portfolio consists of interest bearing securities with maturities of less
than two years. Our intent is to hold these securities until maturity, but have
classified them as available-for-sale in the event of liquidation or
unanticipated cash needs. The interest bearing securities are subject to
interest rate risk and will fall in value if market interest
Page 10 of 12 sequentially numbered pages
<PAGE>
rates increase. A 10% increase in market interest rates would not have a
material impact on either the investment portfolio or our obligations.
Part II: Other Information
Item 2. Changes in Securities and Use of Proceeds
On April 21, 1999, the Securities and Exchange Commission declared effective our
registration statement on Form S-1 as filed with the Commission in connection
with our public offering of common stock, par value $0.01 per share. The date of
commencement of the offering was April 22, 1999. The offering was co-managed by
Vector Securities International, Inc. and Prudential Securities Incorporated.
Pursuant to the registration statement and a related registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, we
registered and sold an aggregate of 2,990,000 shares of common stock for a gross
aggregate offering price of approximately $38.9 million. In connection with the
offering, we incurred total expenses of approximately $3.3 million, including
underwriting discounts and commissions of approximately $2.7 million. All of
these expenses were direct or indirect payments to others and not payments to
our directors or officers (or their associates) or to our affiliates or 10%
shareholders. Of the approximately $35.5 million in net proceeds that we
received upon consummation of the offering, approximately $400,000 have been
used to fund ongoing operations. Ongoing operational funding is primarily
provided by funds held in short-term money market accounts that existed prior to
the equity offering. The remaining net proceeds from the offering of
approximately $35.2 million were deposited in a money market account with Chase
Manhattan Bank and used for the purchase of high-grade marketable securities
with the majority in terms of less than one year. None of the proceeds were used
as payments to our directors or officers (or their associates), or to our
affiliates or 10% shareholders. We plan to utilize existing money market
accounts to fund ongoing operations and have structured our marketable
securities to be available for operational funding in late 1999 and well into
2000.
Item 5. Other Information
The Company had previously utilized financial quarters that were based on a
four-four-five week per quarter structure independent of particular calendar
quarter-end days, with any remainder being adjusted to a true year-end. For
ease of financial reporting, and other related reasons, the Company now bases
its financial quarters on calendar quarter-end days. The result of this change
is that the Company's quarters now end on the following days: March 31, June 30,
September 30 and December 31.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 3.1 Amended and Restated Bylaws
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
No reports on form 8-K were filed during the quarter ended June 30, 1999.
Page 11 of 12 sequentially numbered pages
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SonoSite, Inc.
(Registrant)
Dated: August 12, 1999 By: /S/ DONALD F. SEATON, III
Donald F. Seaton III
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
Page 12 of 12 sequentially numbered pages
<PAGE>
BYLAWS
OF
SONOSITE, INC.
<PAGE>
AMENDMENTS
----------
<TABLE>
<CAPTION>
Section Effect of Amendment Date of Amendment
- ------- ------------------- -----------------
<S> <C> <C>
6 Add prohibition against option 5/6/99
repricings
</TABLE>
-i-
<PAGE>
CONTENTS
<TABLE>
<S> <C>
ARTICLE I - Offices...................................................................... 1
SECTION 1. Registered Office....................................................... 1
SECTION 2. Other Offices........................................................... 1
ARTICLE II - Meetings of Shareholders.................................................... 1
SECTION 1. Annual Meetings......................................................... 1
SECTION 2. Special Meetings........................................................ 1
SECTION 3. Notice of Meetings...................................................... 2
SECTION 4. List of Shareholders.................................................... 2
SECTION 5. Quorum.................................................................. 2
SECTION 6. Organization............................................................ 3
SECTION 7. Order of Business....................................................... 3
SECTION 8. Voting.................................................................. 4
ARTICLE III - Board of Directors......................................................... 5
SECTION 1. General Powers.......................................................... 5
SECTION 2. Number, Term of Office and Election..................................... 5
SECTION 3. Notification of Nominations............................................. 5
SECTION 4. Resignation, Removal and Vacancies...................................... 6
SECTION 5. Meetings................................................................ 6
SECTION 6. Compensation............................................................ 8
ARTICLE IV - Committees.................................................................. 8
SECTION 1. Executive Committee..................................................... 8
SECTION 2. Quorum and Manner of Acting............................................. 9
</TABLE>
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<TABLE>
<S> <C>
SECTION 3. Other Committees........................................................ 9
ARTICLE V - Officers..................................................................... 9
SECTION 1. Election and Appointment and Term of Office............................. 9
SECTION 2. Resignation, Removal and Vacancies...................................... 9
SECTION 3. Duties and Functions.................................................... 10
ARTICLE VI - Contracts, Deposits, Proxies, Etc........................................... 10
SECTION 1. Execution of Documents.................................................. 10
SECTION 2. Deposits................................................................ 11
SECTION 3. Proxies in Respect of Stock or Other Securities of Other Corporations... 11
ARTICLE VII - Books and Records.......................................................... 11
ARTICLE VIII - Shares and Their Transfer; Fixing Record Date............................. 11
SECTION 1. Certificates for Stock.................................................. 11
SECTION 2. Record.................................................................. 11
SECTION 3. Transfer of Stock....................................................... 12
SECTION 4. Lost, Stolen, Destroyed or Mutilated Certificates....................... 12
SECTION 5. Fixing Date for Determination of Shareholders of Record................. 12
ARTICLE IX - Seal........................................................................ 13
ARTICLE X - Fiscal Year.................................................................. 13
ARTICLE XI - Amendments.................................................................. 13
SECTION 1. By Shareholders......................................................... 13
SECTION 2. By Directors............................................................ 13
SECTION 3. Emergency Bylaws........................................................ 13
</TABLE>
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BYLAWS
OF
SONOSITE, INC.
ARTICLE I - Offices
SECTION 1. Registered Office
The street address of the registered office of the Corporation is 520 Pike
Street, 26th Floor, Seattle, Washington, 98101. The name of the registered
agent at such address is C T Corporation System. If the registered agent
changes the street address of the registered office, the registered agent may
change its street address by notifying in writing the Corporation and delivering
to the Secretary of State for filing a statement of such change, as required by
law.
SECTION 2. Other Offices
The Corporation may also have offices at other places either within or
without the State of Washington.
ARTICLE II - Meetings of Shareholders
SECTION 1. Annual Meetings
The annual meeting of the shareholders for the election of directors and
for the transaction of such other business as may properly come before the
meeting shall be held at such place, date and hour as shall be designated in the
notice thereof given by or at the direction of the Board of Directors.
SECTION 2. Special Meetings
Except as otherwise required by law and subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of the shareholders
for any purpose or purposes may be called only by, and shall be held at such
place, date and hour as shall be designated by (i) holders of two-thirds or more
of the voting power of the then outstanding shares of stock of all classes and
series of the Corporation entitled to vote generally in the election of
Directors ("Voting Stock"), (ii) the Chairman of the Board, (iii) the President,
or (iv) a majority of the total number of Directors.
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SECTION 3. Notice of Meetings
Except as otherwise expressly required by law or these Bylaws, notice of
each meeting of the shareholders shall be given not less than 10 or more than 60
days before the date of the meeting to each shareholder entitled to vote at such
meeting by mailing such notice, postage prepaid, directed to the shareholder at
his address as it appears on the records of the Corporation. Every such notice
shall state the place, date and hour of the meeting and, in the case of a
Special meeting, the purpose or purposes for which the meeting is called.
Except as otherwise expressly required by law, notice of any adjourned meeting
of the shareholders need not be given. Notice of any meeting of shareholder
shall not be required to be given to any shareholder who shall attend such
meeting in person or by proxy, except when the shareholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice, signed by the person entitled thereto,
whether before or after the time stated therein, shall be deemed equivalent to
the notice required by this Section 3.
SECTION 4. List of Shareholders
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the shareholders, a complete list of the shareholders
entitled to vote thereat, arranged in alphabetical order and by voting group,
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 10 days prior to the meeting at the
principal office of the Corporation. Such 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. Quorum
At each meeting of the shareholders, except as otherwise expressly required
by law or by the Articles of Incorporation, shareholders holding one-third of
the shares of stock of the Corporation issued and outstanding, and entitled to
be voted thereat, shall be present in person or by proxy to constitute a quorum
for the transaction of business. In the absence of a quorum at any such meeting
or any adjournment or adjournments thereof, a majority in voting interest of
those present in person or by proxy and entitled to vote thereat, or in the
absence therefrom of all the shareholders, any officer entitled to preside at,
or to act as Secretary of, such meeting may adjourn such meeting from time to
time until shareholders holding the amount of stock requisite for a quorum shall
be present in person or by proxy. At any such adjourned meeting at which a
quorum may be present any business may be transacted which might have been
transacted at the meeting as originally called.
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SECTION 6. Organization
At each meeting of the shareholders, one of the following shall act as
chairman of the meeting and preside thereat, in the following order of
precedence:
(a) the Chairman of the Board;
(b) the President;
(c) any other officer of the Corporation designated by the Board or the
Executive Committee to act as chairman of such meeting and to preside thereat if
the Chairman of the Board and the President shall be absent from such meeting;
or
(d) a shareholder of record of the Corporation who shall be chosen
chairman of such meeting by a majority in voting interest of the shareholders
present in person or by proxy and entitled to vote thereat. The Secretary, or,
if he shall be presiding over the meeting in accordance with the provisions of
this Section, or, if he shall be absent from such meeting, the person (who shall
be an Assistant Secretary, if an Assistant Secretary shall be present thereat)
whom the chairman of such meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof.
SECTION 7. Order of Business
(a) Annual Meetings. At an annual meeting of the shareholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (ii) otherwise brought before the
meeting by or at the direction of the Board of Directors, or (iii) brought
before the meeting by a shareholder in accordance with the procedure set forth
below. Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given written notice thereof, either by personal
delivery or by certified or registered United States mail, postage prepaid, to
the Secretary of the Corporation, not later than 90 days in advance of the
Originally Scheduled Date (as such term is defined below) of such meeting;
provided, however, that if such annual meeting of shareholders is held on a date
earlier than the first Tuesday in May, such written notice must be given within
10 days after the first public disclosure (which may be by a public filing by
the Corporation with the Securities and Exchange Commission) of the Originally
Scheduled Date of the annual meeting. Any such notice shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (A) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and, in the event that such
business includes a proposal to amend either the Articles of Incorporation or
Bylaws of the Corporation, the language of the proposed amendment, (B) the name
and address of the shareholder proposing such business, (C) a representation
that the shareholder is a holder of
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record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to propose such business, and (D)
any direct or indirect material interest of the shareholder in such business. No
business shall be conducted at an annual meeting except in accordance with this
paragraph, and the chairman of any annual meeting of shareholders may refuse to
permit any business to be brought before such annual meeting without compliance
with the foregoing procedure. For purposes of these Bylaws, the "Originally
Scheduled Date" of any meeting of shareholders shall be the date such meeting is
scheduled to occur in the notice of such meeting first given to shareholders
regardless of whether such meeting is continued or adjourned and regardless of
whether any subsequent notice is given for such meeting or the record date of
such meeting is changed.
(b) Special Meetings. At a special meeting of the shareholder, only
such business as is specified in the notice of such special meeting given by or
at the direction of the person or persons calling such meeting in accordance
with Section 2 of this Article II shall come before such meeting.
SECTION 8. Voting
Except as otherwise provided in the Articles of Incorporation, each
shareholder shall, at each meeting of the shareholders, be entitled to one vote
in person or by proxy for each share of stock of the Corporation held by him and
registered in his name on the books of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 5 of Article
VIII of these Bylaws as the record date for the determination of shareholders
who shall be entitled to receive notice of and to vote at such meeting, or
(b) if no record date shall have been so fixed, then in the manner set
by RCW 23B.07.070.
Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held by the Corporation, shall neither be
entitled to vote nor considered as issued and outstanding for the purposes of
determining whether a quorum exists. Any vote of stock of the Corporation may
be given at any meeting of the shareholders by the shareholders entitled thereto
in person or by proxy appointed by an instrument in writing delivered to the
Secretary or an Assistant Secretary of the Corporation or the secretary of the
meeting. The attendance at any meeting of a shareholder who may theretofore
have given a proxy shall not have the effect of revoking the same unless he
shall in writing so notify the secretary of the meeting prior to the voting of
the proxy. At all meetings of the shareholders all matters, except as otherwise
provided in the Articles of Incorporation, these Bylaws or by law, shall be
decided by the vote of a majority of the votes cast by shareholders present in
person or by proxy and entitled to vote thereat, a quorum being present. Except
as otherwise expressly required by law, the vote at any meeting of the
shareholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by
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the shareholder voting, or by his proxy, if there be such proxy, and shall state
the number of shares voted.
ARTICLE III - Board of Directors
SECTION 1. General Powers
The business and affairs of the Corporation shall be managed by the Board.
SECTION 2. Number, Term of Office and Election
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock of the Corporation as to dividends or upon
liquidation, the number of directors which shall constitute the whole Board
shall be not less than five nor more than nine, the specific number to be set by
resolution of the Board, provided that the Board may be less than five until
replacement directors are elected, and any resignation or removal of an existing
director shall not be deemed a vacancy, unless otherwise determined by the
remaining Board.
Each of the directors of the Corporation shall hold office until the annual
meeting next after his election and until his successor shall be elected and
shall qualify or until his earlier death or resignation or removal in the manner
hereinafter provided.
Directors need not be shareholders of the Corporation.
Except as otherwise expressly provided in the Articles of Incorporation at
each meeting of the shareholders for the election of directors at which a quorum
is present, the persons receiving the largest number of votes cast, up to the
number of directors to be elected, shall be the directors.
SECTION 3. Notification of Nominations
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of Directors
or by any shareholder entitled to vote for the election of directors. Any
shareholder entitled to vote for the election of directors at a meeting may
nominate persons for election as directors only if written notice of such
shareholder's intent to make such nomination is given, either by personal
delivery or by registered or certified United States mail, postage prepaid, to
the Secretary of the Corporation not later than (i) with respect to an election
to be held at an annual meeting of shareholders, 90 days in advance of the
Originally Scheduled Date (as such term is defined in Section 7 of Article II of
these Bylaws) of such meeting (provided that if such annual meeting of
shareholders is held on a date earlier than the first Tuesday in May, such
written notice must be given within 10 days after the first public disclosure
(which may be by a public filing by the Corporation with the Securities and
Exchange Commission) of the Originally Scheduled Date of the annual meeting) and
(ii) with respect to an election to be held at a special meeting of
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shareholders for the election of directors, the close of business on the seventh
day following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated, (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder, (d) such other information regarding each nominee
proposed by such shareholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors, and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
SECTION 4. Resignation, Removal and Vacancies
(a) Resignation. Any director may resign at any time by giving written
notice of his resignation to the Chairman of the Board, the President or the
Secretary of the Corporation. Any such resignation, or at such later time at a
time as specified therein, if the time when it shall become effective shall not
be specified therein, shall take effect when delivered to the Board, or except
as aforesaid, the acceptance of such resignation shall not be necessary to make
it effective.
(b) Vacancies. Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation, in case of any vacancy on the Board or in case
of any newly created directorship, a director to fill the vacancy or the newly
created directorship for the unexpired portion of the term being filled may be
elected by a majority of the directors of the Corporation then in office though
less than a quorum or by a sole remaining director.
SECTION 5. Meetings
(a) Annual Meetings. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business.
(b) Regular Meetings. Regular meetings of the Board shall be held at
such times and places as the Board shall from time to time determine. Notices of
regular meetings need not be given.
(c) Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the President or three directors.
The Secretary shall give notice to each director of each such special meeting,
including the time and place of such
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meeting. Notice of each such meeting shall be mailed to each director, addressed
to him at his residence or usual place of business, at least two days or, in the
case of overnight mail, two days before the day on which such meeting is to be
held, or shall be sent to him by facsimile, telegraph, cable, wireless or other
form of recorded communication or be delivered personally or by telephone not
later than the day before the day on which such meeting is to be held. Notice of
any special meeting shall not be required to be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Any and all business may be transacted at a special
meeting which may be transacted at a regular meeting, of the Board.
(d) Place of Meeting. The Board may hold its meetings at such place or
places within or without the State of Washington as the Board may from time to
time by resolution determine or, in the absence of such determination, as shall
be designated in the respective notices or waivers of notice thereof as directed
by the person or persons calling such meeting.
(e) Quorum and Manner of Acting. A majority of the directors then in
office shall be present in person or by means of conference telephone or similar
communications equipment as permitted by the Washington Business Corporation Act
(the "Act") at any meeting of the Board of Directors in order to constitute a
quorum for the transaction of business at such meeting provided that such
majority shall be no less than one-third of the total number of directors
specified in or fixed in accordance with the Articles of Incorporation or
Bylaws. The affirmative vote of a majority of those directors present at any
such meeting at which a quorum is present shall be necessary for the passage of
any resolution or act of the Board, except as otherwise expressly required by
law, the Articles of Incorporation or these Bylaws and except that the Board may
pass any resolution or take any action by unanimous written consent as permitted
by the Act. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present thereat. Notice of any adjourned meeting need not be
given.
(f) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman of the Board;
(ii) the President; or
(iii) any director chosen by a majority of the directors present thereat.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the chairman of the meeting shall appoint, shall act as Secretary of such
meeting and keep the minutes thereof.
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SECTION 6. Compensation
Each director, in consideration of his serving as such, shall be entitled
to receive from the Corporation such amount per annum or such fees for
attendance at meetings of the Board or of any committee, or both, as the Board
shall from time to time determine. The Board may likewise provide that the
Corporation shall reimburse each director or member of a committee for any
expenses incurred by him on account of his attendance at any such meeting.
Nothing contained in this Section shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV - Committees
SECTION 1. Executive Committee
(a) Designation and Membership. The Board may, by resolution passed by
a majority of the whole Board, designate an Executive Committee consisting of
the Chairman of the Board, the President, a Chairman of the Executive Committee
(who may be the Chairman of the Board or President) and such additional number
of directors as the Board shall appoint. Vacancies may be filled by the Board at
any time and any member of the Executive Committee shall be subject to removal,
with or without cause, at any time by the Board.
(b) Factions and Powers. The Executive Committee, subject to any
limitations prescribed by the Board or by RCW 23B.08.250, shall possess and may
exercise, during the intervals between meetings of the Board, the powers of the
Board in the management of the business and affairs of the Corporation, provided
that neither the Executive Committee nor any other committee may exercise the
power of the Board to act upon matters requiring a vote thereof greater than a
majority of directors present at a meeting at which a quorum is in attendance.
At each meeting of the Board, the Executive Committee shall make a report of all
action taken by it since its last report to the Board.
(c) Meetings. The Executive Committee shall meet as often as may be
deemed necessary and expedient at such times and places as shall be determined
by the Executive Committee or the Board of Directors. The Secretary shall give
notice to each member of the Executive Committee of each meeting, including the
time and place of such meeting. Notice of each such meeting shall be mailed to
each member of the Executive Committee, addressed to him at his residence or
usual place of business, at least five days or, in the case of overnight mail,
two days before the day on which such meeting is to be held, or shall be sent to
him by telegraph, cable, wireless or other form of recorded communication or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held. Notice of any meeting of the Executive
Committee shall not be required to be given to any member of the Executive
Committee who shall attend such meeting. A written waiver of notice, signed by
the person entitled thereto, whether before or after the time stated therein,
shall be deemed equivalent to the notice required by this paragraph (c).
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SECTION 2. Quorum and Manner of Acting
A majority of the Executive Committee present in person or by means of
conference telephone or similar communications equipment as permitted by the Act
shall constitute a quorum, and the vote of a majority of members of the
Executive Committee present at any such meeting at which a quorum is present
shall be necessary for the passage of any resolution or act of the Executive
Committee except that the Executive Committee may pass any resolution or take
any action by unanimous written consent as permitted by the Act. The Chairman
of the Executive Committee shall preside at meetings of the Executive Committee
and, in his absence, the Executive Committee may appoint any other member of the
Executive Committee to preside.
SECTION 3. Other Committees
The Board may, by resolution passed by a majority of the whole Board,
designate other committees, each committee to consist of two or more directors
and to have such duties and functions as shall be provided in such resolution.
ARTICLE V - Officers
SECTION 1. Election and Appointment and Term of Office
(a) Officers. The officers of the Corporation shall be a Chairman of
the Board, a President, a Chairman of the Executive Committee, such number of
Vice Presidents (including any Executive and/or Senior Vice Presidents) as the
Board may determine from time to time, a Treasurer and a Secretary. Each such
officer shall be elected by the Board at its annual meeting and shall hold
office the next annual meeting of the Board and until his successor is elected
and qualified or until his earlier death or resignation or removal in the manner
hereinafter provided.
(b) Additional Officers. The Board may elect or appoint such other
officers (including one or more Assistant Treasurers and one or more Assistant
Secretaries) as it deems necessary, who shall have such authority and shall
perform such duties as the Board may prescribe. If additional officers are
elected or appointed during the year, each of them shall hold office until the
next annual meeting of the Board at which officers are regularly elected or
appointed and until his successor is elected or appointed and qualified or until
his earlier death or resignation or removal in the manner hereinafter provided.
SECTION 2. Resignation, Removal and Vacancies
Any officer may resign at any time by giving written notice to the Chairman
of the Board, the President or the Secretary of the Corporation, and such
resignation shall take effect at such later time as specified therein when
delivered to the Board, or except as aforesaid, the acceptance of such
resignation shall not be necessary to make it effective. All officers and
agents elected or appointed by the Board shall be subject to removal at any time
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by the Board with or without cause. A vacancy in any office may be filled for
the unexpired portion of the term in the same manner as provided for election or
appointment to such office.
SECTION 3. Duties and Functions
(a) Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Board of Directors and of the shareholders at which he is
present. The Chairman may delegate such duties to the other officers of the
Corporation as he deems appropriate.
(b) President. The President shall be the chief executive officer of
the Corporation and shall have general charge of the business and affairs of the
Corporation and shall have the direction of all other officers, agents and
employees, and shall report to the Chairman of the Board. He shall preside at
meetings of the Board of Directors and of the shareholders at which he is
present in the absence of the Chairman of the Board.
(c) Chairman of the Executive Committee. The Chairman of the Executive
Committee shall preside at all meetings of the Executive Committee at which he
is present.
(d) Vice Presidents. Each Vice President shall have such powers and
duties as shall be prescribed by the Chairman of the Board or the Board.
(e) Treasurer. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation.
(f) Secretary. The Secretary shall keep the records of all meetings of
the shareholders and of the Board and the Executive Committee. He shall affix
the seal of the Corporation to all deeds, contracts, bonds or other instruments
requiring the corporate seal when the same shall have been signed on behalf of
the Corporation by a duly authorized officer. The Secretary shall be the
custodian of all contracts, deeds, documents and all other indicia of title to
properties owned by the Corporation and of its other corporate records (except
accounting records).
ARTICLE VI - Contracts, Deposits, Proxies, Etc.
SECTION 1. Execution of Documents
The Board shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the payment of
money and other documents for and in the name of the Corporation and may
authorize such officers, employees and agents to delegate such power (including
authority to redelegate) by written instrument to other officers, employees or
agents of the Corporation.
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SECTION 2. Deposits
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation or otherwise as the Board or the
President or any other officer of the Corporation to whom power in that respect
shall have been delegated by the Board shall select.
SECTION 3. Proxies in Respect of Stock or Other Securities of Other
Corporations
The Board shall designate the officer of the Corporation who shall have
authority to from time to time appoint an agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other secrets in any
other corporation and to vote or consent in respect of such stock or securities.
Such designated officer may instruct the person or persons so appointed as to
the manner of exercising such powers and rights and such designated officers may
execute or cause to be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, such written proxies, powers of attorney
or other instruments as they may deem necessary or proper in order that the
Corporation may exercise such powers and rights.
ARTICLE VII - Books and Records
The books and records of the Corporation may be kept at such places within
or without the State of Washington as the Board may from time to time determine.
ARTICLE VIII - Shares and Their Transfer; Fixing Record Date
SECTION 1. Certificates for Stock
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number of shares owned by him in the Corporation and
designating the class of stock to which such shares belong, which shall
otherwise be in such form as the Board shall prescribe. Each such certificate
shall be signed by, or in the name of the Corporation by, the Chairman of the
Board, the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation. In
case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may nevertheless be issued by the corporation with the same effect
as if he were such officer at the date of issue.
SECTION 2. Record
A record shall be kept of the name of the person, firm or corporation
owning the stock represented by each certificate for stock of the Corporation
issued, the number of shares represented by each such certificate, and the date
thereof, and, in the case of cancellation, the date of cancellation. Except as
otherwise expressly required by applicable law, the person in
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whose name shares of stock stand on the books of the Corporation shall be deemed
the owner thereof for all purposes as regards the Corporation.
SECTION 3. Transfer of Stock
Transfers of shares of the stock of the Corporation shall be made only on
the books of the Corporation by the registered holder thereof, or by his
attorney hereunto authorized by power of attorney duly executed and filed with
the Secretary of the Corporation, and on the surrender of the certificate or
certificates for such shares properly endorsed.
SECTION 4. Lost, Stolen, Destroyed or Mutilated Certificates
The holder of any stock of the Corporation shall immediately notify the
Corporation of any loss, theft or mutilation of the certificate therefor. The
Corporation may issue a new certificate for stock in the place of any
certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board may, in its discretion, require the owner
of the lost, stolen, mutilated or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum, limited or
unlimited, in such form and with such surety or sureties as the Board shall in
its discretion determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, mutilation or
destruction of any such certificate or the issuance of any such new certificate.
SECTION 5. Fixing Date for Determination of Shareholders of Record
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 to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 70
nor less than 10 days before the date of such meeting, nor more than 70 days
prior to any other action, except that notice of a meeting to act on an
amendment to the Articles of Incorporation, a plan of merger or share exchange,
the sale, lease, exchange or disposition of all or substantially all of the
Corporation's assets other than through the regular course of business or the
dissolution of the Corporation shall be given not less than 20 nor more than 70
days before such meeting.
SECTION 6. Option Repricing
In no event shall any stock option already issued and outstanding be
repriced to a lower strike price at any time during the term of such option,
without the prior affirmative vote of a majority of shares of stock of the
Company present at a shareholders meeting in person or by proxy and entitled to
vote thereon. Any amendment or repeal of this provision requires the
affirmative vote of the holders of a majority of shares of stock of the Company
present at a shareholders meeting in person or by proxy and entitled to vote
thereon.
-12-
<PAGE>
ARTICLE IX - Seal
The Board shall provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the words and figures
"Corporate Seal 1986 Washington."
ARTICLE X - Fiscal Year
The fiscal year of the Corporation shall end on the 31st of December in
each year.
ARTICLE XI - Amendments
SECTION 1. By Shareholders
These Bylaws may be amended or repealed by shareholders in the manner set
forth in Article II Sections 7 and 8 of these Bylaws at any regular or special
meeting of shareholders.
SECTION 2. By Directors
The Board of Directors shall have power to amend or repeal the Bylaws of,
or adopt new bylaws for, the Corporation, except to the extent the shareholders,
in adopting, amending or repealing a particular Bylaw, expressly provide that
the Board may amend or repeal that Bylaw. However, any such Bylaws, or any
alteration, amendment or repeal of the Bylaws, may be subsequently changed or
repealed by the holders of a majority of the stock entitled to vote at an annual
or special meeting of shareholders.
SECTION 3. Emergency Bylaws
The Board of Directors may adopt emergency Bylaws, subject to repeal or
change by action of the shareholders, which shall be operative during an
emergency in the conduct of the business of the Corporation resulting from an
attack on the United States, any state of emergency declared by the federal
government or any subdivision thereof, or any other catastrophic event.
Dated this 6th day of May, 1999.
/s/ Donald F. Seaton
-------------------------
By: Donald F. Seaton
Its: Secretary
-13-
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