<PAGE>
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, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Amgen Center Drive, Thousand Oaks, California 91320-1789
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of September 30, 1998, the registrant had 254,511,990 shares of Common Stock,
$.0001 par value, outstanding.
<PAGE>
AMGEN INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements....................... 3
Condensed Consolidated Statements of
Operations - three and nine months
ended September 30, 1998 and 1997................. 4
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997.......... 5
Condensed Consolidated Statements of
Cash Flows - nine months
ended September 30, 1998 and 1997................. 6
Notes to Condensed Consolidated Financial
Statements........................................ 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................. 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................... 26
Item 5. Other Information........................... 28
Item 6. Exhibits and Reports on Form 8-K............ 29
Signatures.......................................... 30
Index to Exhibits................................... 31
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and nine months ended
September 30, 1998 and 1997 is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which Amgen Inc. ("Amgen" or the
"Company") considers necessary for a fair presentation of the results of
operations for those periods.
The condensed consolidated financial statements should be read in
conjunction with the Company's financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Interim results are not necessarily indicative of results for the full
fiscal year.
3
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AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales................ $641.8 $552.8 $1,819.8 $1,655.5
Corporate partner revenues... 38.4 30.8 90.9 98.2
Royalty income............... 20.7 14.7 52.5 40.6
------ ------ -------- --------
Total revenues............. 700.9 598.3 1,963.2 1,794.3
------ ------ -------- --------
Operating expenses:
Cost of sales................ 87.2 74.3 250.1 223.1
Research and development..... 166.0 172.6 470.9 465.7
Marketing and selling........ 80.2 73.2 221.3 223.1
General and administrative... 54.0 46.2 148.0 134.3
Loss of affiliates, net...... 4.3 4.1 20.7 24.7
Legal assessment............. - 157.0 - 157.0
------ ------ -------- --------
Total operating expenses... 391.7 527.4 1,111.0 1,227.9
------ ------ -------- --------
Operating income.............. 309.2 70.9 852.2 566.4
------ ------ -------- --------
Other income (expense):
Interest and other income.... 16.1 17.5 55.2 51.4
Interest expense, net........ (3.2) (0.1) (8.7) (0.8)
------ ------ -------- --------
Total other income
(expense)................. 12.9 17.4 46.5 50.6
------ ------ -------- --------
Income before income taxes.... 322.1 88.3 898.7 617.0
Provision for income taxes.... 101.1 4.5 274.1 152.4
------ ------ -------- --------
Net income.................... $221.0 $ 83.8 $ 624.6 $ 464.6
====== ====== ======== ========
Earnings per share:
Basic........................ $ 0.87 $ 0.32 $ 2.45 $ 1.75
Diluted...................... $ 0.83 $ 0.31 $ 2.37 $ 1.68
Shares used in calculation
of earnings per share:
Basic........................ 255.1 264.7 255.2 265.3
Diluted...................... 265.0 273.9 264.0 276.1
</TABLE>
See accompanying notes.
4
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AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 104.1 $ 239.1
Marketable securities................... 1,020.8 787.4
Trade receivables, net.................. 296.3 269.0
Inventories............................. 109.1 109.2
Other current assets.................... 166.1 138.8
-------- --------
Total current assets.................. 1,696.4 1,543.5
Property, plant and equipment at cost, net 1,398.0 1,186.2
Investments in affiliated companies....... 118.4 116.9
Other assets.............................. 231.2 263.6
-------- --------
$3,444.0 $3,110.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 87.3 $ 103.9
Commercial paper........................ 99.6 -
Accrued liabilities..................... 682.1 608.0
Current portion of long-term debt....... 6.0 30.0
-------- --------
Total current liabilities............. 875.0 741.9
Long-term debt............................ 223.0 229.0
Contingencies
Stockholders' equity:
Preferred stock; $.0001 par value; 5
shares authorized; none issued or
outstanding............................ - -
Common stock and additional paid-in
capital; $.0001 par value; 750 shares
authorized; outstanding - 254.5 shares
in 1998 and 258.3 shares in 1997....... 1,471.1 1,196.1
Retained earnings....................... 874.9 943.2
-------- --------
Total stockholders' equity.......... 2,346.0 2,139.3
-------- --------
$3,444.0 $3,110.2
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 624.6 $ 464.6
Depreciation and amortization.................. 108.2 95.7
Loss of affiliates, net........................ 20.7 24.7
Cash provided by (used in):
Trade receivables, net........................ (27.3) (10.1)
Inventories................................... 0.1 (13.1)
Other current assets.......................... (22.3) 24.5
Accounts payable.............................. (16.6) (3.5)
Accrued liabilities........................... 74.1 82.8
------- -------
Net cash provided by operating activities... 761.5 665.6
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment..... (320.0) (292.0)
Proceeds from maturities of marketable
securities................................... 12.1 184.3
Proceeds from sales of marketable securities... 346.7 543.7
Purchases of marketable securities............. (580.5) (682.1)
Other.......................................... 6.6 (8.2)
------- -------
Net cash used in investing activities....... (535.1) (254.3)
------- -------
</TABLE>
See accompanying notes.
(Continued on next page)
6
<PAGE>
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------- -------
<S> <C> <C>
Cash flows from financing activities:
Increase in commercial paper................... $ 99.6 $ -
Repayment of long-term debt.................... (30.0) (118.2)
Proceeds from issuance of long-term debt....... - 100.0
Net proceeds from issuance of common
stock upon the exercise of stock options..... 223.3 90.8
Tax benefits related to stock options.......... 52.5 36.8
Repurchases of common stock.................... (692.8) (416.5)
Other.......................................... (14.0) (33.6)
------- -------
Net cash used in financing activities....... (361.4) (340.7)
------- -------
(Decrease) increase in cash and cash
equivalents................................... (135.0) 70.6
Cash and cash equivalents at beginning of
period........................................ 239.1 169.3
------- -------
Cash and cash equivalents at end of period...... $ 104.1 $ 239.9
======= =======
</TABLE>
See accompanying notes.
7
<PAGE>
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company
that discovers, develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries as well as affiliated companies for which the
Company has a controlling financial interest and exercises control over their
operations ("majority controlled affiliates"). All material intercompany
transactions and balances have been eliminated in consolidation. Investments in
affiliated companies which are 50% or less owned and where the Company exercises
significant influence over operations are accounted for using the equity method.
All other equity investments are accounted for under the cost method. The
caption "Loss of affiliates, net" includes Amgen's equity in the operating
results of affiliated companies and the minority interest others hold in the
operating results of Amgen's majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
in a manner which approximates the first-in, first-out (FIFO) method.
Inventories are shown net of applicable reserves and allowances. Inventories
consist of the following (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------ ------
<S> <C> <C>
Raw materials......... $ 16.9 $ 18.7
Work in process....... 43.8 53.6
Finished goods........ 48.4 36.9
------ ------
$109.1 $109.2
====== ======
</TABLE>
Product sales
Product sales consist of three products, EPOGEN(R) (Epoetin alfa),
NEUPOGEN(R) (Filgrastim) and INFERGEN(R) (Interferon alfacon-1).
The Company has the exclusive right to sell Epoetin alfa for dialysis,
diagnostics and all non-human uses in the United States.
8
<PAGE>
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen has
granted to Ortho Pharmaceutical Corporation, a subsidiary of Johnson & Johnson
("Johnson & Johnson"), a license relating to Epoetin alfa for sales in the
United States for all human uses except dialysis and diagnostics. Pursuant to
this license, Amgen does not recognize product sales it makes into the exclusive
market of Johnson & Johnson and does recognize the product sales made by Johnson
& Johnson into Amgen's exclusive market. Sales in Amgen's exclusive market and
adjustments thereto are derived from Company shipments and from third-party data
on shipments to end users and their usage (see Note 4, "Contingencies - Johnson
& Johnson arbitrations").
Foreign currency transactions
The Company has a program to manage foreign currency risk. As part of this
program, it has purchased foreign currency option and forward contracts to hedge
against possible reductions in values of certain anticipated foreign currency
cash flows generally over the next 12 months, primarily resulting from its sales
in Europe. At September 30, 1998, the Company had option contracts and forward
contracts to exchange foreign currencies for U.S. dollars of $48.9 million and
$18.2 million, respectively, all having maturities of seven months or less. The
option contracts, which have only nominal intrinsic value at the time of
purchase, are designated and effective as hedges of anticipated foreign currency
transactions for financial reporting purposes and accordingly, the net gains on
such contracts are deferred and recognized in the same period as the hedged
transactions. The forward contracts do not qualify as hedges for financial
reporting purposes and accordingly, are marked-to-market. Net gains on option
contracts (including option contracts for hedged transactions whose occurrence
are no longer probable) and changes in market values of forward contracts are
reflected in "Interest and other income". The deferred premiums on option
contracts and fair values of forward contracts are included in "Other current
assets".
The Company has additional foreign currency forward contracts to hedge
exposures to foreign currency fluctuations of certain receivables and payables
denominated in foreign currencies. At September 30, 1998, the Company had
forward contracts to exchange foreign currencies for U.S. dollars of $23.7
million, all having maturities of less than one month. These contracts are
designated and effective as hedges and accordingly, gains and losses on these
forward contracts are recognized in the same period the offsetting gains and
losses of hedged assets and liabilities are realized and recognized. The fair
values of the forward contracts are included in the corresponding captions of
the hedged assets and liabilities. Gains and losses on forward contracts, to
the extent they differ in amount from the hedged receivables and payables, are
included in "Interest and other income".
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in fiscal
years beginning after June
9
<PAGE>
15, 1999. Because of the Company's minimal use of derivatives, management
anticipates that the adoption of this new statement will not have a significant
effect on earnings or the financial position of the Company.
Income taxes
Income taxes are accounted for in accordance SFAS No. 109 (see Note 3,
"Income taxes").
Employee stock option and stock purchase plans
The Company's employee stock option and stock purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees".
Earnings per share
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the
Company's stock option plans which are included under the treasury stock method.
The following table sets forth the computation for basic and diluted
earnings per share (in millions, except per share information):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share - net income..... $221.0 $ 83.8 $624.6 $464.6
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares..... 255.1 264.7 255.2 265.3
Effect of dilutive securities -
employee stock options.............. 9.9 9.2 8.8 10.8
------ ------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted-average
shares.............................. 265.0 273.9 264.0 276.1
====== ====== ====== ======
Basic earnings per share............. $ 0.87 $ 0.32 $ 2.45 $ 1.75
====== ====== ====== ======
Diluted earnings per share........... $ 0.83 $ 0.31 $ 2.37 $ 1.68
====== ====== ====== ======
</TABLE>
10
<PAGE>
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Basis of presentation
The financial information for the three and nine months ended September 30,
1998 and 1997 is unaudited but includes all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for a fair
presentation of the results of operations for these periods. Interim results
are not necessarily indicative of results for the full fiscal year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Debt
As of September 30, 1998, the Company had $229 million of unsecured debt
securities outstanding. These unsecured debt securities consisted of: 1) $100
million of debt securities that bear interest at a fixed rate of 6.5% and mature
in 2007 that were issued under a $500 million debt shelf registration
established in December 1997 (the "Shelf"), 2) $100 million of debt securities
that bear interest at a fixed rate of 8.1% and mature in 2097, and 3) $29
million of debt securities that bear interest at fixed rates averaging 6.1% and
have remaining maturities of less than five years, including $6 million which
mature within one year. Under the Shelf, all of the remaining $400 million of
debt securities available for issuance may be offered under the Company's medium
term note program from time to time with terms to be determined by market
conditions.
The Company has a commercial paper program which provides for unsecured
short-term borrowings up to an aggregate of $200 million. As of September 30,
1998, commercial paper with a face amount of $100 million was outstanding.
These borrowings had maturities of less than three months and had effective
interest rates averaging 5.6%.
The Company also has an unsecured $150 million credit facility that expires
on May 28, 2003. As of September 30, 1998, no amounts were outstanding under
this line of credit.
3. Income taxes
The provision for income taxes consists of the following (in millions):
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal(including U.S.
possessions).............. $ 94.6 $ 8.2 $256.1 $145.6
State...................... 6.5 (3.7) 18.0 6.8
------ ----- ------ ------
$101.1 $ 4.5 $274.1 $152.4
====== ===== ====== ======
</TABLE>
The Company's effective tax rates for the three and nine months ended
September 30, 1998 were 31.4% and 30.5%, respectively, compared with 5.1% and
24.7% for the same periods last year. The lower tax rates during the 1997
periods as compared with the 1998 periods are primarily the result of reduced
pretax income due to the legal assessment recorded in the third quarter of 1997
without a corresponding reduction in tax benefits related to Puerto Rican
operations. In addition, the tax rates during the 1998 periods have increased
as a result of higher pretax income in combination with a provision in the
federal tax law which took effect in 1998 that caps tax benefits associated with
the Company's Puerto Rico operations at the 1995 income level.
4. Contingencies
Johnson & Johnson arbitrations
Epoetin alfa
In September 1985, the Company granted Johnson & Johnson's affiliate, Ortho
Pharmaceutical Corporation, a license relating to certain patented technology
and know-how of the Company to sell a genetically engineered form of recombinant
human erythropoietin, called Epoetin alfa, throughout the United States for all
human uses except dialysis and diagnostics. Johnson & Johnson sells Epoetin
alfa under the brand name PROCRIT(R). A number of disputes have arisen between
Amgen and Johnson & Johnson as to their respective rights and obligations under
the various agreements between them, including the agreement granting the
license (the "License Agreement").
A dispute between Amgen and Johnson & Johnson that is the subject of a
current arbitration proceeding relates to the audit methodology currently
employed by the Company for Epoetin alfa sales. The Company and Johnson &
Johnson are required to compensate each other for Epoetin alfa sales which
either party makes into the other party's exclusive market, sometimes referred
to as "spillover". Spillover occurs when, for example, a hospital or other
purchaser buys one brand for use in both dialysis and non-dialysis indications.
The Company has established and is employing an audit methodology to assign the
proceeds of sales of EPOGEN(R) and PROCRIT(R) in the Company's and Johnson &
Johnson's respective exclusive markets. On September 12, 1997, the arbitrator in
this matter (the "Arbitrator") issued an opinion adopting the Company's audit
methodology. For the
12
<PAGE>
free standing dialysis center segment of the Epoetin alfa market, which accounts
for about two-thirds of the Company's EPOGEN(R) sales, the Arbitrator ruled that
the Company's audit accurately determined that all Epoetin alfa sales to free
standing dialysis centers are made for dialysis. For the other segments of the
Epoetin alfa market, the Arbitrator ruled that the detailed methodology used by
Amgen accurately measured and allocated Epoetin alfa sales for all but the
Hospital and Home Health Care segments, for which he ordered certain adjustments
to the results of the audit for the 1991-94 time period. The Arbitrator also
ruled that no payments are due for the 1989-90 period. Subject to further
guidance from the Arbitrator to clarify his opinion and the issuance of the
Arbitrator's final order, the Company estimated that the effect of the opinion
would be a net spillover payment to Johnson & Johnson which, after benefit of
income tax effects, was $78 million for the 1991-94 period and interest in the
amount of $18 million after tax. As a result of the opinion, the Company took a
charge of $0.35 per share in the third quarter of 1997 for the spillover payment
and interest.
A hearing before the Arbitrator was held on October 27, 1997 to clarify,
among other issues, the calculation for the amount of the spillover payment due
to Johnson & Johnson for the 1991-94 time period. As a result of that hearing,
the Company's spillover obligation to Johnson & Johnson was increased for the
1991-94 period in an amount which was covered by amounts previously provided for
by the Company. On April 14, 1998, the Arbitrator issued his final order which
confirmed that the Company was the successful party in the arbitration and, as
a result, Johnson & Johnson was ordered to pay to the Company all costs and
expenses, including reasonable attorney's fees, that the Company incurred in the
arbitration as well as one-half of the audit costs. The Company has submitted a
bill for such costs incurred over an eight year period of approximately $110
million; however, the actual amount of the Company's recovery will be determined
by the Arbitrator. The final order also confirmed that for the period 1995
forward, the estimates of usage of Epoetin alfa in the Hospital segment of the
Company's audit methodology shall be applied without adjustment, subject to the
right of either party to challenge the Hospital survey results for 1995 and
certain subsequent years.
Both parties filed and presented arguments on motions seeking
reconsideration of certain aspects of the Arbitrator's final order. On July 29,
1998, the Arbitrator issued his opinion on both parties' motions for
reconsideration. The Arbitrator granted the Company's motion to reconsider one
aspect of the adjustment to the results of the audit for the Hospital and Home
Health Care Segment. The Arbitrator's ruling changes the calculation for that
segment and reduces the Company's liability to Johnson & Johnson for the 1991-94
period. The Arbitrator denied all other motions, including Johnson & Johnson's
motion seeking a reconsideration of the award to the Company of all costs and
expenses, including reasonable attorneys' fees and costs, that the Company
incurred in the arbitration. On October 26, 1998, Johnson & Johnson filed a
petition in the Circuit Court of Cook County, Illinois seeking to vacate or
modify the Arbitrator's award to the Company of all costs and expenses,
including reasonable attorneys' fees and costs, that the Company
13
<PAGE>
incurred in the arbitration. Due to remaining uncertainties the Company has not
recognized any benefit from the reduced liability for 1991-94 or for the
recovery of attorneys' fees and costs or audit costs. On August 12, 1998,
Johnson & Johnson gave notice of challenge to the results of the audit of the
Hospital segment for the 1995-97 period. The amount of the challenge has not
been quantified by Johnson & Johnson. If, as a result of this challenge,
adjustments to the results of the Company's audit are made, the Company may be
required to pay additional compensation to Johnson & Johnson for sales during
1995, 1996 and 1997. The Company does not expect that any such additional
compensation for the 1995-97 period would have a material adverse effect on the
annual financial statements of Amgen due to amounts previously provided for by
the Company.
The Company has filed a demand in the arbitration to terminate Johnson &
Johnson's rights under the License Agreement and to recover damages for breach
of the License Agreement. Johnson & Johnson disputes the Arbitrator's
jurisdiction to decide the Company's demand. The Arbitrator has ruled that
discovery on the Company's termination demand may commence in January 1999. No
trial date on this matter has been set.
On October 2, 1995, Johnson & Johnson filed a demand for a separate
arbitration proceeding against the Company before the American Arbitration
Association ("AAA") in Chicago, Illinois. Johnson & Johnson alleges in this
demand that the Company has breached the License Agreement. The demand also
includes allegations of various antitrust violations. In this demand, Johnson &
Johnson seeks an injunction, declaratory relief, unspecified compensatory
damages, punitive damages and costs. On October 27, 1995, the Company filed a
complaint in the Circuit Court of Cook County, Illinois seeking an order
compelling Johnson & Johnson to arbitrate the Company's claim for termination
before the Arbitrator as well as all related counterclaims asserted in Johnson &
Johnson's October 2, 1995 AAA arbitration demand. The Company is unable to
predict at this time the outcome of the demand for termination or when it will
be resolved. The Company has filed a motion to stay the AAA arbitration pending
the outcome of the existing arbitration proceedings before the Arbitrator
discussed above. The Company has also filed an answer and counterclaim denying
that AAA has jurisdiction to hear or decide the claims stated in the demand,
denying the allegations in the demand and counter claiming for certain unpaid
invoices.
NESP
On June 5, 1997, Johnson & Johnson filed a demand for arbitration against
Kirin-Amgen, Inc. ("Kirin-Amgen"), an affiliate of the Company, before the AAA.
The demand alleges that Amgen's novel erythropoiesis stimulating protein
("NESP") is covered by a license granted by Kirin-Amgen to Johnson & Johnson in
1985 for the development, manufacture and sale of Epoetin alfa in certain
territories outside the United States, Japan and China (the "K-A License"). In
1996 Kirin-Amgen acquired exclusive worldwide rights in NESP from Amgen. Kirin-
Amgen, in turn, transferred certain rights in NESP to Kirin and certain rights
to Amgen. Johnson & Johnson
14
<PAGE>
alleges that the K-A License effectively grants Johnson & Johnson the same right
to develop, manufacture and sell NESP as granted under the K-A License with
respect to Epoetin alfa. Kirin-Amgen filed its answer to Johnson & Johnson's
complaint on January 12, 1998, denying that Johnson & Johnson has rights to
NESP. Kirin-Amgen also asserted a counterclaim for the recovery of certain
royalty payments which Kirin-Amgen asserts were improperly withheld. These same
disputes exist between the Company and Johnson & Johnson under the License
Agreement and the parties have agreed that the resolution of these issues in
this arbitration will be binding upon them with respect to the License
Agreement. The trial in this matter has concluded and post-trial briefs and
arguments are expected to be completed by the end of 1998.
While it is not possible to predict accurately or determine the eventual
outcome of the above described legal matters or various other legal proceedings
(including patent disputes) involving Amgen, the Company believes that the
outcome of these proceedings will not have a material adverse effect on its
annual financial statements.
5. Stockholders' equity
During the nine months ended September 30, 1998, the Company repurchased
11.6 million shares of its common stock at a total cost of $692.8 million which
substantially completed the $1 billion amount authorized by the Board of
Directors in October 1997 for its common stock repurchase program. In October
1998, the Board of Directors authorized the Company to repurchase up to an
additional $1 billion of common stock through December 31, 1999. Stock
repurchased under the program is retired.
6. Comprehensive income
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities and
foreign currency translation adjustments to be included in other comprehensive
income. During the three and nine months ended September 30, 1998, total
comprehensive income was $231.3 million and $623.7 million, respectively.
During the three and nine months ended September 30, 1997, total comprehensive
income was $82.6 million and $458.5 million, respectively.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Cash provided by operating activities has been and is expected to continue
to be the Company's primary source of funds. During the nine months ended
September 30, 1998, operations provided $761.5 million of cash compared with
$665.6 million during the same period last year. The Company had cash, cash
equivalents and marketable securities of $1,124.9 million at September 30, 1998,
compared with $1,026.5 million at December 31, 1997.
Capital expenditures totaled $320 million for the nine months ended
September 30, 1998, compared with $292 million for the same period a year ago.
The Company anticipates spending approximately $350 million to $400 million in
1998 and approximately $300 million to $400 million in 1999 on capital projects
and equipment to expand the Company's global operations. Thereafter, over the
next few years, the Company anticipates that capital expenditures will average
in excess of $300 million per year.
The Company receives cash from the exercise of employee stock options.
During the nine months ended September 30, 1998, stock options and their related
tax benefits provided $275.8 million of cash compared with $127.6 million for
the same period last year. Proceeds from the exercise of stock options and
their related tax benefits will vary from period to period based upon, among
other factors, fluctuations in the market value of the Company's stock relative
to the exercise price of such options.
The Company has a stock repurchase program primarily to offset the dilutive
effect of its employee stock option and stock purchase plans. During the nine
months ended September 30, 1998, the Company repurchased 11.6 million shares of
its common stock at a total cost of $692.8 million compared with 7.4 million
shares repurchased at a cost of $416.5 million during the same period last year.
In October 1998, the Board of Directors authorized the Company to repurchase up
to an additional $1 billion of common stock through December 31, 1999. The
Company has completed the $1 billion of repurchases authorized in October 1997
and expects to utilize a portion of the additional $1 billion recently
authorized during the remainder of 1998.
To provide for financial flexibility and increased liquidity, the Company
has established several sources of debt financing. As of September 30, 1998,
the Company had $229 million of unsecured debt securities outstanding. These
unsecured debt securities consisted of: 1) $100 million of debt securities that
bear interest at a fixed rate of 6.5% and mature in 2007 that were issued under
a $500 million debt shelf registration established in December 1997 (the
"Shelf"), 2) $100 million of debt securities that bear interest at a fixed rate
of 8.1% and mature in 2097, and 3) $29 million of debt securities that bear
interest at fixed rates averaging 6.1% and have remaining maturities of less
than five years, including $6 million which mature within one year. Under the
Shelf, all of the remaining $400 million
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of debt securities available for issuance may be offered under the Company's
medium term note program.
The Company's sources of debt financing also include a commercial paper
program which provides for short-term borrowings up to an aggregate face amount
of $200 million. As of September 30, 1998, commercial paper with a face amount
of $100 million was outstanding. These borrowings had maturities of less than
three months and had effective interest rates averaging 5.6%. In addition, the
Company has an unsecured $150 million credit facility that expires on May 28,
2003. This credit facility supports the Company's commercial paper program. As
of September 30, 1998, no amounts were outstanding under this line of credit.
The primary objectives for the Company's investment portfolio are liquidity
and safety of principal. Investments are made to achieve the highest rate of
return to the Company, consistent with these two objectives. The Company's
investment policy limits investments to certain types of instruments issued by
institutions with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer. The Company invests its excess
cash in securities with varying maturities to meet projected cash needs.
The Company believes that existing funds, cash generated from operations
and existing sources of debt financing are adequate to satisfy its working
capital and capital expenditure requirements for the foreseeable future, as well
as to support its stock repurchase program. However, the Company may raise
additional capital from time to time.
Results of Operations
Product sales
Product sales were $641.8 million and $1,819.8 million for the three and
nine months ended September 30, 1998, respectively. These amounts represent
increases of $89 million and $164.3 million, or 16% and 10%, respectively, over
the same periods last year.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $349.7 million and $990.6 million for the three and
nine months ended September 30, 1998, respectively. These amounts represent
increases of $64.8 million and $119.2 million, or 23% and 14%, respectively,
over the same periods last year. These increases were primarily due to growth in
the U.S. dialysis patient population and the administration of higher doses.
The administration of higher doses of EPOGEN(R) was principally due to changes
in reimbursement announced in March and June 1998 by the Health Care Financing
Administration ("HCFA"), discussed below, as well as many dialysis providers
using better anemia management practices, including using hemoglobin
measurements instead of hematocrit measurements.
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In September 1997, HCFA implemented changes (the "HCFA Policy Changes") to
its reimbursement policy. Prior to the HCFA Policy Changes, fiscal
intermediaries under contract with HCFA were authorized to pay reimbursement
claims for patients whose hematocrits exceeded 36 percent, the top of the
suggested target hematocrit range in the Company's labeling, if deemed medically
justified. Under the HCFA Policy Changes, medical justification was not
accepted for payment of claims of hematocrits that exceeded 36 percent and, if
the current month's hematocrit was greater than 36 percent and the patient's
hematocrit exceeded 36.5 percent on an historical 90-day "rolling average"
basis, reimbursement for the current month would be denied in full. Beginning
in the second quarter of 1997, the Company experienced a decline in the growth
rate of EPOGEN(R) sales as dialysis providers attempted to lower hematocrits by
lowering or withholding EPOGEN(R) doses in order to avoid or minimize claim
denials under the HCFA Policy Changes. However, in March 1998, HCFA announced
the easing of restrictions on reimbursement that had been instituted under the
HCFA Policy Changes. In June 1998, HCFA announced further revisions.
In March 1998, HCFA issued two revisions (the "March HCFA Revisions") to
the HCFA Policy Changes in a program memorandum. The first revision provided
that, for a month in which the three month "rolling average" hematocrit exceeds
36.5 percent, HCFA would pay the lower of 100 percent of the actual dosage
billed for that month, or 80 percent of the prior month's allowable EPOGEN(R)
dosage. The second revision re-established authorization to make payment for
EPOGEN(R) when a patient's hematocrit exceeded 36 percent when accompanied by
documentation establishing medical necessity. In June 1998, HCFA issued another
program memorandum establishing additional revisions (the "June HCFA Revisions")
to the reimbursement policy. The policy now states that pre-payment review of
claims has been eliminated and fiscal intermediaries should conduct post-payment
reviews of those dialysis providers with an atypical number of patients with
hematocrit levels above a 90-day "rolling average" of 37.5 percent.
Additionally, HCFA stated that it is encouraging dialysis providers to maintain
a hematocrit level within the range of 33 to 36 percent as recommended by the
Dialysis Outcomes Quality Initiative. HCFA also stated that it plans to develop
a national policy for medical justification for physicians who target their
patients' hematocrits greater than 36 percent. In the interim, individual
patient treatment will continue to be subject to the physician's discretion and
documentation must satisfy the judgment of the fiscal intermediary. The June
HCFA Revisions supersede the HCFA Policy Changes and the March HCFA Revisions.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $287.3 million and $819.1 million for the
three and nine months ended September 30, 1998, respectively. These amounts
represent increases of $19.4 million and $35 million, or 7% and 4%,
respectively, over the same periods last year. The increase during the third
quarter of 1998 is primarily the result of growth in demand within the U.S.
cancer chemotherapy market, which includes the effect of higher prices, and to a
lesser extent, higher international sales. The increase during the nine
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months ended September 30, 1998 is primarily due to an increase in demand within
the U.S. market, which includes the effect of higher prices, and an increase in
wholesaler inventories. Reported international sales decreased slightly during
the nine month period as unfavorable foreign currency effects exceeded the
increase in international sales volume. In addition, the Company believes that
the use of protease inhibitors as a treatment for AIDS has reduced and may
continue to reduce sales of NEUPOGEN(R) for off-label use as a supportive
therapy in this setting. NEUPOGEN(R) is not approved or promoted for such use,
except in Australia and Canada.
Cost containment pressures in the U.S. health care marketplace have
contributed to the slowing of growth in domestic NEUPOGEN(R) usage over the past
several quarters. These pressures are expected to continue to influence growth
for the foreseeable future. In addition, quarterly NEUPOGEN(R) sales volume is
influenced by a number of factors including underlying demand and wholesaler
inventory management practices.
The growth of the colony stimulating factor ("CSF") market in the European
Union ("EU") in which NEUPOGEN(R) competes has remained flat, principally due to
EU government pressures on physician prescribing practices in response to
ongoing government initiatives to reduce health care expenditures. Experimental
cancer trials in Italy that do not include the use of NEUPOGEN(R) have also
adversely affected EU sales, although these trials have not been successful and
are concluding. Additionally, the Company faces competition from another
granulocyte CSF product. Amgen's CSF market share in the EU has remained
relatively constant over the last several quarters, however, the Company does
not expect the competitive intensity to subside in the near future.
Other product sales
INFERGEN(R) (Interferon alfacon-1) sales were $4.8 million and $10.1
million for the three and nine months ended September 30, 1998, respectively.
INFERGEN(R) was launched in October 1997 for the treatment of chronic hepatitis
C virus infection. There are treatments for this infection against which
INFERGEN(R) competes, and the Company cannot predict the extent to which it will
penetrate this market.
Cost of sales
Cost of sales as a percentage of product sales was 13.6% and 13.7% for the
three and nine months ended September 30, 1998, respectively, compared with
13.4% and 13.5% for the same periods last year.
Research and development
During the three months ended September 30, 1998, research and development
expenses decreased $6.6 million, or 4%, compared with the same period last year.
This decrease is primarily due to lower product licensing costs and staff-
related expenses partially offset by higher clinical and preclinical expenses.
During the nine months
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ended September 30, 1998, research and development expenses increased $5.2
million, or 1%, compared with the same period last year. This increase is
primarily due to higher clinical and preclinical expenses partially offset by
lower product licensing costs and staff-related expenses. The decline in
product licensing costs for the three and nine months ended September 30, 1998
is primarily due to a $15 million payment to Guilford Pharmaceuticals Inc. in
the third quarter of 1997 pursuant to a licensing agreement.
Marketing and selling/General and administrative
Marketing and selling expenses increased $7 million, or 10%, during the
three months ended September 30, 1998 compared with the same period last year.
This increase is primarily due to higher U.S. marketing expenses and staff-
related costs offset by lower European marketing costs and lower expenses
related to the Johnson & Johnson arbitration. Marketing and selling expenses
decreased $1.8 million, or 1%, during the nine months ended September 30, 1998
compared with the same period last year. This decline is primarily due to lower
Johnson & Johnson arbitration and European marketing costs substantially offset
by higher U.S. marketing and staff-related costs.
General and administrative expenses increased $7.8 million and $13.7
million, or 17% and 10%, respectively, during the three and nine months ended
September 30, 1998 compared with the same periods last year. These increases
were primarily due to higher staff-related costs, occupancy expenses, and legal
fees.
Legal assessment
During the third quarter of 1997, the Company recorded a pre-tax charge of
$157 million relating to a spillover arbitration award to Johnson & Johnson.
See Note 4 to the Condensed Consolidated Financial Statements - "Johnson &
Johnson arbitrations".
Income taxes
The Company's effective tax rates for the three and nine months ended
September 30, 1998 were 31.4% and 30.5%, respectively, compared with 5.1% and
24.7% for the same periods last year. The lower tax rates during the 1997
periods as compared with the 1998 periods are primarily the result of reduced
pretax income due to the legal assessment recorded in the third quarter of 1997
(see "-Legal assessment") without a corresponding reduction in tax benefits
related to Puerto Rican operations. In addition, the tax rates during the 1998
periods have increased as a result of higher pretax income in combination with a
provision in the federal tax law which took effect in 1998 that caps tax
benefits associated with the Company's Puerto Rico operations at the 1995 income
level.
Foreign currency transactions
The Company has a program to manage certain portions of its exposure to
fluctuations in foreign currency exchange rates arising from international
operations. The Company generally hedges the
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receivables and payables with foreign currency forward contracts, which
typically mature within one to three months. The Company uses foreign currency
option contracts and forward contracts which generally expire within 12 months
to hedge certain anticipated future sales and expenses. At September 30, 1998,
outstanding foreign currency option and forward contracts totaled $48.9 million
and $41.9 million, respectively.
Year 2000
The Year 2000 problem (the "Year 2000 Problem") results from computer
programs and devices that do not differentiate between the year 1900 and the
year 2000 because they were written using two digits rather than four to define
the applicable year; accordingly, computer systems that have time-sensitive
calculations may not properly recognize the year 2000. This could result in
system failures or miscalculations causing disruptions of the Company's
operations, including, without limitation, manufacturing, distribution, clinical
development, research and other business activities. The Year 2000 Problem is
likely to affect the Company's computer hardware, software, systems, devices,
and applications and manufacturing equipment, including without limitation, its
non-information technology systems (such as elevators, HVAC equipment, security
systems and other equipment containing embedded technology such as
microcontrollers) (collectively, "Computer Systems"). Amgen is not currently
year 2000 compliant and its year 2000 assessment is not complete. Like many
corporations, the Company does not have any previous experience with an issue
like the Year 2000 Problem. The Year 2000 Problem potentially affects the
Company across its world-wide locations and within substantially all its
business activities. Although the Company believes it is developing an
appropriate program to address the Year 2000 Problem, it cannot guarantee that
its program will succeed or will be timely. The following is a discussion of the
Company's year 2000 program.
Amgen has conducted an initial review of its Computer Systems to identify
those areas that could be affected by the Year 2000 Problem and has established
a program to address year 2000 issues. The Company is evaluating its functional
areas and site locations worldwide. Additionally, the Company has appointed a
program manager for year 2000 compliance. The Company has identified the
following four principal areas of potential Computer Systems exposure at Amgen
to the Year 2000 Problem, in addition to supplier issues which are discussed
elsewhere:
- - Process Control, Instruments, and Environmental Monitoring and Control
Systems: these types of systems are used in the Company's manufacturing and
clinical trial processes, among other operations. These generally are
systems, devices and instruments which utilize date functionality and
generate, send, receive or manipulate date-stamped data and signals. These
systems may be found in data acquisition/processing software, laboratory
instrumentation, and other equipment with embedded code, for example. These
devices and instruments may be controlled by installed software, firmware
or other embedded control algorithms.
- - Network and System Services: these generally include telecommunications,
local area networks, wide area networks, e-mail, video teleconferencing and
electronic calendaring systems, for example.
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- - Custom and Business Applications: these generally are systems which the
Company either wrote or for which the Company has purchased the source
code, and applications which are not supported by an external vendor. These
systems include applications developed or purchased by a functional area on
computer systems located within Amgen's corporate departments and operated
by departmental personnel, such as Amgen's core business systems (including
accounting financial systems and sales operations systems), fund transfer
systems and personnel management systems.
- - Computer systems: these generally are desktop computers (PC's, MacIntosh)
and server computer equipment (NT and UNIX), including, for example, system
hardware, firmware, and installed commercial application software.
Amgen has planned an inventory, business risk assessment, remediation,
testing and implementation phase in these areas. The Company plans to test
appropriate Computer Systems and implement them in their year 2000-compliant
form following remediation. The Company has substantially completed the
inventory phase. The business risk assessment phase has commenced and is
expected to be substantially completed by November 30, 1998. The Company
expects to have substantially completed the remediation, testing and
implementation phases by March 30, 1999, May 31, 1999 and July 31, 1999,
respectively. Year 2000 compliance testing of the Company's Computer Systems
has commenced in some areas. Since the commencement of its year 2000 efforts,
the Company has in the past missed some deadlines at various stages of
developing and implementing its program. Some schedule slippage has been
recovered and the Company is working to recover others, however. The Company is
currently behind schedule in some projects. The Company cannot guarantee that it
will meet internal or external deadlines for year 2000 compliance.
The Company is using both internal and external resources to identify,
correct/reprogram, and test its Computer Systems for year 2000 compliance.
However, the Company cannot guarantee that these resources will be available at
a reasonable cost or at all, due, in part, to competing demands for these
resources. Further, while the Company plans to complete modifications of its
business critical Computer Systems prior to the year 2000, if modifications of
such business critical Computer Systems, or Computer Systems of Suppliers (as
defined below) are not completed in a timely manner, the Year 2000 Problem could
have a material adverse effect on the operations and financial position of the
Company.
The Company has begun to identify critical providers of information, goods
and services ("Suppliers") in order to assess their year 2000
compliance/readiness. Suppliers will be prioritized based on business
criticality and year 2000 surveys will be sent to them. The Company plans to
have distributed such surveys by March 30, 1999, although some Suppliers have
been contacted already. Although the Company cannot control the response time or
rate of Suppliers to its surveys, the Company hopes to have assessed survey
responses by May 31, 1999 and confirmed year 2000 readiness of selected
Suppliers by July 31, 1999. The Company does not intend to contact entities that
are not critical and cannot guarantee that such entities will be year 2000
compliant. The Company plans to visit selected Suppliers to confirm their year
2000 compliance. In some cases, the Company also plans to stock extra inventory
and qualify alternate suppliers, although the Company cannot guarantee the
availability of additional supplies or the year 2000 compliance of alternate
suppliers. The failure of Suppliers to become year 2000 compliant on a timely
basis, or at all, could have a material adverse effect on the Company. The
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Company is also working to identify its key customers and to understand year
2000 exposure and compliance in that area. However, the Company believes that
the failure of its key customers to become year 2000 compliant on a timely
basis, or at all, could have a material adverse effect on the Company.
The Company may also be affected by the failure of other third parties to
be year 2000 compliant even though these third parties do not directly conduct
business with Amgen. For example, the failure of state, federal and private
payors or reimbursers to be year 2000 compliant and thus unable to make timely,
proper or complete payments to sellers and users of the Company's products,
could have a material adverse effect on the Company. The Government Accounting
Office has stated that the Health Care Financing Administration, the principal
federal reimburser for the Company's marketed products, may not become fully
year 2000 compliant on a timely basis.
The Company does not currently have a year 2000 contingency plan
established. However, the Company is in the process of developing a "reasonably
likely worst case year 2000 scenario" and identifying the principal risks to
Amgen. Once such a scenario has been established the Company will develop a
contingency plan. The Company anticipates finalizing a contingency plan by mid-
1999 and implementing such plan in September 1999.
As of November 4, 1998, total expenditures related to the Company's year
2000 program, including, without limitation, anticipated upgrades, remediation
and new Computer Systems, are expected to range from $40 million to $60 million,
approximately one-third of which is expected to be capital expenditures.
However, these amounts are only estimates and are based on information currently
available to the Company; the Company cannot guarantee that these amounts will
be adequate to address the Company's year 2000 compliance needs. As of
September 30, 1998, the Company estimates that it had incurred approximately $6
million in its year 2000 efforts, including without limitation, internal staff
costs, outside consulting fees and Computer Systems upgrades.
The statements set forth herein concerning the Year 2000 Problem which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. There can be no guarantee that any estimates or
other forward-looking statements will be achieved and actual results could
differ significantly from those planned or contemplated. The Company plans to
update the status of its year 2000 program as necessary in its periodic filings
and in accordance with applicable securities laws.
Financial Outlook
The Company expects a mid-teens sales growth rate for EPOGEN(R) in 1998.
In 1999, the Company expects EPOGEN(R) sales to grow at a double digit rate,
though not as high as the 1998 growth rate. Although the Company believes that
dialysis providers have increased doses primarily in response to the June HCFA
Revisions and due to
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certain dialysis providers using hemoglobin measurements instead of hematocrit
measurements (see, "Results of Operations - Product sales - EPOGEN(R) (Epoetin
alfa)"), the timing and magnitude of EPOGEN(R) sales growth due to increases in
dose is difficult to predict principally due to the timing and variety of
dialysis providers' and fiscal intermediaries' reactions to the March HCFA
Revisions and the June HCFA Revisions. The Company believes that increases in
the U.S. dialysis patient population and dose will continue to grow EPOGEN(R)
sales in the near term. Patients receiving treatment for end stage renal
disease are covered primarily under medical programs provided by the federal
government. Therefore, EPOGEN(R) sales may also be affected by future changes
in reimbursement rates or a change in the basis for reimbursement by the federal
government. The Office of the Inspector General's recommendation for a 10%
reduction in the Medicare reimbursement rate for EPOGEN(R) was not included as
part of the federal government's 1999 fiscal year budget approved by Congress.
However, such a recommendation may be made again in the future.
The Company expects a low to mid single digit sales growth rate for
NEUPOGEN(R) in 1998 and expects the 1999 growth rate to be similar to or
slightly higher than the 1998 growth rate. Future NEUPOGEN(R) (Filgrastim)
sales growth is dependent primarily upon further penetration of existing
markets, the timing and nature of additional indications for which the product
may be approved and the effects of competitive products. Although not approved
or promoted for use in Amgen's domestic or foreign markets, except for Australia
and Canada, the Company believes that currently approximately 5% of its
worldwide NEUPOGEN(R) sales are from off-label use as a supportive therapy to
various AIDS treatments. Changes in AIDS therapies, including protease
inhibitors that may be less myelosuppressive, are believed to have adversely
affected and may continue to adversely affect such sales. NEUPOGEN(R) usage is
expected to continue to be affected by cost containment pressures on health care
providers worldwide. As a result of the factors discussed in "Results of
Operations - Product sales - NEUPOGEN(R)" the Company believes that growth in
the CSF market in the EU is likely to be flat year over year in 1998. In
addition, reported NEUPOGEN(R) sales will continue to be affected by changes in
foreign currency exchange rates and government budgets.
Generally, in the U.S. the cost of drugs and biologicals administered to
Medicare-eligible patients receiving outpatient services, such as chemotherapy
infusion, is reimbursed under Medicare only if those drugs and biologicals
qualify for coverage under Medicare Part B. Generally, drugs and biologicals
that are "usually self-administered" are not covered by Medicare. However,
Medicare does pay for some drugs and biologicals that are furnished incident to
a physician's services. Currently, NEUPOGEN(R) is reimbursed by HCFA under
Medicare Part B. HCFA has established broad Medicare coverage policies and, in
some cases, interpretations of its policies. However, the Medicare program is
administered by a local carrier (typically a private insurance organization that
contracts with HCFA) in each state, which is overseen by a medical director
under contract with HCFA. These carriers and medical directors have the
authority to interpret Medicare reimbursement coverage policies.
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The Company is aware that the medical directors in a few states have
preliminarily considered that NEUPOGEN(R) should not be eligible for
reimbursement under Medicare Part B principally because, in their opinions, it
is "usually self-administered" when delivered subcutaneously. Although to date
no local carrier has adopted guidelines or coverage policies that would exclude
Medicare Part B coverage for NEUPOGEN(R), there can be no assurance that these
or other carriers or HCFA will not in the future adopt interpretations or
guidelines under Medicare Part B or otherwise, that exclude or limit
reimbursement for NEUPOGEN(R). Any guidelines or policies that limit or
eliminate reimbursement for NEUPOGEN(R) could adversely affect NEUPOGEN(R)
sales.
INFERGEN(R) (Interferon alfacon-1) was launched in October 1997 for the
treatment of chronic hepatitis C virus infection. There are treatments for this
infection against which INFERGEN(R) competes, and the Company cannot predict the
extent to which it will penetrate this market. The Company is presently engaged
in certain litigation related to INFERGEN(R), as described in "Part II, Item 1.
Legal Proceedings - INFERGEN(R) litigation" in this quarterly report.
The Company anticipates the growth rate for total product sales in 1998 to
be very low double digits. In 1999, the growth rate for total product sales is
expected to be in a range of high single to very low double digits. Cost of
sales as a percentage of product sales for 1998 is expected to be slightly
higher than for 1997. In 1999, cost of sales as a percentage of product sales
is expected to be similar to 1998. Research and development expenses for 1998
are expected to be approximately $650 million. In 1999, research and
development expenses as a percentage of product sales is expected to be slightly
higher than in 1998. Marketing and selling expenses combined with general and
administrative expenses are expected to grow at a low to mid single digit rate
in 1998. In 1999, marketing and selling expenses combined with general and
administrative expenses as a percentage of product sales is expected to be about
the same as 1998. In October 1998, the federal research and experimentation tax
credit (the "R&E credit") was reinstated retroactive to July 1, 1998 and expires
June 30, 1999. This is expected to decrease the tax rate in the fourth quarter
and result in an effective rate for 1998 of approximately 29.5%. In 1999,
without further extension of the R&E credit, the tax rate is expected to be
approximately 31%. For 1998, most analysts' earnings per share estimates are
between $3.08 and $3.18. Including the benefit of the extension of the R&E
credit for the second half of 1998, the Company expects earnings per share to be
slightly above this range. For 1999, most analysts' earnings per share estimates
are between $3.40 and $3.55. Including the benefit of the extension of the R&E
credit through June 1999, but not including the potential extension for the
second half of 1999, the Company is comfortable with this range. Estimates of
future product sales, operating expenses, and earnings per share are necessarily
speculative in nature and are difficult to predict with accuracy.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. Investors are cautioned
that forward-looking statements or projections made by the Company, including
those made in this document, are subject to risks and uncertainties that may
cause actual results to differ materially from those projected. Reference is
made in particular to forward-looking statements regarding
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product sales, earnings per share and expenses. Amgen operates in a rapidly
changing environment that involves a number of risks, some of which are beyond
the Company's control. Future operating results and the Company's stock price
may be affected by a number of factors, including, without limitation: (i) the
results of preclinical and clinical trials; (ii) regulatory approvals of product
candidates, new indications and manufacturing facilities; (iii) reimbursement
for Amgen's products by governments and private payors; (iv) health care
guidelines and policies relating to Amgen's products; (v) intellectual property
matters (patents) and the results of litigation; (vi) competition; (vii)
fluctuations in operating results and (viii) rapid growth of the Company. These
factors and others are discussed herein and in the sections "Factors That May
Affect Amgen" filed as exhibit 99 hereto and incorporated herein by reference.
Legal Matters
The Company is engaged in arbitration proceedings with one of its
licensees. For a discussion of these matters, see Note 4 to the Condensed
Consolidated Financial Statements.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is engaged in arbitration proceedings with one of its
licensees. For a complete discussion of these matters see Note 4 to the
Condensed Consolidated Financial Statements, "Contingencies". Other legal
proceedings are also reported in the Company's Form 10-K for the year ended
December 31, 1997, with material developments since that report described in the
Company's Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, and
below. While it is not possible to predict accurately or to determine the
eventual outcome of these matters, the Company believes that the outcome of
these proceedings will not have a material adverse effect on the annual
financial statements of the Company.
Securities litigation
On August 7, 1998, two substantially related class action complaints were
filed against the Company and certain of its current and former officers in the
United States District Court for the Central District of California and in the
California Superior Court for the County of Ventura. The actions were filed by
the same law firm on behalf of different named plaintiffs. The respective
plaintiff groups seek to represent the same class of investors who purchased
Amgen common stock between January 23, 1997 and August 11, 1997 (the alleged
"Class Period"). Both complaints allege that the market price of the Company's
common stock was artificially inflated during the Class Period as a result of
alleged misrepresentations made to the investing public. The complaints allege
that Amgen and several of its senior executives issued false statements
regarding:
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(i) the demand for and sales growth of two of Amgen's products, EPOGEN(R) and
NEUPOGEN(R); (ii) an arbitration proceeding between Amgen and Johnson & Johnson
regarding entitlement to millions of dollars in "spillover" sales of EPOGEN(R);
and (iii) Amgen's 1996 fourth quarter and 1997 first and second quarter results.
The plaintiffs seek to recover damages on behalf of all purchasers of Amgen
common stock during the Class Period. The Company has obtained a stay of the
California state court action pending resolution of the federal action and has
not yet responded in the federal action.
INFERGEN(R) litigation
On December 3, 1996, Schering Corporation filed suit in the U.S. District
Court for the District of Delaware (the "Delaware Court") against the Company
alleging infringement of U.S. Patent No. 4,530,901 (the "`901 Patent") by the
manufacture and use of INFERGEN(R). The complaint seeks unspecified damages and
injunctive relief. Biogen has been added as a plaintiff in the Delaware action.
On July 30, 1998, the Delaware Court entered an order construing the meaning of
the claims of the `901 Patent. The Delaware Court limited the scope of the
claims to include DNAs that encode only "an immature, fused, and/or incomplete
form" of Interferon-alpha-1. On October 9, 1998, Schering's motion for re-
argument of the Delaware Court's claim construction was denied. On October 30,
1998, Schering and Biogen filed a motion with the Delaware Court seeking entry
of a judgment in favor of Amgen that Infergen(R) does not infringe the `901
Patent. Schering and Biogen indicated their intent to appeal the Delaware
Court's claim construction to the Court of Appeals for the Federal Circuit.
Schering's and Biogen's motion also seeks dismissal of Amgen's counterclaims as
moot.
FoxMeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation, now known as Avatex
Corporation ("Avatex"), filed suit (the "FoxMeyer Lawsuit") in the District
Court of Dallas County, Dallas, Texas, alleging that defendant McKesson
Corporation ("McKesson") defrauded Avatex, misused confidential information
received from Avatex about subsidiaries of Avatex (FoxMeyer Corporation and
FoxMeyer Drug Corporation, collectively the "FoxMeyer Subsidiaries"), and
attempted to monopolize the market for pharmaceutical and health care product
distribution by attempting to injure or destroy the FoxMeyer Subsidiaries. The
Company is named as one of twelve "Manufacturer Defendants" alleged to have
conspired with McKesson Corporation in doing, among other things, the above and
(i) inducing Avatex to refrain from seeking other suitable purchasers for the
FoxMeyer Subsidiaries and (ii) causing Avatex to believe that McKesson was
serious about purchasing Avatex's assets at fair value, when, in fact, McKesson
was not. The Manufacturer Defendants and McKesson are also alleged to have
intentionally and tortiously interfered with a number of business expectancies
and opportunities. The complaint seeks from the Manufacturer Defendants and
McKesson compensatory damages of at least $400 million and punitive damages in
an unspecified amount, as well as Avatex's costs and attorney's fees. The
Company has filed an answer denying Avatex's allegations. The matter has been
transferred to the Federal Bankruptcy Court in
27
<PAGE>
Dallas, Texas (the "Texas Bankruptcy Court"). McKesson and the Manufacturer
Defendants have intervened in an action brought by the Chapter 7 trustee in the
Federal Bankruptcy Court in Delaware (the "Delaware Bankruptcy Court") that
seeks to enjoin the FoxMeyer Lawsuit and have moved for partial summary judgment
in that proceeding, asserting that Avatex is not the owner of the alleged causes
of action; the interim Delaware bankruptcy judge has denied this motion with
prejudice. McKesson and the Manufacturer Defendants have moved for summary
judgment in the Delaware Bankruptcy Court to preclude Avatex and the Chapter 7
trustee from litigating in Delaware the claims brought in the Texas Bankruptcy
Court; this motion is under advisement. The Avatex antitrust counts have been
dismissed with prejudice as to Avatex; at this time the trustee has not
determined whether it will seek to reassert those counts or any of the
additional counts in the FoxMeyer Lawsuit. Although the Texas Bankruptcy Court
has a motion to remand under consideration, it has established a pretrial
schedule under which discovery has commenced. Counsel must certify ready for
trial by September 13, 1999.
Johnson & Johnson arbitrations
The Company is engaged in arbitration proceedings with one of its licensees.
See Note 4 to the Condensed Consolidated Financial Statements, "Contingencies -
Johnson & Johnson arbitrations".
Item 5. Other Information
The Company's 1999 Annual Meeting of Stockholders (the "Annual Meeting")
will be held on May 4, 1999.
Stockholders interested in presenting a proposal for consideration at the
Company's Annual Meeting may do so by following the procedures prescribed in
Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Company's Amended and Restated Bylaws (the "Bylaws"). The
Company's Bylaws provide that stockholders desiring to nominate persons for
election to the Board of Directors or to bring any other business before the
stockholders at the Annual Meeting must notify the Secretary of the Company
thereof in writing and such notice must be delivered to or received by the
Secretary no later than 90 days prior to the Annual Meeting, or, no later than
February 3, 1999. The Bylaws also contain other requirements as to the contents
of such notice which are discussed in the Company's 1998 proxy statement and in
the Bylaws, a copy of which are filed as an exhibit to this Form 10-Q.
Additionally, to be eligible for inclusion in the Company's 1999 proxy
statement, stockholder proposals must be received by the Company's Secretary no
later than December 4, 1998. While the Board of Directors will consider
stockholder proposals, the Company however reserves the right to omit from the
1999 proxy statement stockholder proposals that it is not required to include
under the Exchange Act, including Rule 14a-8 thereunder.
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) Reports on Form 8-K - none
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 11/13/98 By:/s/Kathryn E. Falberg
- ------------------ ------------------------------------
Kathryn E. Falberg
Vice President, Finance,
Chief Financial Officer and
Chief Accounting Officer
30
<PAGE>
AMGEN INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Certificate of Incorporation as amended. (17)
3.2* Amended and Restated Bylaws.
4.1 Indenture dated January 1, 1992 between the Company and Citibank
N.A., as trustee. (8)
4.2 First Supplement to Indenture, dated February 26, 1997 between the
Company and Citibank N.A., as trustee. (14)
4.3 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, as supplemented, establishing a series of securities
"8-1/8% Debentures due April 1, 2097." (16)
4.4 8-1/8% Debentures due April 1, 2097. (16)
4.5 Form of stock certificate for the common stock, par value $.0001 of
the Company. (17)
4.6 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, dated as of January 1, 1992, as supplemented by the First
supplemental Indenture, dated as of February 26, 1997, each between
the Company and Citibank, N.A., as Trustee, establishing a series of
securities entitled "6.50% Notes Due December 1, 2007". (20)
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.7. (20)
4.8 Corporate Commercial Paper - Master Note between and among Amgen
Inc., as Issuer, Cede & Co., as nominee of The Depository Trust
Company and Citibank, N.A. as Paying Agent. (23)
10.1* Company's Amended and Restated 1991 Equity Incentive Plan.
10.2 Company's Amended and Restated 1984 Stock Option Plan. (12)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984,
between the Company and Kirin Brewery Company, Limited (with certain
confidential information deleted therefrom). (1)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and
December 19, 1985, respectively, to the Shareholder's Agreement of
Kirin-Amgen, Inc., dated May 11, 1984 (with certain confidential
information deleted therefrom). (3)
10.5 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated, September 30, 1985 between the Company and
Ortho Pharmaceutical Corporation (with certain confidential
information deleted therefrom). (2)
10.6 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated September 30, 1985 between Kirin-Amgen,
Inc. and Ortho Pharmaceutical
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
Corporation (with certain confidential information deleted
therefrom). (3)
10.7 Company's Amended and Restated Employee Stock Purchase Plan. (12)
10.8 Research, Development Technology Disclosure and License Agreement
PPO, dated January 20, 1986, by and between the Company and Kirin
Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986 (effective July 1,
1986) and December 6, 1986 (effective July 1, 1986), respectively,
to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11,
1984 (with certain confidential information deleted therefrom). (5)
10.10 Assignment and License Agreement, dated October 16, 1986, between
the Company and Kirin-Amgen, Inc. (with certain confidential
information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30, 1986, between
Kirin-Amgen, Inc. and the Company (with certain confidential
information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and License
Agreement: GM-CSF, dated March 31, 1987, between Kirin Brewery
Company, Limited and the Company (with certain confidential
information deleted therefrom). (5)
10.13 Company's Amended and Restated 1988 Stock Option Plan. (12)
10.14 Company's Amended and Restated Retirement and Savings Plan. (12)
10.15 Amendment, dated June 30, 1988, to Research, Development, Technology
Disclosure and License Agreement: GM-CSF dated March 31, 1987,
between Kirin Brewery Company, Limited and the Company. (6)
10.16 Agreement on G-CSF in Certain European Countries, dated January 1,
1989, between Amgen Inc. and F. Hoffmann-La Roche & Co. Limited
Company (with certain confidential information deleted therefrom).
(7)
10.17 Partnership Purchase Agreement, dated March 12, 1993, between the
Company, Amgen Clinical Partners, L.P., Amgen Development
Corporation, the Class A limited partners and the Class B limited
partner. (9)
10.18 Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective January 1, 1998). (23)
10.19 Promissory Note of Mr. Kevin W. Sharer, dated June 4, 1993. (10)
10.20 Amgen Performance Based Management Incentive Plan. (15)
10.21 Credit Agreement, dated as of May 28, 1998, among Amgen Inc., the
Borrowing Subsidiaries named therein, the Banks named therein,
Citibank, N.A., as Issuing Bank, and Citicorp USA, Inc., as
Administrative Agent. (24)
10.22 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.23 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.24 Promissory Note of Mr. Stan Benson, dated March 19, 1996. (11)
10.25 Amendment No. 1 to the Company's Amended and Restated Retirement and
Savings Plan. (12)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
10.26 Amendment Number 5 to the Company's Amended and Restated Retirement
and Savings Plan dated January 1, 1993. (15)
10.27 Amendment Number 2 to the Company's Amended and Restated Retirement
and Savings Plan dated April 1, 1996. (15)
10.28 Fourth Amendment to Rights Agreement, dated February 18, 1997
between Amgen Inc. and American Stock Transfer and Trust Company,
Rights Agent. (13)
10.29 Preferred Share Rights Agreement, dated February 18, 1997, between
Amgen Inc. and American Stock Transfer and Trust Company, Rights
Agent. (13)
10.30 Consulting Agreement, dated November 15, 1996, between the Company
and Daniel Vapnek. (15)
10.31 Agreement, dated May 30, 1995, between the Company and George A.
Vandeman. (15)
10.32 First Amendment, effective January 1, 1998, to the Company's Amended
and Restated Employee Stock Purchase Plan. (18)
10.33 Third Amendment, effective January 1, 1997, to the Company's Amended
and Restated Retirement and Savings Plan dated April 1, 1996. (18)
10.34 Heads of Agreement dated April 10, 1997, between the Company and
Kirin Amgen, Inc., on the one hand, and F. Hoffmann-La Roche Ltd, on
the other hand (with certain confidential information deleted
therefrom). (18)
10.35 Binding Term Sheet, dated August 20, 1997, between Guilford
Pharmaceuticals Inc. ("Guilford") and GPI NIL Holdings, Inc., and
Amgen Inc. (with certain confidential information deleted
therefrom). (19)
10.36 Promissory Note of Ms. Kathryn E. Falberg, dated April 7, 1995. (21)
10.37 Promissory Note of Mr. Edward F. Garnett, dated July 18, 1997. (21)
10.38 Fourth Amendment to the Company's Amended and Restated Retirement
and Savings Plan as amended and restated effective April 1, 1996.
(21)
10.39 Fifth Amendment to the Company's Amended and Restated Retirement and
Savings Plan as amended and restated effective April 1, 1996. (21)
10.40 Company's Amended and Restated 1987 Directors' Stock Option Plan.
(15)
10.41 Amended and Restated Agreement on G-CSF in the EU between Amgen Inc.
and F. Hoffmann-La Roche Ltd (with certain confidential information
deleted therefrom). (23)
10.42 Collaboration and License Agreement, dated December 15, 1997,
between the Company, GPI NIL Holdings, Inc. and Guilford
Pharmaceuticals Inc. ("Guilford") (with certain confidential
information deleted therefrom). (22)
27* Financial Data Schedule.
99* Sections appearing under the heading "Factors That May Affect
Amgen."
</TABLE>
- ----------------
* Filed herewith.
33
<PAGE>
(1) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
March 31, 1984 on June 26, 1984 and incorporated herein by reference.
(2) Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1985 on November 14, 1985 and incorporated herein by
reference.
(3) Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
December 31, 1985 on February 3, 1986 and incorporated herein by reference.
(4) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement
(Registration No. 33-3069) on March 11, 1986 and incorporated herein by
reference.
(5) Filed as an exhibit to the Form 10-K Annual Report for the year ended
March 31, 1987 on May 18, 1987 and incorporated herein by reference.
(6) Filed as an exhibit to Form 8 amending the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988 on August 25, 1988 and incorporated
herein by reference.
(7) Filed as an exhibit to the Form 8 dated November 8, 1989, amending the
Annual Report on Form 10-K for the year ended March 31, 1989 on June 28,
1989 and incorporated herein by reference.
(8) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1993 on November 12, 1993 and incorporated herein by reference.
(11) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1995 on March 29, 1996 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1996 on November 5, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to the Form 8-K Current Report dated February 18, 1997
on February 28, 1997 and incorporated herein by reference.
(14) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(15) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(16) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997
on May 13, 1997 and incorporated herein by reference.
(18) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997 on
August 12, 1997 and incorporated herein by reference.
(19) Filed as exhibit 10.47 to the Guilford Form 8-K Current Report dated August
20, 1997 on September 4, 1997 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
34
<PAGE>
(21) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997 on March 24, 1998 and incorporated herein by reference.
(22) Filed as Exhibit 10.40 to the Guilford Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
(23) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998
on May 13, 1998 and incorporated herein by reference.
(24) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1998 on
August 14, 1998 and incorporated herein by reference.
35
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
AMGEN INC.
(AS AMENDED OCTOBER 20, 1998)
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
AMGEN INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation
-----------------
in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The corporation also shall have and maintain
-------------
an office or principal place of business at such place as may be fixed by the
Board of Directors, and also may have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
--------------
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
-----------------
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting. The annual meeting of the stockholders of
--------------
the corporation shall be held on any date and time which may from time to time
be designated by the Board of Directors. At such annual meeting, directors
shall be elected and any other business may be transacted that may properly come
before the meeting.
Section 6. Special Meetings. Special meetings of the stockholders of
----------------
the corporation may be called, for any purpose or
1
<PAGE>
purposes, by the Chairman of the Board of Directors ("Chairman of the Board"),
the Chief Executive Officer, the President, or the Board of Directors at any
time.
Section 7. Notice of Meetings. Except as otherwise provided by law or
------------------
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
------
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the voting power represented at any
meeting at which a quorum is present shall be valid and binding upon the
corporation.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting
--------------------------------------------
of stockholders, whether annual or special, may be adjourned from time to time
by the vote of a majority of the shares, the holders of which are present either
in person or by proxy. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed
2
<PAGE>
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
-------------
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted on after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
Section 11. Joint Owners of Stock. If shares or other securities having
---------------------
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of this
subsection (c) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make,
--------------------
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
3
<PAGE>
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. No Action Without Meeting. Any action required or permitted
-------------------------
to be taken by the stockholders of the corporation must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders.
Section 14. Organization. At every meeting of stockholders, the
------------
Chairman of the Board, or, if the Chairman of the Board is absent, the Chief
Executive Officer, or, if the Chief Executive Officer is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the Chief Executive Officer, shall act as
secretary of the meeting.
Section 15. Notifications of Nominations and Proposed Business.
--------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(x) nominations for the election of directors, and
(y) business proposed to be brought before any stockholder meeting,
may be made by the Board of Directors or a proxy committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of his intent to make such nomination or nominations or to
propose such business. To be timely, a stockholder's notice must be delivered
to or mailed and received by the Secretary of the corporation not later than 90
days prior to such meeting; provided, however, that in the event that less than
100 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 received
not later than the close of business on the 10th day following the date on which
such notice of the date of such meeting was mailed or such public disclosure was
made. To be in proper written form, a stockholder's notice to the Secretary
shall set forth:
(a) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may
4
<PAGE>
be, of the person or persons to be nominated or of the business to be proposed;
(b) a representation that the stockholder is a holder of record of stock of
the corporation entitled to vote at such meeting and, if applicable, intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice;
(c) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder;
(d) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the Board of
Directors; and
(e) if applicable, the consent of each nominee to serve as director of the
corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
ARTICLE IV
Directors
Section 16. Number. The authorized number of directors of the
------
corporation shall be fixed from time to time by the Board of Directors. The
number of directors presently authorized is nine. Directors need not be
stockholders unless so required by the Certificate of Incorporation. If for any
cause the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
Section 17. Classes of Directors. The Board of Directors shall be
--------------------
divided into three classes: Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a term ending
on the date of the third annual meeting of stockholders following the annual
meeting at which the director was elected. Notwithstanding the foregoing
provisions of this section, each director shall serve until his successor is
duly elected and qualified or until his death, resignation or removal.
5
<PAGE>
Section 18. Newly Created Directorships and Vacancies. In the event
-----------------------------------------
of any increase or decrease in the authorized number of directors, the newly
created or eliminated directorships resulting from such increase or decrease
shall be apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal in number as possible.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office (and not by stockholders), even though less
than a quorum of the authorized Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successors shall have
been elected and qualified.
Section 19. Powers. The powers of the corporation shall be exercised,
------
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 20. Resignation. Any director may resign at any time by
-----------
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 21. Removal. At a special meeting of stockholders called for
-------
the purpose in the manner hereinabove provided, the Board of Directors, or any
individual director, may be removed from office, with cause, and one or more new
directors may be elected, by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of Directors.
Section 22. Meetings.
--------
(a) Annual Meetings. The annual meeting of the Board of Directors
---------------
shall be held on the date of the annual meeting of stockholders and at the place
where such meeting is held. No
6
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notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
----------------
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors also may be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all Directors.
(c) Special Meetings. Unless otherwise restricted by the Certificate
----------------
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the Chief Executive Officer, the President or a majority
of the Directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of
------------------
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Written notice of the time and place of all
------------------
regular and special meetings of the Board of Directors shall be given at least
one (1) day before the date of the meeting. Notice of any meeting may be waived
in writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any meeting
----------------
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though taken at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the Directors not present sign a written waiver of notice,
or a consent to holding such meeting, or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 23. Quorum and Voting.
-----------------
(a) Quorum. Unless the Certificate of Incorporation requires a
------
greater number, a quorum of the Board of Directors
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shall consist of a majority of the exact number of Directors fixed from time to
time in accordance with Section 16 of these Bylaws, but not less than one (1);
provided, however, at any meeting whether a quorum is present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) Majority Vote. At each meeting of the Board of Directors at
-------------
which a quorum is present all questions and business shall be determined by a
vote of a majority of the Directors present, unless a different vote is required
by law, the Certificate of Incorporation or these Bylaws.
Section 24. Action without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 25. Fees and Compensation. Directors shall not receive any
---------------------
stated salary for their services as Directors, but by resolution of the Board of
Directors a fixed fee, with or without expense of attendance, may be allowed for
serving on the Board of Directors and/or attendance at each meeting and at each
meeting of any committee of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent, consultant, employee, or otherwise and
receiving compensation therefor.
Section 26. Committees.
----------
(a) Executive Committee. The Board of Directors may by resolution
-------------------
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation (except that the 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 by law, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the
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corporation or the conversion into, or the exchange of such shares for shares of
any other class or classes or any other series of the same or any other class or
classes of stock of the corporation), to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, to recommend
to the stockholders a dissolution of the corporation or a revocation of a
dissolution or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by resolution
----------------
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors shall
----
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Section 26, may at any time increase or decrease the number of
members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
--------
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 26 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 2 hereof, or at any place which has been
designated from time to time by resolution of such committee or
9
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by written consent of all members thereof, and may be called by any director who
is a member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting given in the manner
provided for the giving of written notice to members of the Board of Directors
of the time and place of special meetings of the Board of Directors. Notice of
any special meeting of any committee may be waived in writing at any time before
or after the meeting and will be waived by any director by attendance thereat,
except when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
Section 27. Organization. At every meeting of the directors, the
------------
Chairman of the Board, or, if the Chairman of the Board is absent, the Chief
Executive Officer, or if the Chief Executive Officer is absent, the President,
or if the President is absent, the most senior Vice President, or, in the
absence of any such officer, a chairman of the meeting chosen by a majority of
the directors present, shall preside over the meeting. The Secretary, or in his
absence, an Assistant Secretary directed to do so by the Chief Executive
Officer, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 28. Officers Designated. The officers of the corporation shall
-------------------
be the Chairman of the Board, the Chief Executive Officer, the President and
Chief Operating Officer, one or more Vice Presidents, the Chief Financial
Officer and the Secretary, all of whom shall be elected at the annual meeting of
the Board of Directors. The Board of Directors also may appoint such other
officers and agents with such powers and duties as it shall deem necessary. The
order of the seniority of the Vice Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors.
Section 29. Tenure and Duties of Officers.
-----------------------------
(a) General. All officers shall hold office at the pleasure of the
-------
Board of Directors and until their successors
10
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shall have been duly elected and qualified, unless sooner removed. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
Board of Directors. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board. The Chairman of the Board,
-------------------------------
subject to the control of the Board of Directors, shall perform such duties and
functions as are necessary to further the strategic direction of the
corporation. Unless the Board of Directors designates another person, the
Chairman of the Board shall preside at all meetings of the stockholders, the
Board of Directors and of the Executive Committee.
(c) Duties of Chief Executive Officer. The Chief Executive Officer,
---------------------------------
at the request of the Chairman of the Board or upon his absence or disability,
or in the event of a vacancy in the office of Chairman of the Board, shall
exercise all the powers of Chairman of the Board as provided in Subsection
29(b). The Chief Executive Officer shall, subject to the control of the Board
of Directors, exercise general management and supervision over the property,
affairs and business of the corporation and shall authorize officers of the
corporation, other than the Chairman of the Board, to exercise such powers as
he, in his discretion, may deem to be in the best interests of the corporation.
The Chief Executive Officer shall in general perform all duties incident to
general management and supervision of the corporation and such other duties as
the Board of Directors shall designate from time to time.
(d) Duties of President and Chief Operating Officer. The President
-----------------------------------------------
and Chief Operating Officer, at the request of the Chief Executive Officer or
upon his absence or disability, or in the event of a vacancy in the office of
Chief Executive Officer, shall exercise all the powers of Chief Executive
Officer as provided in Subsection 29(c). The President and Chief Operating
Officer shall, subject to the control of the Chief Executive Officer and the
Board of Directors, exercise general management and supervision over the
operating functions of the corporation, and shall authorize officers of the
corporation, other than the Chairman of the Board and the Chief Executive
Officer, to exercise such powers with respect to the operating function of the
corporation as he, in his discretion, may deem to be in the best interests of
the corporation. The President and Chief Operating Officer shall perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time.
(e) Duties of Vice Presidents. The Vice Presidents, in the order of
-------------------------
their seniority, may assume and perform the duties of the President and Chief
Operating Officer in the absence or disability of the Chief Executive Officer
and the President and Chief Operating Officer or whenever the offices of Chief
Operating Officer and President and Chief Operating Officer
11
<PAGE>
are vacant. The Vice Presidents shall perform other duties commonly incident to
their office and also shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer, or the President and
Chief Operating Officer shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer
---------------------------------
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner, and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and also shall perform such other duties
and have such other powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time. The Chief Executive Officer may
direct any Assistant Chief Financial Officer to assume and perform the duties of
the Chief Financial Officer in the absence or disability of the Chief Financial
Officer, and each Assistant Chief Financial Officer shall perform other duties
commonly incident to his office and also shall perform such other duties and
have such other powers as the Board of Directors or the Chief Executive Officer
shall designate from time to time.
(g) Duties of Secretary. The Secretary shall attend all meetings of
-------------------
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute books of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and also shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The Chief Executive Officer may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and also shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
Section 30. Resignations. Any officer may resign at any time by giving
------------
written notice to the Board of Directors or to the Chief Executive Officer or to
the President or to the Secretary. Any such resignation shall be effective when
received by the person or persons to whom such notice is given, unless a later
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective.
12
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Section 31. Removal. Any officer may be removed from office at any
-------
time, with or without cause, by the vote or written consent of a majority of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
Section 32. Compensation. The compensation of the officers shall be
------------
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 33. Execution of Corporate Instruments. The Board of Directors
----------------------------------
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board, or the Chief Executive Officer, or the President or any Vice
President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Section 34. Voting of Securities Owned by the Corporation. All stock
---------------------------------------------
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized to do so by
resolution of the Board of Directors, or, in the
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absence of such authorization, by the Chairman of the Board, the Chief Executive
Officer, the President, or any Vice President.
ARTICLE VII
Shares of Stock
Section 35. Form and Execution of Certificates. The shares of the
----------------------------------
corporation shall be represented by certificates, provided that the Board of
Directors of the corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the corporation by, the Chairman of the Board or any vice-
chairman of the Board of Directors, or the Chief Executive Officer, or the
President or any Vice-President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the corporation representing the
number of shares registered in certificate form. Any or all the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 36. Lost Certificates. The corporation may issue a new
-----------------
certificate of stock or uncertificated shares in place of any certificate
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against the
corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
Section 37. Transfers. Transfers of record of shares of stock of the
---------
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
Section 38. Fixing Record Dates. In order that the corporation may
-------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend
14
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or other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed: (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 39. Registered Stockholders. The corporation shall be entitled
-----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
Section 40. Issuance, Transfer and Resignation of Shares. The Board of
--------------------------------------------
Directors may make such rules and regulations, not inconsistent with law or with
these Bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.
ARTICLE VIII
Other Securities of the Corporation
Section 41. Execution of Other Securities. All bonds, debentures and
-----------------------------
other corporate securities of the corporation, other than stock certificates,
may be signed by the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an
15
<PAGE>
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
Dividends
Section 42. Declaration of Dividends. Dividends upon the capital stock
------------------------
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 43. Dividend Reserve. Before payment of any dividend, there may
----------------
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors may from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Fiscal Year
Section 44. Fiscal Year. Unless otherwise fixed by resolution of the
-----------
Board of Directors, effective as of January 1, 1992, the fiscal year of the
corporation shall end on the 31st day of the month of December in each calendar
year.
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ARTICLE XI
Indemnification of Directors, Officers
Employees and Other Agents
Section 45. Indemnification of Directors, Officers, Employees and
-----------------------------------------------------
Other Agents.
- ------------
(a) Directors and Officers. The corporation shall indemnify its
----------------------
directors and officers to the full extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said Law permitted
the corporation to provide prior to such amendment); provided, further, that the
-------- -------
corporation shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such person or any
proceeding by such person against the corporation or its directors, officers,
employees or other agents unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation or (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law, or (iv) such indemnification is required
to be made under subsection (d) of this Article XI.
(b) Other Employees and Other Agents. The corporation shall have the
--------------------------------
power to indemnify its other employees and other agents as set forth in the
Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was or
--------
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of any such proceeding,
promptly following request therefor, all expenses incurred by any director or
officer in connection with such proceeding upon receipt of any undertaking by or
on behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under this Bylaw
or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (d) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation in any action, suit or proceeding, whether civil,
criminal, administrative or investigate, if a determination is reasonably
17
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and promptly made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (2) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion that,
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not reasonably believe to be in or not opposed
to the best interests of the corporation, or, with respect to any criminal
action or proceeding, such person believed or had reasonable cause to believe
his conduct was unlawful, except by reason of the fact that such officer is or
was a director of the corporation or is or was serving at the request of the
corporation as a director of another corporation, joint venture, trust or other
enterprise in which event this paragraph shall not apply.
(d) Enforcement. Without the necessity of entering into an express
-----------
contract, all rights to indemnification and advances under this Bylaw shall be
deemed to be contractual rights and be effective to the same extent and as if
provided for in a contract between the corporation and the director or officer
who serves in such capacity at any time while this Bylaw and other relevant
provisions of the Delaware General Corporation Law and other applicable law, if
any, are in effect. Any right to indemnification or advances granted by this
Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation or is or was serving at the request of the corporation as a
director of another corporation, partnership, joint venture, trust or other
enterprise) for advances, the corporation shall be entitled to raise a defense
as to any such action clear and convincing evidence that such person acted in
bad faith or in a manner that such person did not reasonably believe to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, such person believed or had reasonable cause to
believe his conduct was unlawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that
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indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the burden
of proving that the director or officer is not entitled to be indemnified, or to
such advancement of expenses, under this Article XI or otherwise shall be on the
corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by
-------------------------
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, as provided by law.
(f) Survival of Rights. The rights conferred on any person by this
------------------
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
---------
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only
----------
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Savings Clause. If this Bylaw or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent permitted by any applicable portion of this Bylaw that shall not have
been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
-------------------
following definitions shall apply:
19
<PAGE>
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other
costs and expenses of any nature or kind incurred in connection with
any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(iv) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the
corporation as, respectively, a director, officer, employee, trustee
or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an
20
<PAGE>
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in
this Bylaw.
ARTICLE XII
Notices
Section 46. Notices.
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(a) Notice to Stockholders. Whenever under any provisions of these
----------------------
Bylaws notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any
-------------------
director may be given by the method stated in subsection (a), or by telegram,
except that such notice other than one which is delivered personally shall be
sent to such address as such director shall have filed in writing with the
Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(c) Address Unknown. If no address of a stockholder or director be
---------------
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by a
--------------------
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as above
-------------------------
provided, shall be deemed to have been given as at the time of mailing and all
notices given by telegram shall be deemed to have been given as at the sending
time recorded by the telegraph company transmitting the notices.
(f) Methods of Notice. It shall not be necessary that the same
-----------------
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of time
-------------------------
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be
21
<PAGE>
required to act, or within which any director may exercise any power or right,
or enjoy any privilege, pursuant to any notice sent him in the manner above
provided, shall not be affected or extended in any manner by the failure of such
stockholder or such director to receive such notice.
(h) Notice to Person with Whom Communication Is Unlawful. Whenever
----------------------------------------------------
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
ARTICLE XIII
Amendments
Section 47. Amendments. These Bylaws may be repealed, altered or
----------
amended or new Bylaws adopted by the affirmative vote of the holders of not less
than sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of
stock entitled to vote upon the election of directors. The Board of Directors
also shall have the authority, if such authority is conferred upon the Board of
Directors by the Certificate of Incorporation, to repeal, alter or amend these
Bylaws or adopt new Bylaws (including, without limitation, the amendment of any
Bylaw setting forth the number of directors who shall constitute the whole Board
of Directors) subject to the foregoing power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, term of office or
compensation of directors.
22
<PAGE>
ARTICLE XIV
Loans of Officers and Others
Section 48. 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 who is a director of the
corporation or its parent or any 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.
23
<PAGE>
EXHIBIT 10.1
AMGEN INC.
AMENDED AND RESTATED 1991 EQUITY INCENTIVE PLAN
-----------------------------------------------
1. PURPOSE.
-------
(a) The purpose of the Amended and Restated 1991 Equity Incentive
Plan (the "Plan") is to provide a means by which employees or directors of and
consultants to Amgen Inc., a Delaware corporation (the "Company"), and its
Affiliates, as defined in paragraph 1(b), directly, or indirectly through
Trusts, may be given an opportunity to benefit from increases in value of the
stock of the Company through the granting of (i) incentive stock options, (ii)
nonqualified stock options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services
of persons now employed by or serving as directors or consultants to the
Company, to secure and retain the services of persons capable of filling such
positions, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
(d) The Company intends that the rights issued under the Plan ("Stock
Awards") shall, in the discretion of the Board of Directors of the Company (the
"Board") or any committee to which responsibility for administration of the Plan
has been delegated pursuant to paragraph 2(c), be either (i) stock options
granted pursuant to Sections 5 or 6 hereof, including incentive stock options as
that term is used in Section 422 of
<PAGE>
the Code ("Incentive Stock Options"), or options which do not qualify as
Incentive Stock Options ("Nonqualified Stock Options") (together hereinafter
referred to as "Options"), or (ii) stock bonuses or rights to purchase
restricted stock granted pursuant to Section 7 hereof.
(e) The word "Trust" as used in the Plan shall mean a trust created
for the benefit of the employee, director or consultant, his or her spouse, or
members of their immediate family. The word optionee shall mean the person to
whom the option is granted or the employee, director or consultant for whose
benefit the option is granted to a Trust, as the context shall require.
2. ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a committee, as provided in paragraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonqualified
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to purchase or receive stock pursuant to a Stock Award; and the number
of shares with respect to which Stock Awards shall be granted to each such
person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award, in a manner
and to the extent it shall deem necessary or expedient to make the
-2-
<PAGE>
Plan fully effective.
(3) To amend the Plan as provided in Section 15.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). One
or more of these members may be non-employee directors and outside directors, if
required and as defined by the provisions of paragraphs 2(d) and 2(e). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (except amendment of Section 6 or the options granted thereunder
shall only be by action taken by the Board or a committee of one or more members
of the Board to which such authority has been specifically delegated by the
Board), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.
Notwithstanding anything else in this paragraph 2(c) to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant or amend options to all employees,
directors or consultants or any portion or class thereof.
(d) The term "non-employee director" shall mean a member of the Board
who (i) is not currently an officer of the Company or a parent or subsidiary of
the Company (as defined in Rule 16a-1(f) promulgated by the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or an employee of the Company or a parent or
subsidiary of the Company; (ii) does not receive compensation from the Company
or a parent or subsidiary of the Company for services rendered in any capacity
other than as a member of the Board (including a consultant) in an amount
required to be disclosed to the Company's stockholders under Rule 404 of
Regulation S-K promulgated by the Securities and
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<PAGE>
Exchange Commission ("Rule 404"); (iii) does not possess an interest in any
other transaction required to be disclosed under Rule 404; or (iv) is not
engaged in a business relationship required to be disclosed under Rule 404, as
all of these provisions are interpreted by the Securities and Exchange
Commission under Rule 16b-3 promulgated under the Exchange Act.
(e) The term "outside director," as used in this Plan, shall mean an
administrator of the Plan, whether a member of the Board or of any Committee to
which responsibility for administration of the Plan has been delegated pursuant
to paragraph 2(c), who is considered to be an "outside director" in accordance
with the rules, regulations or interpretations of Section 162(m) of the Code.
(f) Any requirement that an administrator of the Plan be a "non-
employee director" or "outside director" shall not apply if the Board or the
Committee expressly declares that such requirement shall not apply.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
granted under the Plan shall not exceed in the aggregate Forty Eight Million
(48,000,000) shares of the Company's $.0001 par value common stock (the "Common
Stock"). If any Stock Award granted under the Plan shall for any reason expire
or otherwise terminate without having been exercised in full, the Common Stock
not purchased under such Stock Award shall again become available for the Plan.
Shares repurchased by the Company pursuant to any repurchase rights reserved by
the Company pursuant to the Plan shall not be available for subsequent issuance
under the Plan.
(b) The Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(c) An Incentive Stock Option may be granted to an eligible person
under the Plan only if the aggregate fair market
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<PAGE>
value (determined at the time the Incentive Stock Option is granted) of the
Common Stock with respect to which incentive stock options (as defined by the
Code) are exercisable for the first time by such optionee during any calendar
year under all such plans of the Company and its Affiliates does not exceed one
hundred thousand dollars ($100,000). If it is determined that an entire Option
or any portion thereof does not qualify for treatment as an Incentive Stock
Option by reason of exceeding such maximum, such Option or the applicable
portion shall be considered a Nonqualified Stock Option.
4. ELIGIBILITY.
-----------
(a) Incentive Stock Options may be granted only to employees
(including officers) of the Company or its Affiliates. A director of the
Company shall not be eligible to receive Incentive Stock Options unless such
director is also an employee of the Company or any Affiliate. Stock Awards
other than Incentive Stock Options may be granted to employees (including
officers) or directors of or consultants to the Company or any Affiliate or to
Trusts of any such employee, director or consultant.
(b) A director shall in no event be eligible for the benefits of the
Plan (other than from a Director NQSO under Section 6 of the Plan) unless and
until such director is expressly declared eligible to participate in the Plan by
action of the Board or the Committee, and only if, at any time discretion is
exercised by the Board or the Committee in the selection of a director as a
person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to a director, the
Plan complies with the requirements of Rule 16b-3 promulgated under the Exchange
Act, as from time to time in effect. The Board shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, as from time to
time in effect. Notwithstanding the foregoing, the restrictions set forth in
this paragraph 4(b) shall not apply if the Board or
-5-
<PAGE>
Committee expressly declares that such restrictions shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock
Option under the Plan if, at the time of grant, such person owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the exercise price of such Incentive
Stock Option is at least one hundred and ten percent (110%) of the fair market
value of the Common Stock at the date of grant and the Incentive Stock Option is
not exercisable after the expiration of five (5) years from the date of grant.
(d) Stock Awards shall be limited to a maximum of 500,000 shares of
Common Stock per person per calendar year, which reflects the Company's two for
one stock split in August 1995.
5. TERMS OF DISCRETIONARY STOCK OPTIONS.
------------------------------------
An option granted pursuant to this Section 5 (a "Discretionary Stock
Option") shall be in such form and shall contain such terms and conditions as
the Board or the Committee shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each Incentive Stock Option and each
Nonqualified Stock Option shall be not less than one hundred percent (100%) of
the fair market value of the Common Stock subject to the Option on the date the
Option is granted.
(c) The purchase price of Common Stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either: (i) in cash at the time the Option is exercised; or (ii) at the
discretion of the
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<PAGE>
Board or the Committee, either at the time of grant or exercise of the Option
(A) by delivery to the Company of shares of Common Stock that have been held for
the period required to avoid a charge to the Company's reported earnings and
valued at the fair market value on the date of exercise, (B) according to a
deferred payment or other arrangement with the person to whom the Option is
granted or to whom the Option is transferred pursuant to paragraph 5(d), or (C)
in any other form of legal consideration that may be acceptable to the Board or
the Committee in their discretion; including but not limited to payment of the
purchase price pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board which results in the receipt of cash (or a check)
by the Company before Common Stock is issued or the receipt of irrevocable
instruction to pay the aggregate exercise price of the Company from the sales
proceeds before Common Stock is issued.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at not less than the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) An Option granted to a natural person shall be exercisable during
the lifetime of such person only by such person, provided that such person
during such person's lifetime may designate a Trust to be such person's
beneficiary with respect to any Incentive Stock Options granted after February
25, 1992 and with respect to any Nonqualified Stock Options, and such
beneficiary shall, after the death of the person to whom the Option was granted,
have all the rights that such person has while living, including the right to
exercise the Option. In the absence of such designation, after the death of the
person to whom the Option is granted, the Option shall be exercisable by the
person or persons to whom the optionee's rights under such Option pass by will
or by the laws of descent and distribution.
-7-
<PAGE>
(e) The total number of shares of Common Stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). From time to time during each of such installment periods, the
Option may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the Option
was not fully exercised. During the remainder of the term of the Option (if its
term extends beyond the end of the installment periods), the Option may be
exercised from time to time with respect to any shares then remaining subject to
the Option. The provisions of this paragraph 5(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) The Company may require any optionee, or any person to whom an
Option is transferred under paragraph 5(d), as a condition of exercising any
such Option: (i) to give written assurances satisfactory to the Company as to
such person's knowledge and experience in financial and business matters and/or
to employ a purchaser representative who has such knowledge and experience in
financial and business matters, and that such person is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (ii) to give written assurances satisfactory to the
Company stating that such person is acquiring the Common Stock subject to the
Option for such person's own account and not with any present intention of
selling or otherwise distributing the Common Stock. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if: (x) the
issuance of the shares upon the exercise of the Option has been registered under
a then currently effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"); or (y) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in
-8-
<PAGE>
the circumstances under the then applicable securities law.
(g) An Option shall terminate three (3) months after termination of
the optionee's employment or relationship as a consultant or director with the
Company or an Affiliate, unless: (i) such termination is due to the optionee's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the Option may, but need not, provide that it may be
exercised at any time within one (1) year following such termination of
employment or relationship as a consultant or director; (ii) the optionee dies
while in the employ of or while serving as a consultant or director to the
Company or an Affiliate, or within not more than three (3) months after
termination of such employment or relationship as a consultant or director, in
which case the Option may, but need not, provide that it may be exercised at any
time within eighteen (18) months following the death of the optionee by the
person or persons to whom the optionee's rights under such Option pass by will
or by the laws of descent and distribution; or (iii) the Option by its term
specifies either (A) that it shall terminate sooner than three (3) months after
termination of the optionee's employment or relationship as a consultant or
director with the Company or an Affiliate; or (B) that it may be exercised more
than three (3) months after termination of the optionee's employment or
relationship as a consultant or director with the Company or an Affiliate. This
paragraph 5(g) shall not be construed to extend the term of any Option or to
permit anyone to exercise the Option after expiration of its term, nor shall it
be construed to increase the number of shares as to which any Option is
exercisable from the amount exercisable on the date of termination of the
optionee's employment or relationship as a consultant or director.
(h) The Option may, but need not, include a provision whereby the
optionee may elect at any time during the term of the optionee's employment or
relationship as a consultant or director with the Company or any Affiliate to
exercise the Option as to any part or all of the shares subject to the Option
-9-
<PAGE>
prior to the stated vesting dates of the Option. Any shares so purchased from
any unvested installment or Option may be subject to a repurchase right in favor
of the Company or to any other restriction the Board or the Committee determines
to be appropriate.
(i) To the extent provided by the terms of an Option, each optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such Option by any of the following means or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold from the shares of the Common Stock otherwise issuable to the optionee
as a result of the exercise of the Option a number of shares having a fair
market value less than or equal to the amount of the withholding tax obligation;
or (iii) delivering to the Company owned and unencumbered shares of the Common
Stock having a fair market value less than or equal to the amount of the
withholding tax obligation.
(j) Without in any way limiting the authority of the Board or
Committee to make or not to make grants of Discretionary Stock Options under
this Section 5, the Board or Committee shall have the authority (but not an
obligation) to include as part of any Option agreement a provision entitling the
optionee to a further Option (a "Re-Load Option") in the event the optionee
exercises the Option evidenced by the Option agreement, in whole or in part, by
surrendering other shares of Common Stock in accordance with this Plan and the
terms and conditions of the Option agreement. Any such Re-Load Option (i) shall
be for a number of shares equal to the number of shares surrendered as part or
all of the exercise price of such Option; (ii) shall have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (iii) shall have an exercise price which
is equal to one hundred percent (100%) of the fair market value of the Common
Stock subject to the Re-Load Option on the date of exercise of the original
Option or, in the case of a Re-Load Option which is an Incentive Stock Option
and which is
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<PAGE>
granted to a 10% stockholder (as defined in paragraph 4(c)), shall have an
exercise price which is equal to one hundred and ten percent (110%) of the fair
market value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonqualified Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option, provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in paragraph 3(c) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Option on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under paragraph 3(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine.
6. TERMS OF NON-DISCRETIONARY OPTIONS
----------------------------------
(a) On January 27 of each year commencing January 27, 1998, each
person who is at that time an Eligible Director of the Company, (as defined in
paragraph 6(k)), shall automatically be granted under the Plan, without further
action by the Company, the Board, or the Company's stockholders, a Nonqualified
Stock Option (a "Director NQSO") to purchase four thousand (4,000) shares of
Common Stock on the terms and conditions set forth herein. An Eligible Director
may designate that such Director NQSO be granted in the name of a Trust instead
of in the name of such Eligible Director. The number of shares to be granted
hereunder shall not be adjusted as provided for in Section 12. The Director
NQSO shall be on the terms and conditions set forth herein and should the date
of grant set forth above be a Saturday, Sunday or legal holiday, such grant
shall be made on the next business day.
(b) Each person who, after January 27 of any year commencing January
27, 1998 and prior to November 1 of any year,
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<PAGE>
becomes an Eligible Director, shall, upon the date such person becomes an
Eligible Director, automatically be granted under the Plan, without further
action by the Company, the Board, or the Company's stockholders, a Director NQSO
to purchase fifteen thousand (15,000) shares of Common Stock on the terms and
conditions set forth herein. An Eligible Director may designate that such
Director NQSO be granted in the name of a Trust instead of in the name of such
Eligible Director. The number of shares to be granted under this Section 6
shall not be adjusted as provided for in Section 12. The Director NQSO shall be
on the terms and conditions set forth herein and should the date of grant set
forth above be a Saturday, Sunday or legal holiday, such grant shall be made on
the next business day.
(c) Each Director NQSO granted pursuant to this Section 6 (or any
Director Re-Load Option granted pursuant to paragraph 6(j)) shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The provisions of separate Director NQSO's need not be
identical, but each Director NQSO shall include (through incorporation of
provisions hereof by reference in the Director NQSO or otherwise) the substance
of each of the following provisions as set forth in paragraphs 6(d) through
6(j), inclusive.
(d) The term of each Director NQSO shall be ten (10) years from the
date it was granted.
(e) The exercise price of each Director NQSO shall be one hundred
percent (100%) of the fair market value of the Common Stock subject to such
Director NQSO on the date such Director NQSO is granted.
(f) The purchase price of Common Stock acquired pursuant to a
Director NQSO shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Director NQSO is exercised; (ii)
by delivery to the Company of shares of Common Stock that have been held for the
period required to avoid a charge to the Company's reported earnings and valued
at their fair market value on the
-12-
<PAGE>
date of exercise; or (iii) pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or a check) by the Company before Common Stock is issued or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds before Common Stock is issued.
(g) A Director NQSO shall be exercisable during the lifetime of the
Eligible Director with respect to whom it was granted only by the person to whom
it was granted (whether the Eligible Director or a Trust), provided that such
person during the Eligible Director's lifetime may designate a Trust to be a
beneficiary with respect to the Director NQSO, and such beneficiary shall, after
the death of the Eligible Director to whom the Director NQSO was granted, have
all of the rights designated for such beneficiary. In the absence of such
designation, after the death of the Eligible Director with respect to whom the
Director NQSO was granted, if such Director NQSO was granted to the Eligible
Director, the Director NQSO shall be exercisable by the person or persons to
whom the optionee's rights under such option pass by will or by the laws of
descent and distribution.
(h) A Director NQSO shall not vest with respect to an Eligible
Director, or the affiliate of such Eligible Director, as the case may be, (i)
unless the Eligible Director, has, at the date of grant, provided three (3)
years of prior continuous service as an Eligible Director, or (ii) until the
date upon which such Eligible Director has provided one year of continuous
service as an Eligible Director following the date of grant of such Director
NQSO, whereupon such Director NQSO shall become fully vested and exercisable in
accordance with its terms.
(i) The Company may require any optionee under this Section 6, or any
person to whom a Director NQSO is transferred under paragraph 6(g), as a
condition of exercising any such option: (i) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in
financial and business matters and/or to employ a purchaser
-13-
<PAGE>
representative who has such knowledge and experience in financial and business
matters, and that such person is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Director
NQSO; and (ii) to give written assurances satisfactory to the Company stating
that such person is acquiring the Common Stock subject to the Director NQSO for
such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Director NQSO has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii), as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(j) Subject to the last sentence of this paragraph 6(j), each
Director NQSO shall include a provision entitling the optionee to a further
Nonqualified Stock Option (a "Director Re-Load Option") in the event the
optionee exercises the Director NQSO evidenced by the Director NQSO grant, in
whole or in part, by surrendering other shares of Common Stock in accordance
with the Plan and the terms of the Director NQSO grant. Any such Director Re-
Load Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of the original Director NQSO;
(ii) shall have an expiration date which is the same as the expiration date of
the original Director NQSO; and (iii) shall have an exercise price which is
equal to one hundred percent (100%) of the fair market value of the Common Stock
subject to the Director Re-Load Option on the date of exercise of the original
Director NQSO. Any such Director Re-Load Option shall be subject to the
availability of sufficient shares under paragraph 3(a). There shall be no
Director Re-Load Option on a Director Re-Load Option. Notwithstanding anything
else in the Plan to the contrary, this
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<PAGE>
paragraph 6(j) shall be of no force and effect from and after June 23, 1998.
(k) For purposes of this Section 6, the term "Eligible Director" shall
mean a member of the Board who is not an employee of the Company or any
Affiliate, and the term "affiliate" shall mean a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Eligible Director.
7. TERMS OF STOCK BONUSES AND PURCHASES OF
---------------------------------------
RESTRICTED STOCK.
----------------
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) The purchase price under each stock purchase agreement shall be
such amount as the Board or Committee shall determine and designate in such
agreement. Notwithstanding the foregoing, the Board or the Committee may
determine that eligible participants in the Plan may be awarded stock pursuant
to a stock bonus agreement in consideration for past services actually rendered
to the Company or for its benefit.
(b) No rights under a stock bonus or restricted stock purchase
agreement shall be assignable by any participant under the Plan, either
voluntarily or by operation of law, except where such assignment is required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
(c) The purchase price of stock acquired pursuant to a stock purchase
agreement shall be paid either: (i) in cash at
-15-
<PAGE>
the time of purchase; (ii) at the discretion of the Board or the Committee,
according to a deferred payment or other arrangement with the person to whom the
Common Stock is sold; or (iii) in any other form of legal consideration that may
be acceptable to the Board or the Committee in their discretion; including but
not limited to payment of the purchase price pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which results in
the receipt of cash (or a check) by the Company before Common Stock is issued or
the receipt of irrevocable instruction to pay the aggregate exercise price of
the Company from the sales proceeds before Common Stock is issued.
Notwithstanding the foregoing, the Board or the Committee to which
administration of the Plan has been delegated may award Common Stock pursuant to
a stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) Shares of Common Stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) In the event a person ceases to be an employee of or ceases to
serve as a director or consultant to the Company or an Affiliate, the Company
may repurchase or otherwise reacquire any or all of the shares of Common Stock
held by that person which have not vested as of the date of termination under
the terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
------------------------------------
The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected holders of Options,
(i) the repricing of any outstanding Options under the Plan and/or (ii) the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of Common Stock, but having
-16-
<PAGE>
an exercise price per share not less than one hundred percent (100%) of the fair
market value per share of Common Stock on the new grant date or, in the case of
a 10% stockholder (as defined in paragraph 4(c)), not less than one hundred and
ten percent (110%) of the fair market value per share of Common Stock on the new
grant date.
9. COVENANTS OF THE COMPANY.
------------------------
(a) During the terms of the Stock Awards granted under the Plan, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards up to the number of shares of Common Stock
authorized under the Plan.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Common Stock under the Stock Awards granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award granted under
the Plan or any Common Stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company shall be relieved from any liability for failure to issue and sell
Common Stock upon exercise of such Stock Awards unless and until such authority
is obtained.
10. USE OF PROCEEDS FROM COMMON STOCK.
---------------------------------
Proceeds from the sale of Common Stock pursuant to Stock Awards
granted under the Plan shall constitute general funds of the Company.
11. MISCELLANEOUS.
-------------
(a) The Board or Committee shall have the power to
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<PAGE>
accelerate the time during which a Stock Award may be exercised or the time
during which a Stock Award or any part thereof will vest, notwithstanding the
provisions in the Stock Award stating the time during which it may be exercised
or the time during which it will vest. Each Discretionary Stock Option
providing for vesting pursuant to paragraph 5(e) shall also provide that if the
employee's employment or a director's or consultant's affiliation with the
Company is terminated by reason of death or disability (within the meaning of
Title II or XVI of the Social Security Act and as determined by the Social
Security Administration), the vesting schedule of Discretionary Stock Options
granted to such employee, director or consultant or to the Trusts of such
employee, director or consultant shall be accelerated by twelve months for each
full year the employee has been employed by or the director or consultant has
been affiliated with the Company. Discretionary Stock Options granted under the
Plan that are outstanding on February 25, 1992, shall be amended to include the
accelerated vesting upon death provided for in the preceding sentence of this
paragraph 11(a) and Discretionary Stock Options granted under the Plan that are
outstanding on June 18, 1996, shall be amended to include the accelerated
vesting upon disability provided for in the preceding sentence of this paragraph
11(a).
(b) Neither an optionee nor any person to whom an Option is
transferred under the provisions of the Plan shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any eligible employee, consultant,
director, optionee or holder of Stock Awards under the Plan any right to
continue in the employ of the Company or any Affiliate or to continue acting as
a consultant or director or shall affect the right of the Company or any
Affiliate to terminate the employment or consulting
-18-
<PAGE>
relationship or directorship of any eligible employee, consultant, director,
optionee or holder of Stock Awards under the Plan with or without cause. In the
event that a holder of Stock Awards under the Plan is permitted or otherwise
entitled to take a leave of absence, the Company shall have the unilateral right
to (i) determine whether such leave of absence will be treated as a termination
of employment or relationship as consultant or director for purposes hereof, and
(ii) suspend or otherwise delay the time or times at which exercisability or
vesting would otherwise occur with respect to any outstanding Stock Awards under
the Plan.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
----------------------------------------
If any change is made in the Common Stock subject to the Plan, or
subject to any Stock Award granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan and
outstanding Stock Awards will be appropriately adjusted in the class(es) and
maximum number of shares subject to the Plan, the maximum number of shares which
may be granted to a participant in a calendar year, and the class(es) and number
of shares and price per share of stock subject to outstanding Stock Awards;
provided, that the minimum and maximum number of shares of Common Stock to be
granted as provided for in paragraphs 6(a) and 6(b) shall not be so adjusted.
Such adjustment shall be made by the Board or the Committee, the determination
of which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction not
involving the receipt of consideration".)
13. CHANGE OF CONTROL.
-----------------
(a) Notwithstanding anything to the contrary in this
-19-
<PAGE>
Plan, in the event of a Change in Control (as hereinafter defined), then, to the
extent permitted by applicable law:
(i) the time during which Stock Awards become vested shall automatically be
accelerated so that the unvested portions of all Stock Awards shall be vested
prior to the Change in Control and (ii) the time during which the Options may be
exercised shall automatically be accelerated to prior to the Change in Control.
Upon and following the acceleration of the vesting and exercise periods, at the
election of the holder of the Stock Award, the Stock Award may be: (x)
exercised (with respect to Options) or, if the surviving or acquiring
corporation agrees to assume the Stock Awards or substitute similar stock
awards, (y) assumed; or (z) replaced with substitute stock awards. Options not
exercised, substituted or assumed prior to or upon the Change in Control shall
be terminated.
(b) For purposes of the Plan, a "Change of Control" shall be deemed
to have occurred at any of the following times:
(i) upon the acquisition (other than from the Company) by any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act (excluding, for this purpose, the Company or its affiliates, or
any employee benefit plan of the Company or its affiliates which acquires
beneficial ownership of voting securities of the Company), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of fifty percent (50%) or more of either the then outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or
(ii) at the time individuals who, as of April 2, 1991,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to April 2, 1991, whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
-20-
<PAGE>
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
the Plan, considered as though such person were a member of the Incumbent Board;
or
(iii) immediately prior to the consummation by the Company of a
reorganization, merger, consolidation, (in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than fifty percent (50%) of the combined voting power entitled to vote generally
in the election of directors of the reorganized, merged or consolidated
company's then outstanding voting securities) or a liquidation or dissolution of
the Company or of the sale of all or substantially all of the assets of the
Company; or
(iv) the occurrence of any other event which the Incumbent
Board in its sole discretion determines constitutes a Change of Control.
14. QUALIFIED DOMESTIC RELATIONS ORDERS
-----------------------------------
(a) Anything in the Plan to the contrary notwithstanding, rights
under Stock Awards may be assigned to an Alternate Payee to the extent that a
QDRO so provides. (The terms "Alternate Payee" and "QDRO" are defined in
paragraph 14(c) below.) The assignment of a Stock Award to an Alternate Payee
pursuant to a QDRO shall not be treated as having caused a new grant. The
transfer of an Incentive Stock Option to an Alternate Payee may, however, cause
it to fail to qualify as an Incentive Stock Option. If a Stock Award is
assigned to an Alternate Payee, the Alternate Payee generally has the same
rights as the grantee under the terms of the Plan; provided however, that (i)
the Stock Award shall be subject to the same vesting terms and exercise period
as if the Stock Award were
-21-
<PAGE>
still held by the grantee, (ii) an Alternate Payee may not transfer a Stock
Award and (iii) an Alternate Payee is ineligible for Re-Load Options described
at paragraph 5(j) or Director Re-Load Options described at paragraph 6(j).
(b) In the event of the Plan administrator's receipt of a domestic
relations order or other notice of adverse claim by an Alternate Payee of a
grantee of a Stock Award, transfer of the proceeds of the exercise of such Stock
Award, whether in the form of cash, stock or other property, may be suspended.
Such proceeds shall thereafter be transferred pursuant to the terms of a QDRO or
other agreement between the grantee and Alternate Payee. A grantee's ability to
exercise a Stock Award may be barred if the Plan administrator receives a court
order directing the Plan administrator not to permit exercise.
(c) The word "QDRO" as used in the Plan shall mean a court order (i)
that creates or recognizes the right of the spouse, former spouse or child (an
"Alternate Payee") of an individual who is granted a Stock Award to an interest
in such Stock Award relating to marital property rights or support obligations
and (ii) that the administrator of the Plan determines would be a "qualified
domestic relations order," as that term is defined in section 414(p) of the Code
and section 206(d) of the Employee Retirement Income Security Act ("ERISA"), but
for the fact that the Plan is not a plan described in section 3(3) of ERISA.
15. AMENDMENT OF THE PLAN.
---------------------
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in the Common Stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) increase the number of shares reserved for Stock Awards
under the Plan;
(ii) modify the requirements as to eligibility
-22-
<PAGE>
for participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422(b) of the Code); or
(iii) modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422(b) of the Code.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to, amendments
to the Plan intended to satisfy the requirements of Section 162(m) of the Code
and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee Incentive Stock
Options and/or to bring the Plan and/or Options granted under it into compliance
therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan,
unless: (i) the Company requests the consent of the person to whom the Stock
Award was granted; and (ii) such person consents in writing.
16. TERMINATION OR SUSPENSION OF THE PLAN.
-------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 31, 2000. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Awards granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
-23-
<PAGE>
17. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall become effective as determined by the Board.
-24-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FROM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 104
<SECURITIES> 1,021
<RECEIVABLES> 313
<ALLOWANCES> 17
<INVENTORY> 109
<CURRENT-ASSETS> 1,696
<PP&E> 1,966
<DEPRECIATION> 568
<TOTAL-ASSETS> 3,444
<CURRENT-LIABILITIES> 875
<BONDS> 223
0
0
<COMMON> 0
<OTHER-SE> 2,346
<TOTAL-LIABILITY-AND-EQUITY> 3,444
<SALES> 1,820
<TOTAL-REVENUES> 1,963
<CGS> 250
<TOTAL-COSTS> 250
<OTHER-EXPENSES> 861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 899
<INCOME-TAX> 274
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.37
</TABLE>
<PAGE>
EXHIBIT 99
AMGEN INC.
FACTORS THAT MAY AFFECT AMGEN
Factors That May Affect Our Company
Amgen operates in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of these risks. Other risks are discussed in our Form 10-K and
Form 10-Q's.
Product development
We intend to continue an aggressive product development program. Successful
product development in the biotechnology industry is highly uncertain, and very
few research and development projects produce a commercial product. Product
candidates that appear promising in the early phases of development, such as in
early human clinical trials, may fail to reach the market for a number of
reasons, such as:
- - the product candidate was not effective in treating a specified condition or
illness
- - the product candidate had harmful side effects on humans
- - the necessary regulatory bodies (such as the FDA) did not approve our product
candidate for an indicated use
- - the product candidate was not economical for us to manufacture it
- - other companies or people may have proprietary rights to our product
candidate (e.g. patent rights) and will not let us sell it on reasonable
terms, or at all
- - the product candidate is not cost effective in light of existing therapeutics
- - the product candidate did not demonstrate acceptable clinical trial results
even though it demonstrated positive preclinical trial results.
For example, in 1997, we announced the failure of BDNF (for the treatment of ALS
by subcutaneous injection administration route), because the product candidate,
as administered, did not produce acceptable clinical results in a specific
indication after a Phase 3 trial, even though BDNF had progressed through
preclinical and earlier clinical trials. Of course there may be other factors
that prevent us from marketing a product. We cannot guarantee we will be able
to produce commercially successful products. Further, clinical trial results
are frequently susceptible to varying interpretations by scientists, medical
personnel, regulatory personnel, statisticians and others which may delay, limit
or prevent further clinical development or regulatory approvals of a product
candidate. Also, the length of
1
<PAGE>
time that it takes for us to complete clinical trials and obtain regulatory
approval for product marketing has in the past varied by product and by the
indicated use of a product. We expect that this will likely be the case with
future product candidates and we cannot predict the length of time to complete
necessary clinical trials and obtain regulatory approval. See "- Regulatory
matters."
Regulatory matters
Our research, preclinical testing, clinical trials, facilities, manufacturing,
pricing, and sales and marketing are subject to extensive regulation by numerous
state and federal governmental authorities in the U.S., such as the FDA and the
Health Care Financing Administration ("HCFA"), as well as by foreign countries
and the European Union (the "EU"). Currently, we are required in the U.S. and in
foreign countries to obtain approval from those countries' regulatory
authorities before we can market and sell our products in those countries. The
success of our current and future products will depend in part upon obtaining
and maintaining regulatory approval to market products in approved indications
in the U.S. and foreign markets. In our experience, the regulatory approval
process is a lengthy and complex process, both in the U.S. and in foreign
countries, including countries in the EU. Even if we obtain regulatory approval,
both our manufacturing processes and our marketed products are subject to
continued review. Later discovery of previously unknown problems with our
products or our manufacturing processes may result in restrictions on such
product or manufacturing processes, including withdrawal of the products from
the market. Our failure to obtain necessary approvals, or the restriction,
suspension or revocation of any approvals, or our failure to comply with
regulatory requirements could prevent us from manufacturing or selling our
products which could have a material adverse effect on us and our results of
operations.
Reimbursement; Third party payors
In both domestic and foreign markets, sales of our products are dependent, in
part, on the availability of reimbursement from third party payors such as state
and federal governments (for example, under Medicare and Medicaid programs in
the U.S.) and private insurance plans. In certain foreign markets, the pricing
and profitability of our products generally are subject to government controls.
In the U.S., there have been, and we expect there will continue to be, a number
of state and federal proposals that limit the amount that state or federal
governments will pay to reimburse the cost of drugs. In addition, we believe
the increasing emphasis on managed care in the U.S. has and will continue to put
pressure on the price and usage of our products, which may impact product sales.
Further, when a new therapeutic is approved, the reimbursement status and rate
of such a product is uncertain. In addition, current reimbursement policies for
2
<PAGE>
existing products may change at any time. Changes in reimbursement or our
failure to obtain reimbursement for our products may reduce the demand for, or
the price of, our products, which could result in lower product sales or
revenues which could have a material adverse effect on us and our results of
operations. For example, in the U.S. the use of EPOGEN(R) in connection with
treatment for end stage renal disease is funded primarily by the U.S. federal
government. Therefore, as in the past, EPOGEN(R) sales could be affected by
future changes in reimbursement rates or the basis for reimbursement by the
federal government. For example, in early 1997, HCFA instituted a reimbursement
change for EPOGEN(R) which adversely affected the Company's EPOGEN(R) sales.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Product sales - EPOGEN(R) (Epoetin alfa)."
Guidelines
Government agencies promulgate regulations and guidelines directly applicable to
us and to our products. However, professional societies, practice management
groups, private health/science foundations and organizations involved in various
diseases may also publish, from time to time, guidelines or recommendations to
the health care and patient communities. These organizations may make
recommendations that affect a patient's usage of certain therapies, drugs or
procedures, including our products. Recommendations of government agencies or
these other groups/organizations may relate to such matters as usage, dosage,
route of administration and use of concomitant therapies. Recommendations or
guidelines that are followed by patients and health care providers could result
in, among other things, decreased use of our products which could have a
material adverse effect on our results of operations. In addition, the
perception by the investment community or stockholders that such recommendations
or guidelines will be followed could adversely affect prevailing market prices
for our common stock.
Intellectual property and legal matters
The patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and often involve complex legal, scientific and factual questions. To
date, there has emerged no consistent policy regarding breadth of claims allowed
in such companies' patents. Accordingly, the patents and patent applications
relating to our products and technologies may be challenged, invalidated or
circumvented by third parties and might not protect us against competitors with
similar products or technology. Patent disputes are frequent and can preclude
commercialization of products. We are currently, and in the future may be,
involved in patent litigation. The results of such litigation could subject us
to competition and/or significant liabilities, could require us to enter into
third
3
<PAGE>
party licenses or could cause us to cease using the technology or product in
dispute. In addition, we cannot guarantee that such licenses will be available
on terms acceptable to us.
The Company is currently involved in arbitration proceedings with Ortho
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson ("Johnson &
Johnson"), relating to a license granted by the Company to Johnson & Johnson for
sales of Epoetin alfa in the U.S. for all human uses except dialysis and
diagnostics. See Note 4 to the Condensed Consolidated Financial Statements,
"Contingencies - Johnson & Johnson arbitrations".
Competition
We operate in a highly competitive environment. Our principal competitors are
pharmaceutical and biotechnology companies. Some of our competitors, mainly
large pharmaceutical corporations, have greater clinical, research, regulatory
and marketing resources than we do. In addition, some of our competitors may
have technical or competitive advantages over us for the development of
technologies and processes and the acquisition of technology from academic
institutions, government agencies and other private and public research
organizations. We cannot guarantee that we will be able to produce or acquire
rights to products that have commercial potential. Even if we achieve
successful product commercialization, we cannot guarantee that one or more of
our competitors will not achieve product commercialization earlier than we do,
obtain patent protection that dominates or adversely affects our activities, or
have significantly greater marketing capabilities.
Fluctuations in operating results
Our operating results may fluctuate from period to period for a number of
reasons. In budgeting our operating expenses, some of which are fixed in the
short term, we assume that revenues will continue to grow. Accordingly, even a
relatively small revenue shortfall may cause a period's results to be below our
expectations. A revenue shortfall could arise from any number of factors, such
as:
- - lower than expected demand for our products
- - changes in the government's or private payor's reimbursement policies for our
products
- - changes in wholesaler buying patterns
- - increased competition from new or existing products
- - fluctuations in foreign currency exchange rates
- - changes in our product pricing strategies
Of course, there may be other factors that affect the Company's revenues in any
given period.
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Rapid growth
We have an aggressive growth plan that includes substantial and increasing
investments in research and development and facilities. Our plan has a number
of risks, such as:
- - the need to generate higher revenues to cover a higher level of operating
expenses
- - the need to manage complexities associated with a larger and faster growing
organization
- - the need to accurately anticipate demand for the products we manufacture and
maintain adequate manufacturing capacity.
Of course there may be other risks and we cannot guarantee that we will be able
to successfully manage these or other risks.
Stock price volatility
Our stock price, like that of other biotechnology companies, is extremely
volatile. Our stock price may be affected by, among other things, clinical
trial results and other product-development announcements by us or our
competitors, regulatory matters, announcements in the scientific and research
community, intellectual property and legal matters, changes in reimbursement
policies or medical practices or broader industry and market trends unrelated to
our performance. In addition, if our revenues or earnings in any period fail to
meet the investment community's expectations, there could be an immediate
adverse impact on our stock price.
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