UNITED STATES 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: 000-6377
DREXLER TECHNOLOGY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 77-0176309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1077 Independence Avenue, Mountain View, CA 94043-1601
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(Address of principal executive offices) (Zip Code)
(650) 969-7277
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
Number of outstanding shares of Common Stock, $.01 par value, at November
5, 1999: 9,814,904
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. Further, the condensed consolidated financial statements reflect, in
the opinion of management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly the financial position and results of
operations as of and for the periods indicated.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto for the
year ended March 31, 1999 included in the Company's Form 10-K Annual Report.
The results of operations for the six months ended September 30, 1999 are
not necessarily indicative of results to be expected for the entire year ending
March 31, 2000.
Fiscal Period: For purposes of presentation, the Company has indicated its
accounting period as ending on March 31 and its interim quarterly periods as
ending on the corresponding month end. The Company, in fact, operates and
reports quarterly periods ending on the Friday closest to month end. The 13-week
period presented as September 30, 1998 ended on October 2, 1998 and the 13-week
period presented as September 30, 1999 ended on October 1, 1999.
During fiscal second quarter ended September 30, 1999, the Company began
investing in short-term investments, consisting primarily of commercial paper.
In accordance with Statement of Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the investments are
classified as available-for-sale securities on the Company's balance sheet. They
are reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity, net of
income tax effect.
Net Income per Share: SFAS No. 128, "Earnings Per Share," requires the
computation of basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of common shares outstanding. Diluted
earnings per share is computed using the weighted average number of shares of
common stock outstanding and the dilutive common stock equivalents (using the
treasury stock method). The reconciliation of the numerators and denominators of
the basic and diluted earnings per share computation is shown on the following
page.
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<PAGE>
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
(In thousands) (In thousands)
<S> <C> <C> <C>
For three months ended September 30, 1998:
Basic earnings per share ................... $ .10
=======
Income available to common stockholders .... $ 993 9,733
Common shares issuable upon exercise of
stock options using treasury stock method -- 231
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Diluted earnings per share ................. $ .10
=======
Income available to common stockholders .... $ 993 9,964
======= =======
For three months ended September 30, 1999:
Basic earnings per share ................... $ .14
=======
Income available to common stockholders .... $ 1,387 9,799
Common shares issuable upon exercise of
stock options using treasury stock method -- 57
------- -------
Diluted earnings per share ................. $ .14
=======
Income available to common stockholders .... $ 1,387 9,856
======= =======
For six months ended September 30, 1998:
Basic earnings per share ................... $ .20
=======
Income available to common stockholders .... $ 1,968 9,713
Common shares issuable upon exercise of
stock options using treasury stock method -- 343
------- -------
Diluted earnings per share ................. $ .20
=======
Income available to common stockholders .... $ 1,968 10,056
======= =======
For six months ended September 30, 1999:
Basic earnings per share ................... $ .23
=======
Income available to common stockholders .... $ 2,232 9,797
Common shares issuable upon exercise of
stock options using treasury stock method -- 78
------- -------
Diluted earnings per share ................. $ .23
=======
Income available to common stockholders .... $ 2,232 9,875
======= =======
</TABLE>
Because they have an exercise price greater than the average market value
for the periods, stock options representing 564,500 shares are excluded from the
calculation of diluted earnings per share for the three months ended September
30, 1998, and stock options representing 1,469,666 shares are excluded from the
calculation of diluted earnings per share for the three months ended September
30, 1999. For the same reason, stock options representing 216,700 shares are
excluded from the calculation of diluted earnings per share for the six months
ended September 30, 1998, and stock options representing 1,444,666 shares are
excluded from the calculation of diluted earnings per share for the six months
ended September 30, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). As modified by Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," this statement is effective for fiscal years
beginning after June 15, 2000. SFAS 133 established standards for reporting
derivative instruments and hedging activities. Application of SFAS 133 is not
expected to impact the Company's consolidated financial position or results of
operations.
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<PAGE>
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1999
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................ $ 8,066 $ 5,097
Short-term investments ............................... -- 1,959
Accounts receivable .................................. 1,061 1,057
Note receivable ...................................... 150 150
Inventories .......................................... 1,909 3,455
Other current assets ................................. 299 243
-------- --------
Total current assets .............................. 11,485 11,961
-------- --------
Property and equipment, at cost .......................... 16,549 17,375
Less--accumulated depreciation and amortization ...... (12,926) (13,017)
-------- --------
Property and equipment, net ....................... 3,623 4,358
Patents, net ............................................. 1,308 1,381
Deferred tax asset, net .................................. -- 1,077
Note receivable .......................................... 150 150
-------- --------
Total assets ................................... $ 16,566 $ 18,927
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ..................................... $ 976 $ 967
Accrued payroll costs ................................ 369 308
Advance payments from customers ...................... 36 163
Income taxes payable ................................. 99 60
Other accrued liabilities ............................ 132 116
-------- --------
Total current liabilities ......................... 1,612 1,614
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized--2,000,000 shares
Outstanding--none ................................. -- --
Common stock, $.01 par value:
Authorized--15,000,000 shares
Outstanding--9,794,180 shares at March 31, 1999 and
9,794,180 shares at September 30, 1999 ........ 98 98
Additional paid-in capital ............................... 36,485 36,619
Accumulated deficit ...................................... (21,629) (19,404)
-------- --------
Total stockholders' equity ........................ 14,954 17,313
-------- --------
Total liabilities and stockholders' equity ..... $ 16,566 $ 18,927
======== ========
</TABLE>
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<PAGE>
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ........................................ $ 3,661 $ 4,252 $ 7,507 $ 7,993
-------- -------- -------- --------
Costs and expenses:
Cost of sales ............................... 1,727 2,357 3,692 4,520
Selling, general, and administrative expenses 847 989 1,674 1,993
Research and engineering expenses ........... 117 269 251 483
-------- -------- -------- --------
Total costs and expenses ................. 2,691 3,615 5,617 6,996
-------- -------- -------- --------
Operating income ...................... 970 637 1,890 997
Other income and expense:
Other income (expense), net ................. (24) -- (6) --
Interest income ............................. 75 93 146 180
Interest expense ............................ -- -- (3) (1)
-------- -------- -------- --------
Total other income, net .................. 51 93 137 179
-------- -------- -------- --------
Income before income taxes ............ 1,021 730 2,027 1,176
Provision for (benefit from) income taxes ....... 28 (657) 59 (1,056)
-------- -------- -------- --------
Net income ............................ $ 993 $ 1,387 $ 1,968 $ 2,232
======== ======== ======== ========
Net income per share:
Basic ................................. $ .10 $. 14 $ .20 $ .23
======== ======== ======== ========
Diluted ............................... $ .10 $ .14 $ .20 $ .23
======== ======== ======== ========
Weighted average number of common
and common equivalent shares:
Basic ................................. 9,733 9,799 9,713 9,797
Diluted ............................... 9,964 9,856 10,056 9,875
</TABLE>
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<PAGE>
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 1,968 $ 2,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ......................... 371 533
Provision for doubtful accounts receivable ............ -- 24
Increase in deferred tax asset ....................... -- (1,077)
Compensation on stock plan activity ................... 18 25
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............ 347 (28)
Increase in inventories ............................... (27) (1,546)
(Increase) decrease in other assets ................... (24) 56
Decrease in accounts payable and accrued expenses ..... (117) (125)
Increase in advance payments from customers ........... 392 127
------- -------
Net cash provided by operating activities .......... 2,928 221
------- -------
Cash flows from investing activities:
Purchases of property and equipment ....................... (922) (1,134)
Investment in commercial paper ............................ -- (1,959)
Increase in patents ....................................... (181) (207)
------- -------
Net cash used for investing activities ............. (1,103) (3,300)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock ........................ 983 110
------- -------
Net cash provided by financing activities .......... 983 110
------- -------
Net increase (decrease) in cash and cash equivalents 2,808 (2,969)
Cash and cash equivalents:
Beginning of period ....................................... 4,830 8,066
------- -------
End of period ............................................. $ 7,638 $ 5,097
======= =======
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--FISCAL 2000 SECOND QUARTER AND FIRST SIX MONTHS COMPARED
WITH FISCAL 1999 SECOND QUARTER AND FIRST SIX MONTHS
Revenues
For the fiscal 2000 second quarter ended September 30, 1999, the Company's
total revenues were $4,252,000 compared with $3,661,000 for last year's second
quarter. Total revenues for the current six-month period were $7,993,000
compared with $7,507,000 for the same period last year.
Product Revenues. Sales of LaserCard(R) optical memory cards and related
products were $7,975,000 for the first six months of fiscal 2000 versus
$7,497,000 for last year's comparable period.
The Company sold approximately 2,070,000 LaserCard(R) optical memory cards
for the fiscal 2000 first six months compared with approximately 1,900,000 for
last year's first six months.
Applications for the Company's LaserCard products include: medical data
applications in the United States; various programs in Europe and Asia,
including a hospital patient-record card system and a vehicle warranty and
maintenance records card; and U.S. government-related programs, including the
U.S. Department of Defense cargo shipment "Automated Manifest" card, the U.S.
Immigration and Naturalization Service (INS) Permanent Resident Card ("Green
Card"), and the U.S. Department of State border crossing card ("Laser Visa").
In addition to using its own marketing staff, the Company utilizes
value-added reseller (VAR) companies and licensees for the development of
commercial markets and applications for LaserCard products. Product sales to
VARs and licensees include the Company's optical memory cards, the Company's
system software, optical card reader/writers, and add-on peripherals made by
other companies (such as equipment for adding a digitized photo, fingerprint,
hand template, or signature to the cards). The VARs/licensees may add
application software, personal computers (PCs), and other peripherals, and then
resell these products, integrated into data systems, for end-user customers.
In order to upgrade its customer base to increase the probability of
success, the Company will continue its efforts to recruit new VARs/licensees and
eliminate nonproductive VARs. The Company provides customer technical support
and system software to assist VARs and licensees.
Software is an important factor in developing the commercial markets for
optical memory cards. The Company's system software consists of optical card
interface software/device drivers, file systems, software development tools, and
demonstration software. The Company's VARs and/or their customers develop
software for specific end-user applications. Several VARs have written optical
card software programs for applications such as automobile warranty and
maintenance records, cargo manifesting, digital optical key systems,
admissions/ID, data logging systems, and various medical-related applications
such as medical image storage and health history cards. During fiscal 2000, the
Company finished development of a complete card issuing application (software
program) in coordination with an existing commercial software company. This is
available for sale to all VARs and should greatly reduce the need for VARs to
develop their own personalization software.
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<PAGE>
Optical memory cards are used in conjunction with a card reader/writer
device that connects to a personal computer (PC). The reader/writer is
integrated as a PC logical drive and has drive-letter access in the same manner
as floppy disk drives. Reader/writers are sold to VARs/licensees and other
customers of the Company. The price, performance, and availability of
reader/writers are factors in the commercialization of optical cards. The
Company sells reader/writers for a few thousand dollars per unit, and these
units generally include the Company's interface software/device drivers.
As reported previously, until July of 1999, the Company purchased
reader/writers from a Japanese licensee, Nippon Conlux Co., Ltd., ("Conlux"),
which was the Company's sole supplier of reader/writers. On May 28, 1999,
arrangements were completed with Conlux for the Company to purchase sets of
parts to assemble reader/writers in the United States, rather than continuing to
purchase complete reader/writers assembled in Japan by Conlux. The launching of
this reader/writer manufacturing and development operation in a
5,000-square-foot, leased facility, with added staff is estimated to reduce
pretax profit during fiscal 2000 by $1 million. This includes occupancy-related
expenses, depreciation, amortization, salaries and fringe benefits, and certain
one-time expenditures estimated at $250,000 for reader/writer assembly training.
Investment in reader/writer-related inventory is estimated at $2 million, and
capital expenditures for reader/writer assembly and design are budgeted for
approximately $1.2 million in fiscal 2000, including an estimated $300,000 in
capitalized technology transfer costs to be amortized over three years. The
Company will be obligated to pay patent royalties on its sales of
reader/writers. In 1995, the Company assumed worldwide responsibility for all
repair and maintenance of Conlux reader/writer units and, as a result, has a
skilled technical staff to support reader/writer operations.
The Company maintains an inventory of reader/writers and sets of
reader/writer parts that it believes is adequate to meet customer demand.
However, an interruption or change in the supply of reader/writer parts or
difficulties encountered in reader/writer assembly could cause a delay in both
reader/writer and optical memory card shipments and a possible loss of sales,
which would adversely affect operating results.
License Revenues. There were no licenses sold in the first six months of
fiscal 2000 or fiscal 1999. The Company does not rely on license fees to finance
operations.
Backlog
As of September 30, 1999, the backlog for LaserCard optical memory cards
was approximately $5.5 million. Deliveries from this backlog are estimated to
average approximately 300,000 cards per month through January, 2000. The monthly
delivery rate would increase with the receipt of additional orders. About 50% of
the Company's September 30, 1999 backlog is for U.S. government orders.
On November 4, 1999, in the U.S. government publication, Commerce Business
Daily, the INS announced that it intends to purchase an additional 2.5 million
optical memory cards (Green Cards and Laser Visa cards) under an extension to
the current contract, which calls for card production to begin immediately. This
order probably will be issued in November or December, 1999. Deliveries are
estimated at approximately 250,000 cards per month over a nine- to ten-month
period beginning in January, 2000.
The INS also has issued an RFP (Request for Proposal) for a new, long-term
contract subject to competitive bidding for up to 20.6 million optical memory
cards (Green Cards and Laser Visa cards) to be delivered at a rate of
approximately 4 million cards per year over a five-year period. It is
anticipated that this procurement contract may be awarded by the INS in the
first quarter of calendar year 2000.
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<PAGE>
Margins
The gross margin on product sales was 43.3% for the first six months of
fiscal 2000 compared with 50.8% for the first six months of fiscal 1999, a
decrease of $350,000 in gross profit. Reader/writers accounted for about
$245,000 of the decrease. Reader/writer margins decreased due to the following:
(a)reader/writer selling prices were reduced to encourage VARs and their
customers and (b) reader/writer costs increased due to the yen/dollar exchange
rate and staffing and overhead costs for in-house production of reader/writers.
The Company's gross margin on the current reader/writer design probably will be
negligible through fiscal 2001.
The remaining $105,000 decrease in gross profit is due primarily to costs
associated with lower fiscal 2000 first-quarter production yields that resulted
from facility modification activity. This year's second quarter gross profit
increased slightly as compared with the second quarter of last year because of
higher production and sales volume. The volume increases were partially offset
by lower average selling prices for cards and additional labor and overhead
costs associated with greater production capacity for high-security cards. The
Company believes that the average selling prices for cards for the remainder of
fiscal 2000 will not be lower than those for the third and fourth quarters of
last year.
Income and Expenses
Selling, General, and Administrative Expenses (SG&A). For the fiscal 2000
second quarter, SG&A expenses were $989,000 compared with $847,000 for the
second quarter of fiscal 1999. For the fiscal 2000 first six months, SG&A
expenses were $1,993,000 compared with $1,674,000 for the first six months of
fiscal 1999. The $319,000 increase in SG&A spending for the first six months of
fiscal 2000 primarily consists of $156,000 for marketing and customer service, a
$106,000 increase in general and administrative expenses, and a $57,000 increase
in patent amortization expense. The Company believes that SG&A expenses during
the remainder of fiscal 2000 will remain above fiscal 1999 levels.
Research and Engineering Expenses (R&E). Research and engineering expenses
were $269,000 for the second quarter of fiscal 2000 compared with $117,000 for
the year-earlier period. For the fiscal 2000 first six months, R&E expenses were
$483,000 compared with $251,000 for the first six months of fiscal 1999. The
majority of the increase in R&E spending is due to reader/writer manufacturing
development and product design. The Company anticipates that for the remainder
of fiscal 2000, R&E expenses will remain above fiscal 1999 levels.
Other Income and Expense. Total net other income for the first six months
of fiscal 2000 was $179,000, primarily for interest income. For last year's
first six months, total net other income was $137,000, including $146,000 for
interest income, $3,000 for interest expense, and a $6,000 loss for
miscellaneous items.
Income Taxes. The Company recorded a $657,000 income tax benefit for the
second quarter of fiscal 2000 versus a $28,000 income tax expense for the same
period last year. The income tax benefit for the fiscal 2000 second quarter
included a credit of $661,000 due to the change in the deferred tax asset
discussed below, partially offset by a $4,000 expense for alternative minimum
taxes payable. For the first six months of fiscal 2000, the Company's income tax
benefit was $1,056,000 versus an income tax expense of $59,000 for the previous
year's first six months. For the first six months of fiscal 2000, the income tax
benefit included a credit of $1,077,000 resulting from the change in the
deferred tax asset, partially offset by a $21,000 expense for alternative
minimum taxes payable.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash, cash equivalents, and
short-term investments of $7,056,000, a current ratio of 7.4 to 1, and no
long-term debt.
Net cash provided by operating activities was $221,000 for the first six
months of fiscal 2000 compared with $2,928,000 for the first six months of
fiscal 1999. Fluctuations in operating assets and liabilities will use cash in
some quarters and provide cash in other quarters. Cash used for
reader/writer-related inventory purchases, primarily for components and parts
for reader/writer manufacturing, totaled approximately $1,349,000 for the first
six months of fiscal 2000. For fiscal 2000, an investment of $2 million in
reader/writer-related inventory is estimated. The current level of revenues is
sufficient to generate cash from operations after expenses. Losses would recur
if both of the Company's largest U.S. government programs were to be canceled or
not renewed and not be replaced by other card orders.
The Company has not established a line of credit and has no current plans
to do so. The Company may negotiate a line of credit if and when it becomes
appropriate, although no assurance can be made that such financing would be
available, if needed.
As a result of the $2,232,000 profit recorded for the first six months of
fiscal 2000, the Company's accumulated deficit was reduced to $19,404,000 and
stockholders' equity increased to $17,313,000.
The Company's total deferred income tax asset was $13,912,000 at September
30, 1999. When utilized, the total deferred tax asset reduces income tax
expense. The Company believes that it is more likely than not that at least a
portion of this income tax asset will be realized and therefore has reduced the
valuation allowance against it. The net deferred income tax asset amounted to
$1,077,000 at September 30, 1999. There are timing differences between when
certain items are included in book income and when the same items are included
on income tax returns. Therefore, tax payments or credits often occur in
different periods than when an income tax expense or benefit is included in the
statement of operations.
During the first six months of fiscal 2000, the Company added capital
equipment and leasehold improvements of approximately $927,000, of which
$347,000 was mainly for the new reader/writer manufacturing and design
operation, and approximately $580,000 was for the card production facility. For
the production of state-of-the-art optical memory cards, the Company's card
production capacity exceeds 6 million cards per year, which was demonstrated in
the fiscal 2000 second quarter. This capacity can be expanded to a production
capacity exceeding 8 million cards per year over a six-month period with an
expenditure of approximately $900,000, previously budgeted for this purpose. The
Company plans to purchase additional production equipment in a series of steps
as optical memory card orders expand to justify production capacity increases,
to a rate of up to 25 million cards per year. In addition to the investment used
for expansion, the Company also will make additional capital expenditures for
cost savings, quality improvements, and other purposes. The Company believes
that during the next few years, capital expenditures will be a minimum of $1.5
million per year for card production equipment and automatic inspection
equipment. In addition, the Company's plans for fiscal 2000 include
approximately $1.2 million in equipment and other capital expenditures for
reader/writer assembly and design, as discussed above. In the fiscal 2000 first
six months, the Company capitalized approximately $207,000 in costs associated
with the transfer from Conlux of reader/writer designs, as discussed above.
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<PAGE>
YEAR 2000 DISCLOSURE
Information Technology Systems. For purposes of upgrading in response to
ordinary business requirements, rather than in connection with Year 2000
preparedness, the Company comprehensively renovated its internal computer and
network systems during the past three years. As a result, the Company has
virtually no hardware systems more than three years old. Similarly, most of the
Company's software systems operate with recent Microsoft products, which
Microsoft has indicated are Year 2000 compliant. The Company has conducted an
internal audit of its information technology systems; and, based on this review
and on information provided by the manufacturers, the Company does not believe
that the prospect of Year 2000 disruption of its information technology systems
is likely to be material. With respect to information processing conducted for
the Company by third parties, such as payroll processing and banking, the
Company has obtained explicit assurances of Year 2000 compliance.
Embedded Systems. Among the Company's embedded systems, including plant
and manufacturing systems, the Company has identified only one date-sensitive
system, which is amenable to manual adjustment to bypass any potential Year 2000
interruption. With respect to certain plant systems controlled by third parties,
including certain security systems, the Company has obtained explicit assurances
of Year 2000 compliance. The Company has identified one plant system, the energy
management system, that will be disconnected prior to year end 1999, with
minimal effect on costs.
Third Party Relationships; Contingency Plans. The Company has requested
information from certain key suppliers, customers, and VARs with respect to Year
2000 preparedness. The Company has assessed the responses received to date and
followed up with non-respondents. Interruptions in supply of key components,
such as OEM equipment and raw materials for the Company's products, could
interfere with the Company's ability to continue supplying its products. The
Company believes it has sufficient backup inventory of raw materials and
supplies to continue production in the event of a short-term supply
interruption. Similarly, an interruption in the ability of key purchasers to
continue to meet payment obligations to the Company could hinder the Company's
cash flow. Such key customers include the U.S. Immigration and Naturalization
Service, the U.S. Department of Defense, and the Company's VARs supporting those
accounts. The Company currently maintains substantial cash reserves against that
contingency.
Costs of Year 2000 Preparation; Effect on the Company's Business. Based
upon the factors described above, the Company's separately identifiable costs to
prepare for Year 2000 contingencies to date and estimated costs for future
efforts are not material and, apart from contingencies beyond the Company's
reasonable ability to foresee or control, such as general economic or
infrastructure disruption, the Company does not anticipate that Year 2000 issues
would have a material effect on the Company's business, other than possibly to
require the Company to invest in backup inventory, to draw down cash reserves,
or both. To the extent the Company incurs costs specifically relating to Year
2000 preparedness, the Company will expense those costs during the period in
which they are incurred. In October of 1999, the Company replaced its
manufacturing tracking software, at no cost, with the inventory control module
of the management-accounting software already owned by the Company.
Assumptions and Uncertainties. The Company's expectations about future
costs associated with Year 2000 preparedness, and potential effects of Year 2000
disruptions, are subject to uncertainties which could allow a greater financial
impact than currently anticipated. Factors that could influence the amount
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<PAGE>
and timing of future costs and effects include the Company's success in
identifying systems and programs that contain, or are subject to corruption as a
result of receiving data containing, two-digit year codes; the nature and amount
of programming required to upgrade, or the cost required to replace, each
affected program or system; the rates and magnitude of effort required for labor
and consulting with the appropriate skills for remediation; the availability of
replacement systems and components; and the success of the Company's customers
and suppliers in addressing Year 2000 issues.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report relating to plans, objectives, and
economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and each is subject to factors that could cause actual results
to differ from those in the forward-looking statement. There can be no
assurances that any new or existing VAR or licensee company in any country will
be successful in its markets or that it will place follow-on orders with the
Company for additional quantities of cards and systems. Furthermore, as is the
case in all U.S. government procurement, the government reserves the right to
change specifications, delay deliveries, and cancel all or part of the orders.
In addition, the ability of the Company to maintain a profitable level of
optical memory card sales is subject to risks and uncertainties with respect to
changes in technology, customer diversification, customer expansion, the ability
to economically produce optical card reader/writers, the implementation of
ongoing commercial applications by customers, and the economic configuration and
operation of the Company's card manufacturing facility for increased output
levels. Such factors are described above, in the Company's Report on Form 10-K,
and in other documents filed by the Company from time to time with the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's September 24, 1999 Annual Meeting of Stockholders, the
Company's stockholders (i) re-elected the Board of Directors and (ii) approved
an amendment to the 1991 Stock Option Plan to increase in the number of shares
reserved thereunder by 300,000 shares.
Of the 9,796,480 shares of common stock outstanding as of the record date
of July 27, 1999 a total of 9,286,724 shares were voted by proxy, representing
94.8% of the total votes eligible to be cast, constituting a majority and more
than a quorum of the outstanding shares entitled to vote. On the election of
directors, votes cast for the election of Messrs. Jerome Drexler, Arthur
Hausman, Dan Maydan, William E. McKenna , and Walter F. Walker were 8,110,252;
8,191,951; 8,312,671; 8,193,801;and 8,312,107, respectively, and votes withheld
were 1,176,472; 1,094,773; 974,053; 1,092,923; and 974,617, respectively. On the
amendment of the 1991 Stock Option Plan, 7,476,310 shares were voted in favor;
there were 1,467,372 negative votes, 102,968 abstentions, and 240,074 broker
non-votes.
There were no other matters submitted to a vote of security holders during
the period for which this report is filed.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibit Description
3.2.7 Amended and Restated By-Laws as of September 24, 1999
10.1 Amendment to "1991 Stock Option Plan"
27 Financial Data Schedule
The above-listed exhibits are filed herewith. No other exhibits are
included in this report as the contents of the required exhibits are either not
applicable to Registrant, to be provided only if Registrant desires, or
contained elsewhere in this report.
(b) No reports on Form 8-K were filed by Registrant during the period for
which this report is filed.
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:
DREXLER TECHNOLOGY CORPORATION (Registrant)
Date: November 8, 1999 /s/Jerome Drexler
--------------------------------------------------
Jerome Drexler, Chairman of the Board of Directors
and Chief Executive Officer (Principal Executive
Officer)
Date: November 8, 1999 /s/Steven G. Larson
--------------------------------------------------
Steven G. Larson, Vice President of Finance and
Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.2.7 Amended and Restated By-Laws as of September 24, 1999
10.1 Amendment to 1991 Stock Option Plan
27 Financial Data Schedule
-14-
AMENDED AND RESTATED BY-LAWS
AS OF MAY 27, 1999
DREXLER TECHNOLOGY CORPORATION (DELAWARE)
ARTICLE 1. OFFICES
1.1 Principal Office. The principal executive office and place of business
of the corporation (hereafter called the "principal office") is fixed and
located at:
1077 Independence Avenue
Mountain View, CA 94043
The Board of Directors shall have the authority from time to time to change the
principal office from one location to another by amending this Section 1.1.
1.2 Registered Office. The registered office of the corporation in
Delaware is located as set forth in the Certificate of Incorporation. The Board
of Directors may by resolution change such location and shall then make
appropriate filings with the Delaware Secretary of State and the Office of the
Recorder for the county in which the new registered office is located.
1.3 Other Offices. One or more branches or other subordinate offices may
at any time be fixed and located by the Board of Directors at such place or
places within or without the State of California as it deems appropriate.
ARTICLE 2. MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of the stockholders shall be held at any
place within or outside the State of Delaware that may be designated by the
Board of Directors. If no such designation is made, the meetings shall be held
at the principal office of the corporation designated in Section 1.1 of these
By-Laws.
2.2 Annual Meetings. Unless some other time or date shall be selected by
the Board of Directors, the annual meeting of the stockholders shall be held on
the fourth Friday of September in each year, if not a legal holiday, and if a
legal holiday, then on the next succeeding business day, at the hour of 2:00
P.M., at which time the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting.
Whenever held, any business transacted or election held at a duly called and
held annual meeting shall be as valid as if transacted or held at an annual
meeting on the date above specified.
2.3 Special Meetings. Special meetings of the stockholders of the
corporation may be called for any purpose or purposes by (a) the Chairman of the
Board of Directors, (b) stockholders entitled to cast not less than a majority
of the total authorized voting power of the corporation entitled to cast votes
on the matters to be considered at the special meeting, or (c) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption).
In order for a special meeting to be called by any person or persons
other than the Board of Directors, a written request for such meeting,
specifying the general nature of the business proposed to be transacted, shall
be delivered personally or sent by registered mail or by telegraphic or other
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facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation (or to the Chief
Executive Officer or Secretary of the corporation in the event that the meeting
is called by the Chairman). No business may be transacted at such special
meeting otherwise than as specified in such notice. The Board of Directors shall
determine the time and place of such special meeting, which shall be held not
less than thirty-five (35) nor more than one hundred twenty (120) days after the
date of the receipt of the request. Upon determination of the time and place of
the meeting, the officer receiving the request shall cause notice to be given to
the stockholders entitled to vote, in accordance with the provisions of Sections
4 and 9 of this Article 2. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the meeting
may set the time and place of the meeting and give the notice. Nothing contained
in this paragraph shall be construed as limiting, fixing, or affecting the time
when a meeting of stockholders called by action of the Board of Directors may be
held.
2.4 Notice of Stockholders' Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given not less than ten (10) (or if sent by third-class mail, thirty
(30)) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote thereat. Such notice shall state the place, date
and hour of the meeting and (a) in the case of a special meeting, the general
nature of the business to be transacted, and no other business may be transacted
or (b) in the case of the annual meeting, those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the stockholders, but any proper matter may be presented by the Board
of Directors at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by the Board for election.
Notice of a stockholders' meeting shall be given either personally
or by first or third class mail or other means of written communication,
addressed to the stockholder at the address of such stockholder appearing on the
books of the corporation or given by the stockholder to the corporation for the
purpose of notice; or if no such address appears or is given, at the place where
the principal office of the corporation is located. The notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail postage prepaid or sent by other means of written communication. No notice
need to be given to those stockholder specified in Section 230 of the Law. An
affidavit of the Secretary or an Assistant Secretary or the transfer agent of
the corporation that notice has been given shall in the absence of fraud, be
prima facie evidence of the facts stated therein.
2.5 Quorum and Required Vote.
(a) At any meeting of the stockholders, a majority of the shares of
the corporation entitled to vote, represented in person or by proxy at the
meeting, shall constitute a quorum for the transaction of business.
(b) In all matters other than the election of directors, the
affirmative vote of a majority of the shares, present in person or represented
by proxy at the meeting and entitled to vote on the subject matter, at a duly
held meeting at which a quorum is present, shall be the act of the stockholders,
unless the vote of a greater number or voting by classes is required by the Law,
the Certificate of Incorporation, or the Bylaws of this corporation. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
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(c) Stockholders present at a valid meeting at which a quorum is
initially present may continue to do business until adjournment notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by a majority of the shares
originally present at the time the quorum was determined and which shares are
entitled to vote on the subject matter.
2.6 Adjourned Meeting. Any annual or special stockholders' meeting may be
adjourned from time to time, even though a quorum is not present, by the vote of
the holders of a majority of the voting shares represented at the meeting either
in person or by proxy, provided that in the absence of a quorum, no other
business may be transacted at the meeting except as provided in Section 2.5 of
these By-Laws.
Notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.7 Waiver or Consent by Stockholders. The transactions of any meeting of
stockholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice of the meeting. All such waivers shall
be filed with the corporate records or made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute a waiver of notice
of and presence at such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at nor
the purpose of any regular or special meeting of stockholders need be specified
in any written waiver of notice.
2.8 Action Without Meeting. Any action which may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Such written consent may be signed in counterparts and, in order to
be effective, shall bear the date of signature of each stockholder who signs the
consent and be delivered within sixty (60) days of the earliest dated consent to
the corporation's registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. To be effective,
delivery made to the corporation's registered office shall only be by hand or by
certified or registered mail, return receipt requested; delivery to the
principal place of business or to an officer or agent of the corporation may be
made also by other means. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Any stockholder giving a written consent, or the stockholder's
proxyholders, or a transferee of the shares or a personal representative of the
stockholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
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2.9 Record Date and Voting Rights. Except as otherwise provided by law,
only persons in whose names shares entitled to vote stand on the stock records
of the corporation at the close of business on the record date fixed by the
Board of Directors as provided in Section 5.1 for the determination of
stockholders of record shall be entitled to notice of and to vote at such
meeting of stockholders. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
is required, shall be the day on which the first written consent is given, and
if such Board action is required, shall be the day that the Board adopted a
resolution taking such action; and the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto. Unless the Board of Directors
chooses to fix a new record date for an adjourned meeting, the record date for
the adjourned meeting shall be that of the original meeting.
Except as may be otherwise provided in the Certificate of
Incorporation, the holder of each outstanding share, regardless of class, shall
be entitled to one vote for each share held on each matter submitted to a vote
of stockholders. The voting of shares held in a fiduciary capacity, held of
record by two or more persons, or which are pledged or subject to a voting
agreement or trust shall be determined by and subject to Sections 217 and 218 of
the Law. Voting may be by voice or ballot, provided that any election of
directors must be by ballot upon the demand of any stockholder made at the
meeting and before the voting begins.
2.10 Proxies. Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. All proxies must
be in writing and must be signed by the stockholder confirming the proxy or his
attorney-in-fact. No proxy shall be valid after the expiration of three years
from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto, unless the proxy states that it is
irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable proxy. Except for such irrevocable
proxies, such revocation may be effected by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting, or as to
any meeting, by attendance at such meeting and voting in person by the person
executing the proxy. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark dates on the
envelopes in which they are mailed.
2.11 Inspectors of Election. In advance of any meeting of stockholders the
Board of Directors may appoint inspectors of election to act at the meeting and
any adjournment thereof. If inspectors of election are not so appointed, or if
any persons so appointed fail to appear or refuse to act, the chairman of any
meeting of stockholders may, and on the request of any stockholder or a
stockholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refuse) at the meeting. The number of inspectors shall be
either one or three. If appointed at a meeting on the request of one or more
stockholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one or three inspectors are to be appointed. If
there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
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meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all stockholders.
2.12 List of Stockholders. The Secretary shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be opened to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not specified, at the
place where the meeting is to be held. The list shall be produced and kept at
the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.13 Nominations and Proposals.
(a) The Board of Directors of the corporation may nominate
candidates for election as directors of the corporation and may propose such
other matters for approval of the stockholders as the Board deems necessary or
appropriate.
(b) Nominations for election of members of the Board of Directors
may also be made by any holder of any outstanding class of capital stock of the
corporation entitled to vote for the election of directors. Notice of intention
to make any such nominations under this paragraph must be made in writing and
must be received by the Secretary, at the principal offices of the corporation,
by the close of business on a date which is not less than one hundred twenty
(120) days prior to the meeting; provided, however, that if less than one
hundred twenty (120) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the meeting was mailed to
stockholders of record or such public disclosure was made; and provided,
further, that public disclosure shall in all cases be deemed to have been made
of any annual meeting held on the date specified in these By-Laws. Such
notification must contain the following information: (i) the name and address of
each proposed nominee, (ii) the principal occupation of each proposed nominee,
(iii) the number of shares (if any) of capital stock of the corporation owned of
record or beneficially by each proposed nominee, (iv) the name and residence
address of the notifying stockholder, (v) the number of shares of capital stock
of the corporation owned by the notifying stockholder, (vi) whether the proposed
nominee has ever been convicted of or pleaded nolo contendere to any criminal
offense involving dishonesty or breach of trust, filed a petition in bankruptcy,
or been adjudged bankrupt, and (vii) any other information relating to such
nominee that is required to be disclosed in a proxy statement soliciting proxies
for the election of directors or is otherwise required to be provided by the
stockholder pursuant to Section 14A of the Securities Exchange Act of 1934, as
amended. The notification shall (1) be signed by the nominating stockholder and
by each nominee, (2) be accompanied by a written consent to be named as a
nominee for election as a director from each proposed nominee, and (3) confirm
the accuracy of all of the above-described information contained in the notice.
Nominations not made in accordance with these procedures shall be disregarded by
the chairman of the meeting, and upon his or her instructions, the Inspector(s)
of Election shall disregard all votes cast for each such nominee.
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(c) No proposal by any person other than the Board of Directors
shall be submitted for the approval of the stockholders at any regular or
special meeting of the stockholders of the corporation unless written notice of
such proposal shall have been given by the person advancing such proposal and
actually received by the Secretary of the corporation, at the principal offices
of the corporation, by the close of business on a date which is not less than
one hundred twenty (120) days prior to the meeting; provided, however, that if
less than one hundred twenty (120) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed to stockholders of record or such public
disclosure was made; and provided, further, that public disclosure shall in all
cases be deemed to have been made of any annual meeting which is held on the
date specified in these ByLaws. Such notice must be either delivered to the
Secretary or mailed to and received by the Secretary, shall be signed and dated
by the person advancing the proposal (the "Proposing Stockholder"), and shall
disclose (i) the name and address(es) of the person or group advancing the
proposal, (ii) the number of shares of stock in the corporation owned of record
or beneficially by the Proposing Stockholder, (iii) any material interest of
such person or persons, or of persons affiliated with them, in the proposal, and
(iv) such other information concerning the person making such proposal and the
proposal itself as would be required by the appropriate Rules and Regulations of
the Securities and Exchange Commission to be included in a proxy statement
soliciting proxies for the proposal.
ARTICLE 3. DIRECTORS; MANAGEMENT
3.1 Powers. Subject to any provisions of the Certificate of Incorporation
and these By-Laws of this corporation and of the Law limiting the powers of the
Board of Directors or reserving powers to the stockholders, the Board shall,
directly or by delegation, manage the business and affairs of the corporation
and exercise all corporate powers permitted by law.
3.2 Number and Qualification of Directors. The authorized number of
directors shall be five (5), unless and until changed by a proper amendment to
this Section 3.2. A reduction in the authorized number of directors shall not
remove any director prior to the expiration of such director's term of office.
Directors need not be stockholders of the corporation.
3.3 Election and Term of Office. The directors shall be elected annually
by the stockholders at the annual meeting of the stockholders; provided, that if
for any reason, said annual meeting or an adjournment thereof is not held or the
directors are not elected thereat, then the directors may be elected at any
special meeting of the stockholders called and held for that purpose. The term
of office of the directors shall, except as provided in Section 3.4, begin
immediately after their election and shall continue until their respective
successors are elected and qualified or until earlier resignation or removal.
3.4 Removal of Directors. A director may be removed from office by the
Board of Directors if he is declared of unsound mind by an order of court or
convicted of a felony. Any or all of the directors may be removed from office
with or without cause by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
3.5 Vacancies. A vacancy or vacancies on the Board of Directors shall
exist on the death, resignation, or removal of any director, or if the
authorized number of directors is increased or the stockholders fail to elect
the full authorized number of directors. Any director may resign by giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the corporation, which resignation shall be effective upon
the giving of such notice, unless the notice specifies a later time for the
effectiveness of such resignation.
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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, although less than a quorum, or by a sole
remaining director. When one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10 percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by Section 211 of the Law as far as applicable.
Otherwise, the stockholders shall not be entitled to fill a vacancy or newly
created directorship except at an annual meeting or at a special meeting called
pursuant to Section 2.3 for such purpose. Notwithstanding the foregoing, if at
any time, by reason of death or resignation or other cause, the corporation
should have no directors in office, then any officer or any stockholder or an
executor, administrator, trustee or guardian of a stockholder, or other
fiduciary entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in accordance with the
Certificate of Incorporation or the bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of the Law.
3.6 Place of Meetings. Regular and special meetings of the Board of
Directors shall be held at any place within or outside the State of Delaware
that is designated by resolution of the Board or, either before or after the
meeting, consented to in writing by all the Board members. If the place of a
regular or special meeting is not fixed by resolution or written consents of the
Board, it shall be held at the corporation's principal office.
3.7 Organizational Meetings. Immediately following each annual
stockholders' meeting, the Board of Directors shall hold an organizational
meeting to organize, elect officers, and transact other business. Notice of this
meeting shall not be required.
3.8 Other Regular Meetings. The Board of Directors may, by resolution, fix
any time, date and place for other regular meetings of the Board of Directors;
provided, however, that any director not present at the meeting at which such
resolution was adopted receives notice of the adoption of such resolution and
the time and place of such meetings prior to the first regular meeting held
pursuant to such resolution. Such notice of the adoption of the resolution must
comply with the notice provisions of Section 3.9 of these By-Laws as if the
first regular meeting were a special meeting. After the first regular meeting
held pursuant to such resolution, no notice of regular meetings held pursuant to
this paragraph and such resolution shall be required.
3.9 Special Meetings.
(a) Special meetings of the Board of Directors for any purpose or
purposes may be called at any time or place by the Chairman of the Board, by the
President, or if both the Chairman of the Board and the President are absent,
are unable or refuse to act, by any Vice President, or by any two directors.
(b) Notice of the time and place of special meetings shall be given
in any one of the following manners:
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(i) if delivered in person or by telephone, such notice shall
be delivered at least forty-eight (48) hours prior to the time the meeting is to
be held. Such notice may be communicated either to the director or to a person
at the home or business of the director when the person delivering the notice
has reason to believe such person will promptly communicate it to the director.
Such notice shall be considered delivered when the person noticing the meeting
believes in good faith that the notified person has heard and acknowledged the
notice;
(ii) if delivered by telegram, such notice shall be delivered
to a common carrier, charges prepaid, for transmission to the director at least
forty-eight (48) hours prior to the time the meeting is to be held. Delivery to
a common carrier shall be due and legal notice to such director;
(iii) if delivered by overnight courier service, including
without limitation such services as Express Mail and Federal Express, such
notice shall be delivered to such courier service, charges prepaid, for delivery
to the director no later than two days prior to the day upon which the meeting
is to be held. Delivery to a courier service shall be due and legal notice to
such director;
(iv) if delivered by facsimile transmission, such notice shall
be either delivered to a common carrier, charges prepaid, for transmission to
the director or transmitted by or under the direction of the person giving
notice to the director at least forty-eight (48) hours prior to the time the
meeting is to be held. Delivery to a common carrier or transmission of a
facsimile shall be due and legal notice to such director;
(v) if delivered by first-class mail, such notice shall be
deposited in the United States mail, postage prepaid, at least four (4) days
prior to the date of the meeting to be held. Deposit in the U.S. mail shall be
due and legal notice to such director.
The notice need not specify the place of the meeting if the meeting
is to be held at the principal office of the corporation.
3.10 Quorum. A majority of the authorized number of directors, but in no
event less than two (2) (unless the authorized number of directors is one (1)),
shall constitute a quorum for the transaction of business, except to adjourn a
meeting under Section 3.12. Every act done or decision made by a majority of the
directors present at a meeting at which a quorum is present shall be regarded as
the act of the Board of Directors, unless the vote of a greater number is
required by law, the Certificate of Incorporation, or these By-Laws. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
a majority of the required quorum for such meeting.
3.11 Contents of Notice and Waiver of Notice. Neither the business to be
transacted at, nor the purposes of, any regular or special Board meeting need be
specified in the notice or waiver of notice of the meeting. Notice of a meeting
need not be given to any director who signs a waiver of notice of the meeting
either before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to said
director. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
3.12 Adjournment. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place.
3.13 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given to absent directors if the time and place
are fixed at the meeting being adjourned, except that if the meeting is
adjourned for more than twenty-four (24) hours such notice shall be given prior
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to the adjourned meeting to the directors who were not present at the time of
the adjournment.
3.14 Telephone Participation. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meetings
can hear one another. Such participation constitutes presence in person at such
meeting.
3.15 Action Without Meeting. The Board of Directors may take any action
without a meeting that may be required or permitted to be taken by the Board at
a meeting, if all members of the Board individually or collectively consent in
writing to the action. The written consent or consents shall be filed in the
minutes of the proceedings of the Board. Such action by written consent shall
have the same effect as a unanimous vote of directors.
3.16 Fees and Compensation. Directors and members of committees shall
receive neither compensation for their services nor reimbursement for their
expenses unless these payments are fixed by resolution of the Board of
Directors.
3.17 Certain Corporate Loans and Guaranties. The corporation may make
loans of money or property to, or guarantee the obligations of, or otherwise
assist any officer or other employee of the corporation or of its subsidiary,
including any officer or employee who is a director of the corporation or its
subsidiary, or adopt an employee benefit plan or plans authorizing such loans or
guaranties, upon the approval of the Board of Directors alone if the Board of
Directors determines that such a loan or guaranty or plan may reasonably be
expected to benefit the corporation.
ARTICLE 4. OFFICERS
4.1 Officers. The officers of the corporation shall be a President, a
Secretary, and a Treasurer. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and any
other officers who may be appointed under Section 4.3 of these By-Laws. Any two
or more offices, except those of President and Secretary, may be held by the
same person.
4.2 Election. The officers of the corporation, except those appointed
under Section 4.3 of these By-Laws, shall be chosen annually by the Board of
Directors, and each shall hold his office at the pleasure of the Board of
Directors until he resigns or is removed or otherwise disqualified to serve, or
his successor is elected and qualified.
4.3 Subordinate Officers. The Board of Directors may appoint, and may
authorize the President to appoint, any other officers that the business of the
corporation may require, each of whom shall hold office for the period, have the
authority, and perform the duties specified in the By-Laws or by the Board of
Directors.
4.4 Removal and Resignation. Any officer may be removed with or without
cause either by the Board of Directors at any regular or special Board meeting
or, except for an officer chosen by the Board, by an officer on whom the power
of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Board, the President, or the Secretary of the corporation. An officer's
resignation shall take effect when it is received or at any later time specified
in the resignation. Unless the resignation specifies otherwise, its acceptance
by the corporation shall not be necessary to make it effective.
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4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, or any other cause shall be filled in the manner
prescribed in these By-Laws for regular appointments to the office.
4.6 Chairman of the Board. The Chairman shall be the corporation's chief
executive officer and general manager and shall, subject to the control of the
Board, have general supervision, direction and control over the corporation's
business and officers. This officer shall have the general powers and duties of
management usually vested in a corporation's chief executive officer; shall have
any other powers and duties that are prescribed by the Board or these By-Laws;
and shall be primarily responsible for carrying out all orders and resolutions
of the Board.
The Chairman shall also preside as chairman at all meetings of the
directors and stockholders.
4.7 President. The President shall be the corporation's chief operating
officer with such responsibilities and authority as the Chairman shall delegate.
If the Chairman is unreachable in the event of an emergency, or is disabled or
dies, the President shall so notify the Board and, subject to supervision by the
Board, shall temporarily perform such duties of the Chairman as are appropriate
in the circumstances. When so acting temporarily, the President shall have all
the powers of the Chairman, subject to such limitations thereon as may be
imposed by the Board.
4.8 Vice Presidents. If the President is absent or is unable or refuses to
act, the Vice Presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions on, the President. Each Vice
President shall have any other powers and perform any other duties that are
prescribed for him by the Board or the By-Laws.
4.8A. Executive Vice President. The Executive Vice President shall have
such management responsibilities and authority, particularly with respect to
manufacturing facilities, as the Chairman shall delegate. This officer shall
also be the first in rank of the Vice Presidents, such that if the President is
absent or is unable or refuses to act, the Executive Vice President shall be the
next in succession to perform the duties of the President.
4.9 Secretary. The Secretary shall keep or cause to be kept, and be
available at the principal office and any other place that the Board of
Directors specifies, a book of minutes of all directors' and stockholders'
meetings. The minutes of each meeting shall state the time and place that it was
held, whether it was regular or special, if a special meeting, how it was
authorized, the notice given, the names of those present or represented at
stockholders' meetings, and the proceedings of the meetings. A similar minute
book shall be kept for any committees, if required by the Board.
The Secretary shall keep, or cause to be kept, at the principal
office or at the office of the corporation's transfer agent, a share register,
or a duplicate share register, showing the stockholders' names and addresses,
the number and classes of shares held by each, the number and date of each
certificate issued for these shares, and the number and date of cancellation of
each certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
directors' and stockholders' meetings required to be given under these By-Laws
or by law, shall keep the corporate seal in safe custody, and shall have any
other powers and perform any other duties that are prescribed by the Board or
the By-Laws.
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4.10 Chief Financial Officer. The Treasurer, or another officer designated
by the Board of Directors, shall be the corporation's chief financial officer
and shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the corporation's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The corporation's chief financial officer shall deposit all money
and other valuables in the name and to the credit of the corporation with the
depositories designated by the Board of Directors. He shall disburse the
corporation's funds as ordered by the Board of Directors; shall render to the
President and directors, whenever they request it, an account of all his trans
actions as the corporation's chief financial officer and of the corporation's
financial condition; and shall have any other powers and perform any other
duties that are prescribed by the Board of Directors or the By-Laws.
If required by the Board of Directors, the corporation's chief
financial officer shall give the corporation a bond in the amount and with the
surety or sureties specified by the Board for faithful performance of the duties
of his office and for restoration to the corporation of all its books, papers,
vouchers, money, and other property of every kind in his possession or under his
control on his death, resignation, retirement, or removal from office.
4.11 Representation of Shares of Other Corporations. The Chairman of the
Board, the President, any Vice President, the Treasurer, the Secretary or
Assistant Secretary of this corporation, or any other person authorized by the
Board of Directors or the President or a Vice President, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
4.12 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the Board of Directors or
the stockholders.
ARTICLE 5. GENERAL CORPORATE MATTERS
5.1 Record Date and Closing of Stockbooks. The Board of Directors may fix
a time in the future as a record date for determining stockholders entitled to
notice of and to vote at any stockholders' meeting, entitled to consent to
corporate action, 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, commission or exchange of stock or for the purpose of any
other lawful action. The record date for determining the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, shall not, however, be more than sixty (60) nor less than ten (10) days
prior to the date of such meeting. The record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. The
record date for determining the stockholders entitled to receive payments of any
dividend or other distribution or allotment of any rights or for determining the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
shall not be more than sixty (60) days prior to such action. If a record date is
fixed for a particular meeting or event, only stockholders of record on that
date are entitled to notice and to vote
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and to receive the dividend, distribution, or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date.
5.2 Corporate Records and Inspection by Stockholders and Directors. The
corporation shall, either at its principal office or at such place or places as
designated by the Board of Directors, keep a record of its stockholders listing
their names and addresses and the number and class of shares held by each
stockholder, a copy of these bylaws as amended to date, accounting books, books
of minutes of meetings or consents of the Board of Directors, committees
thereof, and stockholders and other records. Any stockholder of record, in
person or by attorney or other agent, shall, upon five days' prior written
demand under oath stating the purpose thereof, have the right during the usual
hours for business to inspect for any proper purpose the corporation's stock
ledger, a list of its stockholders, and its other books and records and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a stockholder. In every instance where an
attorney or other agent is the person who seeks the right to inspection, the
demand under oath shall be accompanied by a power of attorney or such other
writing that authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of business.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
5.3 Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or
other orders for payment of money, notes, and all mortgages, or other evidences
of indebtedness, issued in the name of or payable to the corporation, and all
assignments and endorsements of the foregoing, shall be signed or endorsed by
the person or persons and in the manner specified by the Board of Directors.
5.4 Corporate Contracts and Instruments; How Executed. Except as otherwise
provided in the By-Laws, officers, agents or employees must be authorized by the
Board of Directors to enter into any contract or execute any instrument in the
corporation's name and on its behalf. This authority may be general or confined
to specific instances.
5.5 Stock Certificates. One or more certificates for shares of the
corporation's capital stock shall be issued to each stockholder for any of his
shares that are fully paid up. The corporate seal or its facsimile may be fixed
on certificates. All certificates shall be signed by the Chairman of the Board,
President, or a Vice President and the Secretary, Treasurer, or an Assistant
Secretary. Any or all of the signatures on the certificate may be facsimile
signatures. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
5.6 Lost Certificates. No new share certificate that replaces an old one
shall be issued unless the old one is surrendered and cancelled at the same
time; provided, however, that if any share certificate is lost, stolen,
mutilated, or destroyed, the President and Secretary may cause to be issued a
new certificate replacing the old one on any terms and conditions, including a
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bond or other reasonable arrangement for indemnification of the corporation,
that the President may specify.
5.7 Construction; Definitions. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the Delaware
General Corporation Law (heretofore and hereafter the "Law") shall govern the
construction of these By-Laws. Without limiting the generality of this provi
sion, the singular number includes the plural, the plural number includes the
singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE 6. AMENDMENTS
By-Laws may be adopted, amended or repealed by either the affirmative vote
or written consent of stockholders owning a majority of the outstanding shares
entitled to vote or by the Board of Directors.
ARTICLE 7. COMMITTEES OF THE BOARD
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of one or more directors, to serve at the pleasure of the Board and
with such authority and organization as the Board may from time to time
determine. The Board may designate one or more directors as alternate members of
any committee, who may replace any absent member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. In the
absence or dis qualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified for voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (a) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, share of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (b) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the Law, (c) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (d) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (e) amend
the By-Laws of the corporation; and, unless the Board resolution establishing
the committee, the By-Laws or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Law.
The Board shall designate a chairman for each committee who shall have the
sole power to call any committee meeting other than a meeting set by the Board.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of the following sections of Article 3
of
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these By-Laws, Section 3.6 (place of meetings, Section 3.8 (regular meetings),
Section 3.9 (special meetings), Section 3.10 (quorum), Section 3.11 (contents of
notice and waiver of notice), Section 3.12 (adjournment), Section 3.13 (notice
of adjournment), Section 3.14 (telephone participation), and Section 3.15
(action without a meeting), with such changes in the context of those By-Laws as
are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these By-Laws.
ARTICLE 8. INDEMNIFICATION
8.1 Action, Etc., Other Than By or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding or investigation, whether civil, criminal, administrative, or
investigative, and whether external or internal to the corporation (other than a
judicial action or suit brought by or in the right of the corporation), by
reason of the fact that he or she is or was a director or officer of the
corporation, or that he or she is or was serving at the request of the
corporation as a director, officer, employee, trustee, or agent of another
corporation, partnership, joint venture, trust or other enterprise (all such
persons being referred to hereafter as an "Agent"), against expenses (including
attorneys' fees), judgments, fines and amounts paid or to be paid in settlement
(if such settlement is approved by the corporation, which approval shall not be
unreasonably withheld or delayed) actually and reasonably incurred by him or her
in connection with such action, suit or proceeding, or any appeal therein, if
the Agent acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best in terests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The termination of any action, suit or proceeding --
whether by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent -- shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, that such person had
reasonable cause to believe that his or her conduct was unlawful.
8.2 Action, Etc., By or in the Right of the Corporation. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed judicial action or suit brought by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he or she is or was an Agent (as defined above) against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense, settlement or appeal of such action or suit
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or other such court shall deem proper.
8.3 Determination of Right of Indemnification. Any indemnification under
Sections 8.1 or 8.2 above (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
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indemnification of the Agent is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in Sections 8.1 and/or 8.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or if such a
quorum is obtainable and so directs, by independent legal counsel (chosen either
jointly by the corporation and Agent or else by counsel to the corporation) in a
written opinion, or (c) by the stockholders.
8.4 Indemnification Against Expenses of Successful Party. Notwithstanding
the other provisions of this Article 8, to the extent that an Agent has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice or the settlement of an action without
admission of liability, in defense of any claim, issue, or matter therein, or an
appeal from any such proceeding, action, or claim or matter, such Agent shall be
indemnified against all expenses incurred in connection therewith.
8.5 Advances of Expenses. Except as listed by Section 8.6, costs, charges
and expenses (including attorneys' fees) incurred in any action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the
corporation in advance of the final disposition of such matter, if the Agent
shall undertake to repay such amount in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification.
8.6 Right of Agent to Indemnification Upon Application; Procedure Upon
Application. Any indemnification provided for in Sections 8.1, 8.2, or 8.4 shall
be made no later than six (6) months after the corporation is given notice of
request by Agent, provided that such request is made after final adjudication,
dismissal, or settlement unless an appeal is filed, in which case the request is
made after the appeal is resolved. Upon such notice, the corporation shall
within two (2) weeks call a Board of Directors meeting to be held within two (2)
months of such notice to make a determination as to whether the Agent has met
the applicable standard of conduct. The corporation shall retain (at the
corporation's expense) independent legal counsel chosen either jointly by the
corporation and Agent or else by corporation counsel within two (2) weeks to
make such determination, if at such meeting a quorum consisting of directors who
were not parties to the relevant action, suit, or proceeding is not obtainable,
or if obtainable such quorum refuses to make such determination, but so directs
the corporation. If such legal counsel is not so retained or does not make such
determination within six (6) weeks, then the Board of Directors shall cause a
stockholders meeting to be held within two (2) months to make such a
determination.
If a claim under these By-Laws, under any statute, under any
provision of any agreement with the corporation, or under the corporation's
Certificate of Incorporation providing for indemnification or advance of
expenses, is not paid in full by the corporation within sixty (60) days in case
of indemnification and twenty (20) days in case of advance of expenses after
notice of a request for payment thereof has been given to the corporation by
Agent, Agent may, but need not, at any time thereafter bring an action against
the corporation to recover the unpaid amount of the claim or the expense advance
and, if successful, Agent shall also be entitled to be paid for the expenses
(including attorneys' fee) of bringing such action. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in connection with any action, suit or proceeding in advance of its
final disposition) that Agent has not met the standards of conduct which make it
permissible under applicable law for the corporation to indemnify Agent for the
amount claimed, and Agent shall be entitled to receive interim payment of
expenses pursuant to Section 8.5 unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. Neither the failure of the corporation (including its Board of
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Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) to have made a determination that
indemnification of Agent is proper in the circumstances because Agent has met
the applicable standard of conduct required by applicable law, nor an actual
determination by the corporation (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) that Agent has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
8.7 Other Rights and Remedies. The indemnification provided by this
Article shall not be deemed exclusive of, and shall not affect, any other rights
to which an Agent seeking indemnification may be entitled under any law, other
provision of these By-Laws, the corporation's Certificate of Incorporation,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be an Agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person. All right to indemnification under this Article
shall be deemed to be provided by a contract between the corporation and the
Agent who serves in such capacity at any time these By-Laws and other relevant
provisions of the general corporation law and other applicable law, if any, are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing. In addition, notwithstanding any other provisions of
these By-Laws, the corporation hereby agrees to indemnify the Agent to the
fullest extent permitted by law, regardless of whether such indemnification is
authorized by any other provision of these By-Laws by the corporation's
Certificate of Incorporation, by agreement with the corporation, or by statute.
8.8 Insurance. Upon resolution passed by the Board of Directors, the
corporation may purchase and maintain insurance on behalf of any person who is
or was an Agent against any liability asserted against such person and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of this Article.
8.9 Optional Means of Assuring Payment. Upon request by an Agent
certifying that the Agent has reasonable grounds to believe the Agent may be
made a party to a proceeding for which the Agent may be entitled to be
indemnified under this Article 8, the corporation may but is not required to
create a trust fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
8.10 Constituent Corporations. For the purposes of this Article,
references to "the corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee, or trustee of such
a constituent corporation or who, being or having been such a director, officer,
employee or trustee, is or was serving at the request of such constituent
corporation as a director, officer, employee, trustee of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would if he or she had served the resulting
or surviving corporation in the same capacity.
8.11 Other Enterprises, Fines, and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprise" in Sections 8.1 and
8.10 shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the corporation" shall include any
service by Agent as director, officer, employee, trustee, or agent
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of the corporation which imposes duties on, or involves services by, such Agent
with respect to any employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he or she reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in this Article.
8.12 Savings Clause. If this Article or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Agent as to expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, appeal, proceeding, or investigation, whether civil, crimi
nal, or administrative, and whether internal or external, including a grand jury
proceeding and an action or suit brought by or in the right of the corporation,
to the full extent permitted by any applicable portion of this Article that
shall not have been invalidated, or by any other applicable law.
8.13 Employees or Agents. The corporation may, by resolution of the Board
of Directors, grant an agent or employee of the corporation who is not an
officer or director of the corporation and therefore not an Agent, the rights of
an Agent under this Article 8.
9/11/87 - Rev 9/24/99
Page l7
DREXLER TECHNOLOGY CORPORATION
AMENDMENT TO 1991 STOCK OPTION PLAN
I, the undersigned, hereby certify that:
1. I am a duly elected and acting Assistant Secretary of Drexler
Technology Corporation, a Delaware corporation (the "Company").
2. On May 27, 1999, the Board of Directors of the Company approved,
subject to stockholder approval, an amendment to the Company's 1991 Stock Option
Plan (the "Plan") to increase the aggregate number of shares in the Plan by
300,000 shares, from 2,850,000 to 3,150,000 shares (the "Amendment").
3. On September 24, 1999, the Amendment was approved by an affirmative
vote of the majority of stockholders represented in person or by proxy at the
Company's Annual Meeting of Stockholders.
4. Under the EDGAR filing system of the Securities and Exchange
Commission, a copy of the Plan was most recently filed in its entirety as
Exhibit 10.6.6 to the Company's Report on Form 10-K for the fiscal year ended
March 31, 1998.
5. By means of this Exhibit 10.1 to the Company's Report on Form 10-Q for
the fiscal second quarter ended September 30, 1999 Sections 2 and 9 of the Plan,
as amended, are filed as shown below:
Section 2 of the Plan is amended to read as follows:
2. STOCK SUBJECT TO PLAN. The Company shall reserve 3,150,000 shares of
its $0.01 par value Common Stock (hereinafter called the "Shares") to be issued
upon exercise of the options which may be granted from time to time under this
Plan. In addition, those of the shares reserved for issuance under the Company's
1986 Stock Option Plan on March 1, 1991, (i) which were not then subject to
outstanding options or (ii) which were then subject to outstanding options which
subsequently lapse, shall also be reserved for issuance pursuant to the exercise
of options granted from time to time under this Plan. As it may from time to
time determine, the Board of Directors of the Company (hereinafter called the
"Board") may authorize that the Shares may be comprised, in whole or in part, of
authorized but unissued shares of the Common Stock of the Company or of issued
shares which have been reacquired. If options granted under this Plan terminate
or expire before being exercised in whole or in part, the Shares subject to
those options which have not been issued may be subjected to subsequent options
granted under this Plan.
-1-
<PAGE>
The first paragraph of Section 9 of the Plan is amended to read as follows:
9. EFFECTIVE DATE AND TERMINATION OF PLAN. This Plan was adopted by the
Board of Directors on November 30, 1990, and was approved by the shareholders on
March 1, 1991. This Plan has been amended from time as permitted hereunder, most
recently on May 27, 1999. The Board may terminate this Plan at any time. If not
earlier terminated, this Plan shall terminate November 30, 2000. Termination of
this Plan will not affect rights and obligations theretofore granted and then in
effect.
Dated: September 24, 1999
/s/ Johanna P. Protsik
Johanna P. Protsik
Assistant Secretary
-2-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
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