___________________________________________________________________________
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 July 1, 1994 or
[ ]Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-10030
APPLE COMPUTER, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2404110
[State or other jurisdiction [I.R.S. Employer Identification No.]
of incorporation or organization]
1 Infinite Loop 95014
Cupertino, California [Zip Code]
[Address of principal executive offices]
Registrant's telephone number, including area code: (408) 996-1010
20525 Mariani Avenue
Cupertino, California 95014
[Former address of principal executive offices]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
118,945,060 shares of Common Stock Issued and Outstanding as of
August 5, 1994
___________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
July 1, June 25, July 1, June 25,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $2,149,908 $ 1,861,979 $6,695,462 $5,836,165
Costs and expenses:
Cost of sales 1,576,036 1,255,975 5,030,502 3,658,473
Research and development 135,439 174,169 422,193 500,458
Selling, general and
administrative 332,867 417,645 1,037,759 1,253,193
Restructuring costs (126,855) 320,856 (126,855) 320,856
1,917,487 2,168,645 6,363,599 5,732,980
Operating income (loss) 232,421 (306,666) 331,863 103,185
Interest and other income
(expense), net (9,678) 2,931 (16,504) 32,176
Income (loss) before
income taxes 222,743 (303,735) 315,359 135,361
Income tax provision
(benefit) 84,642 (115,419) 119,836 51,436
Net income (loss) $ 138,101 $(188,316) $ 195,523 $ 83,925
Earnings (loss) per
common and common
equivalent share $ 1.16 $ (1.63) $ 1.65 $ 0.70
Cash dividends paid per
common share $ .12 $ .12 $ .36 $ .36
Common and common
equivalent shares used
in the calculations of
earnings (loss) per share 118,860 115,669 118,253 119,969
</TABLE>
See accompanying notes.
2
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<TABLE>
<CAPTION>
July 1, September 24,
1994 1993
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,141,695 $ 676,413
Short-term investments 86,599 215,890
Accounts receivable, net of allowance for
doubtful accounts of $88,321 ($83,776 at
September 24, 1993) 1,277,083 1,381,946
Inventories:
Purchased parts 486,560 504,201
Work in process 179,401 284,440
Finished goods 531,099 717,997
1,197,060 1,506,638
Prepaid income taxes 256,945 268,085
Other current assets 300,607 289,383
Total current assets 4,259,989 4,338,355
Property, plant, and equipment:
Land and buildings 470,683 404,688
Machinery and equipment 560,201 578,272
Office furniture and equipment 158,498 167,905
Leasehold improvements 236,495 261,792
1,425,877 1,412,657
Accumulated depreciation and amortization (760,895) (753,111)
Net property, plant, and equipment 664,982 659,546
Other assets 198,441 173,511
$5,123,412 $ 5,171,412
</TABLE>
See accompanying notes.
3
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
July 1, September 24,
1994 1993
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 515,608 $ 823,182
Accounts payable 696,032 742,622
Accrued compensation and employee benefits 129,665 144,779
Accrued marketing and distribution 155,690 174,547
Accrued restructuring costs 75,189 307,932
Other current liabilities 345,303 315,024
Total current liabilities 1,917,487 2,508,086
Long-term debt 304,815 7,116
Deferred income taxes 655,995 629,832
Shareholders' equity:
Common stock, no par value; 320,000,000 shares
authorized; 118,333,418 shares issued and
outstanding at July 1, 1994;(116,147,035
shares at September 24, 1993) 264,753 203,613
Retained earnings 1,995,836 1,842,600
Accumulated translation adjustment (15,474) (19,835)
Total shareholders' equity 2,245,115 2,026,378
$5,123,412 $5,171,412
</TABLE>
See accompanying notes.
4
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
July 1, June 25,
1994 1993
<S> <C> <C>
Cash and cash equivalents, beginning
of the period $ 676,413 $ 498,557
Operations:
Net income 195,523 83,925
Adjustments to reconcile net income to cash
generated by (used for) operations:
Depreciation and amortization 122,338 123,636
Net book value of property, plant,
and equipment retirements 10,469 6,243
Changes in assets and liabilities:
Accounts receivable 104,863 (178,174)
Inventories 309,578 (658,561)
Prepaid income taxes 11,140 (105,801)
Other current assets (11,224) (78,087)
Accounts payable (46,590) 232,611
Accrued restructuring costs (232,743) 275,199
Other current liabilities 5,440 7,805
Deferred income taxes 26,163 39,465
Cash generated by (used for)
operations 494,957 (251,739)
Investments:
Purchase of short-term investments (257,228) (1,359,796)
Proceeds from short-term investments 386,519 1,833,112
Purchase of property, plant, and equipment (123,375) (165,407)
Other (35,437) (27,772)
Cash generated by (used for)
investment activities (29,521) 280,137
Financing:
Increase (decrease) in short-term borrowings (307,574) 123,718
Increase (decrease) in long-term borrowings 297,699 (10,225)
Increases in common stock, net of related
tax benefits and changes in notes
receivable from shareholders 52,008 67,850
Repurchase of common stock -- (273,458)
Cash dividends (42,287) (41,656)
Cash used for financing activities (154) (133,771)
Total cash generated (used) 465,282 (105,373)
Cash and cash equivalents, end of
the period $ 1,141,695 $ 393,184
</TABLE>
See accompanying notes.
5
<PAGE>
APPLE COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim information is unaudited; however, in the opinion of the
Company's management, all adjustments necessary for a fair statement of
interim results have been included. The results for interim periods
are not necessarily indicative of results to be expected for the entire
year. These financial statements and notes should be read in
conjunction with the Company's annual consolidated financial statements
and the notes thereto for the fiscal year ended September 24, 1993,
included in its Annual Report on Form 10-K for the year ended September
24, 1993 (the "1993 Form 10-K").
2. Effective September 25, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes (FAS 109),
which changes the method of accounting for income taxes from the
deferred method to the liability method. This change in accounting
principle has been adopted on a prospective basis, and the financial
statements of prior years have not been restated. The cumulative
effect of the change was not material.
Under FAS 109, deferred income taxes reflect the future income tax
effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their tax bases.
Prior to 1994, the Company accounted for income taxes under the
provisions of APB Opinion No. 11, which recognized deferred taxes for
the effect of timing differences between pretax accounting income and
taxable income.
At September 25, 1993, the significant components of the Company's
deferred tax assets and liabilities were:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Deferred tax assets:
Accounts receivable and
inventory reserves $ 123,158
Accrued liabilities and other reserves 170,632
Basis of capital assets and investments 79,104
Total deferred tax assets 372,894
Deferred tax liabilities:
Unremitted earnings of subsidiaries 707,242
Other 27,399
Total deferred tax liabilities 734,641
Net deferred tax liability $361,747
</TABLE>
U.S. income taxes have not been provided on a cumulative total of $285
million of undistributed earnings of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely
invested in operations outside of the United States. It is not
practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed. Except for such
indefinitely invested earnings, the Company provides federal and state
income taxes currently on undistributed earnings of foreign
subsidiaries.
The Internal Revenue Service has proposed federal income tax
deficiencies for the years 1984 through 1988, and the Company has made
prepayments thereon. The Company has contested these alleged
deficiencies and is pursuing administrative and judicial remedies.
Management believes that adequate provision has been made for any
adjustments that may result from these tax examinations.
6
<PAGE>
3. On February 10, 1994, the Company issued $300 million aggregate
principal amount of 6.5% unsecured notes under the Company's $500
million omnibus shelf registration statement filed with the Securities
and Exchange Commission. The notes were sold at 99.925% of par, for an
effective yield to maturity of 6.51%. The notes pay interest semi-
annually and mature on February 15, 2004.
4. In the third quarter of 1993, the Company initiated a plan to
restructure its operations worldwide in order to address the
competitive conditions in the personal computer industry, including the
increased market demand for lower-priced products. In connection with
this plan, the Company recorded a $321 million charge to operating
expenses ($199 million, or $1.72 per share, after taxes). The
restructuring costs included $162 million of estimated employee-related
expenses and $159 million of estimated facilities, equipment, and other
expenses associated with the consolidation of operations and the
relocation and termination of certain operations and employees.
In the third quarter of 1994, the Company lowered its estimate of the
total costs associated with the restructuring and recorded an
adjustment which increased income by $127 million ($79 million, or
$0.66 per share, after taxes). This adjustment primarily reflects the
modification or cancellation of certain elements of the Company's
original restructure plan because changing business and economic
conditions have made certain elements of the Company's original
restructure plan financially less attractive than originally
anticipated. In addition, some actions were completed at a lower cost
than originally estimated. For further discussion, see "Results of
Operations - Restructuring Costs."
5. Earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares attributable to stock
options outstanding during the period. Loss per share is computed
using the weighted average number of common shares outstanding during
the period.
6. Certain prior year amounts on the consolidated balance sheets and
statements of cash flows have been reclassified to conform to the
current period presentation.
7. On July 20, 1994, the Board of Directors declared a cash dividend of
$0.12 per share for shareholders of record as of August 19, 1994, which
will be distributed on September 9, 1994.
8. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on Apple's fiscal calendar.
(Tabular information: Dollars in millions, except per share amounts)
Results of Operations
<TABLE>
<CAPTION>
Third Quarter Nine Months
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 2,150 $ 1,862 15.5% $ 6,695 $ 5,836 14.7%
Gross margin $ 574 $ 606 -5.3% $ 1,665 $ 2,178 -23.5%
Percentage of net
sales 26.7% 32.5% 24.9% 37.3%
Operating expenses
(excluding
restructuring
costs) $ 468 $ 592 -20.9% $ 1,460 $ 1,754 -16.7%
Percentage of net
sales 21.8% 31.8% 21.8% 30.0%
Restructuring
costs $ (127) $ 321 -139.5% $ (127) $ 321 -139.5%
Percentage of net
sales 5.9% 17.2% 1.9% 5.5%
Net income (loss) $ 138 $ (188) 173.3% $ 196 $ 84 133.0%
Earnings (loss)
per share $ 1.16 $(1.63) 171.2% $ 1.65 $ 0.70 135.7%
</TABLE>
Net sales for the third quarter and first nine months of 1994 increased
over the comparable periods of 1993. Total Macintosh (registered
trademark) computer unit sales increased 14% and 21% in the third quarter
and first nine months of 1994, respectively, over the comparable periods of
1993. This unit sales growth resulted principally from strong sales of the
Company's new Power Macintosh (trademark) products first introduced on
March 14, 1994, and from newer product offerings within the Performa
(registered trademark) family of desktop personal computers and, to a
lesser extent, within the PowerBook (registered trademark) family of
notebook personal computers. This unit growth was partially offset by
declining unit sales of certain of the Company's older product offerings.
The average aggregate revenue per Macintosh computer unit increased
slightly in the third quarter of 1994 over the comparable period of 1993,
primarily as a result of a shift in unit sales from the Company's entry
level desktop personal computers to its mid-range desktop personal
computers. The average aggregate revenue per Macintosh computer unit
declined 5% in the first nine months of 1994 over the comparable period of
1993, primarily as a result of pricing actions undertaken by the Company in
response to continuing industrywide pricing pressures and the Company's
relatively high levels of inventory.
International net sales grew 17% in the third quarter and 19% in the first
nine months of 1994 over the comparable periods of 1993. The increases
primarily reflected strong net sales growth in the Pacific region,
particularly Japan. Net sales for the third quarter and first nine months
of 1994 grew slightly in Europe over the comparable periods of 1993 despite
generally weak economic conditions and competitive pressures in various
European countries. International net sales represented 47% and 48% of
total net sales for the third quarter and first nine months of 1994,
respectively, compared with 46% for both the third quarter and first nine
months of 1993. Domestic net sales grew 14% in the third quarter and 11%
in the first nine months of 1994 over the comparable periods of 1993.
8
<PAGE>
In general, the Company's resellers typically purchase products on an as-
needed basis due to the Company's distribution strategy, which is designed
to expedite the filling of orders. Resellers frequently change delivery
schedules and order rates depending on changing market conditions.
Unfilled orders ("backlog") can be, and often are, canceled at will. The
Company's backlog increased to approximately $767 million at August 5,
1994, from approximately $496 million at April 29, 1994, primarily due to
new product introductions which occurred during the Company's third
quarter.
In the Company's experience, the actual amount of product backlog at any
particular time is not a meaningful indication of its future business
prospects. In particular, backlog often increases in anticipation of or
immediately following introduction of new products, such as the recently
introduced Power Macintosh and PowerBook 500 series of notebook personal
computers, because of over-ordering by dealers anticipating shortages.
Backlog often is reduced sharply once dealers and customers believe they
can obtain sufficient supply. Because of the foregoing, as well as other
factors affecting the Company's backlog, backlog should not be considered a
reliable indicator of the Company's future revenue or financial
performance. See "Factors That May Affect Future Operating Results and
Financial Condition" below.
Gross Margin
Gross margin declined both in amount and as a percentage of net sales
during the third quarter and first nine months of 1994, respectively, over
the comparable periods of 1993. The decline in gross margin as a percentage
of net sales was primarily a result of pricing and promotional actions
undertaken by the Company in response to industrywide pricing pressures
(including the increasing price competition that the Company is
experiencing in the Japanese market) and relatively high levels of
inventory. Gross margin was also adversely affected by increased costs
associated with providing customers a wider variety of product
configuration options.
Gross margin was also affected somewhat adversely by changes in foreign
currency exchange rates as a result of a stronger U.S. dollar relative to
certain foreign currencies during both the first and second quarters of
1994, compared with the corresponding periods of 1993. Gross margin was
relatively unaffected by changes in foreign currency exchange rates during
the third quarter of 1994, compared with the corresponding period of 1993.
The Company's operating strategy and pricing take into account changes in
exchange rates over time; however, the Company's results of operations can
be significantly affected in the short term by fluctuations in foreign
currency exchange rates.
Although gross margin increased from 24.0% in the second quarter of 1994 to
26.7% in the third quarter of 1994, primarily due to increased sales of
Power Macintosh products coupled with strong early demand for the new
PowerBook 500 series of notebook personal computers, the Company
anticipates that gross margins will remain under pressure and below prior
years' levels worldwide due to a variety of factors, including continued
industrywide pricing pressures, increased competition and compressed
product life cycles.
<TABLE>
<CAPTION>
Research and Third Quarter Nine Months
Development
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Research and
development $135 $174 -22.2% $422 $500 -15.6%
Percentage of net
sales 6.3% 9.4% 6.3% 8.6%
</TABLE>
Research and development expenditures decreased both in amount and as a
percentage of net sales in the third quarter and first nine months of 1994,
compared with the corresponding periods of 1993. This decrease reflects
the results of the Company's restructuring actions aimed at reducing costs,
including product development expenditures.
The Company believes that continued investments in research and development
are critical to its future growth and competitive position in the
marketplace and are directly related to continued, timely development of
new and enhanced products. The Company anticipates that research and
development expenditures will decrease slightly as a percentage of net
sales during the remainder of 1994, as the Company maintains its efforts to
manage operating expense levels relative to gross margin levels.
9
<PAGE>
<TABLE>
<CAPTION>
Selling, General and
Administrative
Third Quarter Nine Months
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative $333 $418 -20.3% $1,038 $1,253 -17.2%
Percentage of net
sales 15.5% 22.4% 15.5% 21.5%
</TABLE>
Selling, general and administrative expenses decreased both in amount and
as a percentage of net sales in the third quarter and first nine months of
1994, compared with the corresponding periods of 1993. This decrease was
primarily attributable to the Company's restructuring actions initiated in
the third quarter of 1993, which resulted in a decrease in employee-related
expenses. Lower selling expenses also contributed to the decrease as the
Company continued its efforts to manage operating expense levels relative
to gross margin levels.
The Company will continue to face the challenge of managing selling,
general and administrative expense levels relative to gross margin levels,
particularly in light of the Company's expectation of continued pressure on
gross margins, and continued weak economic conditions worldwide.
<TABLE>
<CAPTION>
Restructuring Costs Third Quarter Nine Months
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Restructuring costs $(127) $321 -139.5% $(127) $321 -139.5%
Percentage of net
sales -5.9% 17.2% -1.9% 5.5%
</TABLE>
In the third quarter of 1993, the Company initiated a plan to restructure
its operations worldwide in order to address the competitive conditions in
the personal computer industry, including the increased market demand for
lower-priced products. In connection with this plan, the Company recorded
a $321 million charge to operating expenses ($199 million, or $1.72 per
share, after taxes). The restructuring costs included $162 million of
estimated employee-related expenses and $159 million of estimated
facilities, equipment, and other expenses associated with the consolidation
of operations and the relocation and termination of certain operations and
employees.
In the third quarter of 1994, the Company lowered its estimate of the total
costs associated with the restructuring and recorded an adjustment which
increased income by $127 million ($79 million, or $0.66 per share, after
taxes). This adjustment primarily reflects the modification or
cancellation of certain elements of the Company's original restructure plan
because changing business and economic conditions have made certain
elements of the Company's original restructure plan financially less
attractive than originally anticipated. In addition, some actions were
completed at a lower cost than originally estimated.
The most significant element of the adjustment is associated with $61
million in costs accrued to move a number of employees from the San
Francisco Bay Area to a lower cost location. This part of the Company's
original restructure plan was expected to result in the termination or
relocation of approximately 2,000 employees and the closure of certain
leased facilities, at a cost of $39 million and $22 million respectively.
The expected benefits of this move have been reduced since the plan's
inception because of changes to the cost differential between the Company's
current and alternative locations. For example, the Company favorably
renegotiated the lease terms of certain facilities in its current location,
the salary growth rate differentials between the Bay Area and alternative
locations have been reduced and recent changes to the California income tax
code make it more attractive for companies to do business in California.
The Company canceled this action in the current quarter
10
<PAGE>
when management decided that the extended estimated pay-back period no
longer justified the initial cash investment and the unquantifiable cost of
business disruption that such a move would precipitate.
The Company continues to search for ways to permanently reduce its cost
structure; however, the Company has achieved a lower level of operating
expenses without fully implementing all of the restructuring actions as
originally planned. For example, operating expenses (excluding
restructure) in the third quarter of fiscal 1994 have been reduced by $124
million from the same quarter a year ago.
As of July 1, 1994, the Company had $75 million of accrued restructuring
costs for actions that are currently underway and expected to be completed
within one year. Of this remaining $75 million reserve, approximately $70
million represents cash charges, the majority of which are expected to be
incurred within one year. Spending beyond one year primarily relates to
approximately $6 million of recurring payments under noncancelable
operating leases, which will extend beyond the initiation of the
restructure action.
<TABLE>
<CAPTION>
Interest and Other Third Quarter Nine Months
Income (Expense),Net 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Interest and other
income (expense),
net $(10) $3 -430.2% $(17) $32 -151.3%
</TABLE>
Interest and other income (expense), net, decreased during the third
quarter of 1994, compared with the corresponding period of 1993. Nine
million dollars of this decline reflected gains of six million dollars
related to the Company's ongoing hedging activities recorded in the third
quarter of 1993, compared with losses of three million dollars related to
the same activities, recorded in the third quarter of 1994. In general,
gains and losses on foreign exchange activity recorded to interest and
other income (expense), net, relate to transaction exposure hedging and
include the mark-to-market results of all foreign exchange contracts that
are not eligible for hedge accounting treatment. Also attributable to the
decline, was an increase in interest expense of six million dollars due to
higher interest rates and larger borrowing balances used to fund working
capital needs. The Company's interest rate hedging strategies are
generally designed to better match the Company's floating-rate interest
earnings on its cash equivalents and short-term investments with the fixed-
rate interest expense on its long-term debt. In line with this strategy,
the Company entered into derivative interest rate transactions on a
majority of its long-term debt, swapping its fixed-rate obligation to a
floating-rate obligation.
Interest and other income (expense), net, decreased in the first nine
months of 1994, compared with the corresponding period of 1993. This
decrease primarily reflected the following non-recurring transactions which
occurred in the first nine months of 1993: interest earned on an income tax
refund from the Internal Revenue Service and a gain on the sale of certain
of the Company's venture capital investments. Also contributing to this
decrease was an increase in interest expense in 1994 due to higher interest
rates and larger borrowing balances used to fund working capital needs.
This decrease was offset in part by certain financing expenses recorded in
1993 that did not recur in 1994.
<TABLE>
<CAPTION>
Income Tax Provision Third Quarter Nine Months
(Benefit) 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
(benefit) $85 $(115) 173.3% $120 $51 133.0%
Effective tax rate 38% 38% 38% 38%
</TABLE>
The information contained in Note 2 of the Notes to Consolidated Financial
Statements (Unaudited) in Part I, Item 1 of this Quarterly Report on Form
10-Q is incorporated by reference into this discussion.
11
<PAGE>
Factors That May Affect Future Operating Results and Financial Condition
The Company's future operating results and financial condition are
dependent on the Company's ability to successfully develop, manufacture and
market technologically innovative products in order to meet dynamic
customer demand patterns. Inherent in this process are a number of factors
that the Company must successfully manage in order to achieve favorable
future operating results and financial condition.
Product Introductions and Transitions
Due to the highly volatile nature of the personal computer industry which
is characterized by dynamic customer demand patterns and rapid
technological advances, the Company frequently introduces new products and
product enhancements. The success of new product introductions is
dependent on a number of factors including market acceptance, the Company's
ability to manage the risks associated with product transitions, the
effective management of inventory levels in line with anticipated product
demand, and the manufacturing of products in appropriate quantities to meet
anticipated demand. Accordingly, the Company cannot determine the ultimate
effect that new products will have on its sales or results of operations.
On March 14, 1994, the Company introduced Power Macintosh, a new line of
Macintosh computers based on a new PowerPC family of RISC microprocessors.
The Company's results of operations and financial condition may be
adversely affected if it is unable to successfully complete the transition
of its line of Macintosh personal computers and servers from the Motorola
68000 series of microprocessors to the PowerPC microprocessor. The success
of this ongoing transition will depend on the Company's ability to continue
to sell products based on the Motorola 68000 series of microprocessors
while gaining market acceptance of the new PowerPC-based products, to
successfully manage inventory levels of both product lines simultaneously,
and to coordinate the timely development and distribution of new "native"
versions of commonly-used software products specifically designed for the
PowerPC-based products by independent software vendors. For example,
potential users may defer a decision to purchase Power Macintosh products
until certain productivity applications (such as Microsoft (registered
trademark) Excel (registered trademark) and Word (registered trademark))
are available as native software products for Power Macintosh.
The rate of product shipment immediately following introduction of a new
product is not necessarily an indication of the anticipated future rate of
shipments for that product, which depends on many factors, some of which
are not under the control of the Company. These factors may include:
initial large purchases by a small segment of the user population which
tends to purchase new technology prior to its acceptance by the majority of
users (early adopters); purchases in satisfaction of pent-up demand by
persons who anticipated new technology and as a result deferred purchases
of other products; and over-ordering by dealers who anticipate shortages
due to the aforementioned factors. The preceding may also be offset by
other factors, such as: the deferral of purchases by many users until new
technology is accepted as "proven" and for which commonly used software
products are available; and the reduction of orders by dealers once they
believe they can obtain sufficient supply of previously backlogged product.
The measurement of demand for newly introduced products is further
complicated by the availability of different product configurations, which
may include various types of built-in peripherals and software.
Configurations may also require certain localization (such as language) for
various markets and, as a result, demand in different geographic areas may
be a function of the availability of third-party software in those
localized versions. For example, the availability of European language
versions of software products manufactured by U.S. producers may lag behind
the availability of U.S. versions by a quarter or more. This may result in
lower initial demand for new products in geographic areas outside of the
United States, although localized versions of the Company's new products
may be available.
Backlog is often volatile after new product introductions due to the above
demand factors, often increasing sharply coincident with introduction, and
then reducing sharply once dealers and customers believe they can obtain
sufficient supply.
12
<PAGE>
Competition
The personal computer industry is highly competitive and continues to be
characterized by consolidations in the hardware and software industries,
aggressive pricing practices, and downward pressure on gross margins. The
Company's results of operations and financial condition could be adversely
affected should the Company be unable to effectively manage the impact on
the Company of industrywide pricing pressures and continue to realize the
anticipated cost-reduction benefits associated with its restructuring plan
initiated in the third quarter of 1993.
The Company's future operating results and financial condition may also be
affected by the Company's ability to offer customers competitive
technologies while effectively managing the impact on inventory levels and
the potential for customer confusion created by product proliferation.
The Company's future operating results and financial condition may also be
affected by the Company's ability to implement and manage the competitive
risk associated with certain of the Company's collaboration agreements with
other companies, such as the agreements with International Business
Machines Corporation (IBM).
The Company's future operating results and financial condition may also be
affected by the Company's ability to increase market share in its personal
computer business. The Company is currently the only maker of hardware
which uses the Macintosh operating system; however, the Company has only a
minority market share in the personal computer market, which is dominated
by makers of computers which run the MS-DOS(registered trademark) and
Microsoft Windows(trademark) operating systems. Although certain of
the Company's personal computer products are capable of running software
designed for the MS-DOS or Windows operating systems, they do so by
means of software emulation of Intel microprocessor chips (except for
one product, which does so by means of a co-processor card). However,
optimal performance of the Company's products is obtained by use of
software specifically designed for the Company's products, either
those based on the Motorola 68000 series of microprocessors
or those based on the PowerPC microprocessor.
Decisions by customers to purchase the Company's personal computers, as
opposed to a MS-DOS or Windows-based system, are often based on the
availability of third-party software for particular applications. The
Company believes that the availability of third-party application software
for the Company's hardware products depends in part on the third-party
developer's perception and analysis of the relative benefits of developing
such software for the Company's products as opposed to the larger MS-
DOS/Windows market. This analysis is based on factors such as the relative
market share of the Company's products, the anticipated potential revenue
which may be earned, and the associated costs of developing such software
products.
Microsoft Corporation is the developer of MS-DOS and the Windows operating
systems, which are the principal competing operating systems to the
Company's Macintosh operating system. Microsoft is also an important
developer of application software for the Company's products. Accordingly,
Microsoft's interest in producing application software for the Company's
products may be influenced by its perception of its interests as an
operating system vendor.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
new PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors which produce superior
price/performance results compared with those supplied to the Company's
competitors by Intel Corporation, the developer and producer of the
microprocessor used by most personal computers using the MS-DOS and Windows
operating systems. IBM produces personal computers based on the Intel
microprocessors as well as on the PowerPC microprocessor, and is also the
developer of OS/2, a competing operating system to the Company's Macintosh
operating system. Accordingly, IBM's interest in supplying the Company
with improved versions of microprocessors for the Company's products may be
influenced by its perception of its interests as a competing manufacturer
of personal computers and as a competing operating system vendor.
13
<PAGE>
The Company's future operating results and financial condition may also be
affected by the Company's ability to successfully expand its new
businesses and product offerings into other markets such as broadening
industry acceptance of the Newton (trademark) personal digital assistant
(PDA) products and effectively licensing Newton technology and marketing
the related products and services.
Global and General Economic Conditions
A large portion of the Company's revenues in recent years has come from its
international operations. As a result, the Company's operating results and
financial condition could be significantly affected by international
factors, such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets in which the Company distributes its
products. The Company's operating strategy and pricing take into account
changes in exchange rates over time; however, the Company's results of
operations can be significantly affected in the short term by fluctuations
in foreign currency exchange rates.
Inventory
The Company's products include certain components, such as specific
microprocessors manufactured by Motorola Inc. and monochrome active-matrix
displays manufactured by Hosiden Corporation, that are currently available
only from single sources. Any availability limitations, interruptions in
supplies, or price increases of these and other components could adversely
affect the Company's business and financial results. The Company's future
operating results and financial condition may also be adversely affected
by the Company's ability to manage inventory levels and lead times required
to obtain components in order to be more responsive to short-term shifts in
customer demand patterns. In addition, if anticipated unit sales growth
for new and current product offerings is not realized, inventory valuation
reserves may be necessary which could adversely impact the Company's
results of operations and financial condition.
Marketing and Distribution
A number of uncertainties exist regarding the marketing and distribution of
the Company's products. Currently, the Company's primary means of
distribution is through third-party computer resellers. However, in
response to changing industry practices and customer preferences, the
Company is continuing its expansion into various consumer channels such as
mass-merchandise stores (such as Sears and Wal-Mart), consumer electronics
outlets, and computer superstores. The Company's business and financial
results could be adversely affected if the financial condition of these
sellers weakens or if sellers within consumer channels decide not to
continue to distribute the Company's products.
Other
The majority of the Company's research and development activities, its
corporate headquarters, and other critical business operations are located
near major seismic faults. The Company's operating results and financial
condition could be materially adversely affected in the event of a major
earthquake.
The Company plans to replace its current transaction systems (which include
order management, distribution, manufacturing and finance) with a single
integrated system as part of its ongoing effort to increase operational
efficiency. The Company's future operating results and financial condition
could be adversely affected by its ability to implement and effectively
manage the transition to this new integrated system.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
14
<PAGE>
<TABLE>
<CAPTION>
Liquidity and Capital Resources
Nine Months
1994
<S> <C>
Cash generated by operations $ 495
Cash used for investment
activities, excluding short-
term investments $ 159
</TABLE>
The Company's financial position with respect to cash, cash equivalents and
short-term investments, net of short-term borrowings increased to $713
million at July 1, 1994, from $69 million at September 24, 1993. This
increase includes $300 million in long-term debt proceeds due to the
implementation of long-term financing arrangements which replaced short-
term financing. This increase was also attributable to the Company's
continued efforts to improve profit levels and to manage working capital,
particularly in the area of inventory management.
Cash generated by operations during the first nine months of 1994 totaled
$495 million. Cash was generated primarily by the decrease in inventory
levels which resulted from improved inventory management, improved 1994
sales levels attributable to various pricing and promotional actions, and
sales of inventory which had been built up in preparation for the
introduction of Power Macintosh products. Increased sales and improved
profit levels also contributed to cash generated by operations during the
first nine months of 1994. Accounts receivable decreased over the nine-
month period, reflecting improved cash collection activity.
Cash generated by operations was partially offset by cash used for
restructuring of $106 million, as the restructuring actions initiated in
the third quarter of 1993 continued to be implemented. In addition, in the
third quarter of 1994, the Company lowered its estimate of the costs
associated with the restructuring and recorded an adjustment which
increased income by $127 million ($79 million, or $0.66 per share, after
taxes). This adjustment primarily reflects the modification or
cancellation of certain elements of the Company's original restructuring
plan because changing business and economic conditions have made certain
elements of the Company's original restructure plan financially less
attractive than originally anticipated.
Cash used for the purchase of property, plant and equipment totaled
approximately $123 million during the first nine months of 1994. These
purchases were primarily for land, buildings, machinery and equipment. The
Company anticipates that capital expenditures in 1994 will be slightly
below 1993 expenditures of $213 million.
In January 1994, a wholly-owned subsidiary of the Company exercised its
option to purchase for $51.9 million the remaining partnership interest in
the Cupertino Gateway Partners partnership, a general partnership, which
owned the Company's campus-type office facilities located in Cupertino,
California (the "Campus"). As a result of this purchase, the Company's
wholly-owned subsidiary now owns 100% of the right, title and interest in
the Campus. The $51.9 million payment is included in the $123 million of
property, plant and equipment purchased during the first nine months of
1994.
The Company's aggregate short- and long-term borrowings at July 1, 1994,
were approximately $821 million, comprised of approximately $516 million in
short-term borrowings and approximately $305 million in long-term
borrowings. Aggregate borrowings at September 24, 1993 were $830 million.
15
<PAGE>
The balance of long-term debt increased during the first nine months of
1994, due to the issuance of $300 million aggregate principal amount of
6.5% unsecured notes under an omnibus shelf registration statement filed
with the Securities and Exchange Commission. This shelf registration was
for the registration of debt and other securities for an aggregate
offering amount of $500 million. The notes were sold at 99.925% of par,
for an effective yield to maturity of 6.51%. The notes pay interest
semi-annually and mature on February 15, 2004.
Short-term borrowings at July 1, 1994, were approximately $308 million
lower than at September 24, 1993, as the proceeds from the issuance of $300
million in long-term debt were used to pay down the balance of short-term
borrowings. The Company's short-term borrowings are principally under its
commercial paper program. From time to time, the Company also borrows to
finance operations pursuant to short-term uncommitted bid-line arrangements
with commercial banks. During the first quarter of 1994, the Company
entered into a $500 million unsecured revolving credit facility with a
syndicate of banks to support its commercial paper program. No borrowings
have been made under this facility. In addition, during the first nine
months of 1994, Apple Japan, Inc., a wholly-owned subsidiary of the
Company, incurred short-term yen-denominated borrowings from several
Japanese banks, the balance of which aggregated the U.S. dollar equivalent
of approximately $260 million at July 1, 1994.
The Company expects that it will continue to incur short- and long-term
borrowings from time to time to finance U.S. working capital needs and
capital expenditures, because substantially all of the Company's cash, cash
equivalents, and short-term investments are held by foreign subsidiaries,
generally in U.S. dollar-denominated holdings. Amounts held by foreign
subsidiaries would be subject to U.S. income taxation upon repatriation to
the United States; the Company's financial statements fully provide for any
related tax liability on amounts that may be repatriated. See Note 2 of
the "Notes to Consolidated Financial Statements (Unaudited)" in Part I,
Item 1 for further discussion.
The Internal Revenue Service has proposed federal income tax deficiencies
for the years 1984 through 1988, which the Company is contesting. The
Company believes the resolution of any tax liability for these proposed tax
deficiencies will occur over the course of the next several years.
Although payment of any assessment is not required until the end of such
process, the Company elected to make a prepayment in April 1991 for the
years 1984 through 1986, and a prepayment in May 1993 for the years 1987
through 1988.
The Company believes that its balances of cash, cash equivalents, and short-
term investments, together with funds generated from operations and short-
and long-term borrowing capabilities, will be sufficient to meet its
operating cash requirements in the foreseeable future.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to pages 34 through 36 of the Company's 1993 Form 10-K
under the heading "Litigation", for a discussion of certain litigation
involving Microsoft Corporation and Hewlett-Packard Company; 1993
Securities and Derivative Litigation; litigation involving a complaint
filed by Jerome Lemelson; and litigation involving a complaint filed by
Richard B. Grant.
On July 11, 1994 there were oral arguments in Apple Computer, Inc. v.
Microsoft Corporation & Hewlett-Packard Company before the Ninth Circuit
Court of Appeals relating to the appeal by Apple from the final judgment
entered in the District Court. The Court of Appeals has not yet issued its
decision.
Lemelson v. Apple Computer, Inc. is scheduled to go to jury trial in
January, 1995. Mr. Lemelson has not specified damages claimed in that case
but has requested injunctive relief. Grant v. Apple Computer, Inc. is
scheduled to go to jury trial in October, 1994. Mr. Grant claims damages
up to $729 million dollars, has requested these damages be trebled, and has
requested injunctive relief.
The Company continues to believe the suits cited above to be without merit
and intends to vigorously defend against these actions. The Company
believes resolution of all these matters will not have a material adverse
effect on its financial condition and results of operations as reported in
the accompanying financial statements.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
Exhibit 3.3 By-Laws of the Company, as amended through
April 20, 1994.
b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURE
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.
APPLE COMPUTER, INC.
(Registrant)
DATE: August 11, 1994 BY /s/ Joseph A. Graziano
Joseph A. Graziano
Executive Vice President and
Chief Financial Officer
18
<PAGE>
APPLE COMPUTER, INC.
INDEX TO EXHIBITS
Exhibit Description Page Number
Index
Exhibit 3.3 By-Laws of the Company, as amended
through April 20, 1994. 20
19
<PAGE>
(EXHIBIT 3.3)
BY-LAWS
OF
APPLE COMPUTER, INC.
(a California corporation)
(as amended through April 20, 1994)
Article I
OFFICES
Section 1.1: Principal Office. The principal executive office for
the transaction of the business of this corporation shall be 1 Infinite
Loop, Cupertino, California 95014. The Board of Directors is hereby
granted full power and authority to change the location of the principal
executive office from one location to another.
Section 1.2: Other Offices. One or more branch or other subordinate
offices may at any time be fixed and located by the Board of Directors at
such place or places within or without the State of California as it deems
appropriate.
Article II
DIRECTORS
Section 2.1: Exercise of Corporate Powers. Except as otherwise
provided by these By-Laws, by the Articles of Incorporation of this
corporation or by the laws of the State of California now or hereafter in
force, the business and affairs of this corporation shall be managed and
all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Section 2.2: Number. The number of directors of the corporation
shall be not less than five (5) nor more than nine (9). The exact number
of directors shall be eight (8) until changed within the limits specified
above, by a by-law amending this section, duly adopted by the Board of
Directors or by the shareholders. The indefinite number of directors may
be changed, or a definite number fixed without provision for an
indefinite number, by a duly adopted amendment to the Articles of
Incorporation or by an amendment to this by-law duly adopted by the vote or
written consent of holders of a majority of the
20
<PAGE>
outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number
less than five (5) cannot be adopted if the votes cast against its adoption
at a meeting of the shareholders, or the shares not consenting in the case
of action by written consent, are equal to more than 16-2/3% of the
outstanding shares entitled to vote. No amendment may change the stated
maximum number of authorized directors to a number greater than two times
the stated minimum number of directors minus one.
Section 2.3: Need Not Be Shareholders. The directors of this
corporation need not be shareholders of this corporation.
Section 2.4: Compensation. Directors and members of committees may
receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board of Directors. Nothing herein
contained shall be construed to preclude any director from serving this
corporation in any other capacity and receiving compensation therefor.
Section 2.5: Election and Term of Office. The directors shall be
divided into two classes, designated Class I and Class II. Each class
shall consist of one-half of the directors or as close an approximation as
possible. The initial term of office of the directors of Class I shall
expire at the annual meeting to be held during fiscal year 1991 and the
initial term of office of the directors of Class II shall expire at the
annual meeting to be held during fiscal year 1992. At each annual meeting,
commencing with the annual meeting to be held during fiscal year 1991, each
of the successors to the directors of the class whose term shall have
expired at such annual meeting shall be elected for a term running until
the second annual meeting next succeeding his or her election and until his
or her successor shall have been duly elected and qualified.
Section 2.6: Vacancies. A vacancy or vacancies on the Board of
Directors shall exist in case of the death, resignation or removal of any
director, or if the authorized number of directors is increased, or if the
shareholders fail, at any annual meeting of shareholders at which any
director is elected, to elect the full authorized number of directors to be
voted for at that meeting. The Board of Directors may declare vacant the
office of a director if he or she is declared of unsound mind by an order
of court or convicted of a felony or if, within 60 days after notice of his
or her election, he or she does not accept the office. Any vacancy, except
for a vacancy created by removal of a director as provided in Section 2.7
hereof, may be filled by a person selected by a majority of the remaining
directors then in office, whether or not less than a quorum, or by a sole
remaining director. Vacancies occurring in the Board of Directors by
reason of
removal of directors shall be filled only by approval of shareholders. The
shareholders may elect a director at any time to fill any vacancy not
filled by the directors. Any such election by written consent requires the
consent of a majority of the outstanding shares entitled to vote. If,
after the filling of any vacancy by the directors, the directors then in
office who have been elected by the shareholders shall constitute less than
a majority of the directors then in office, any holder or holders of an
aggregate of 5% or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of shareholders to be held to elect the entire
21
<PAGE>
Board of Directors. The term of office of any director shall terminate
upon such election of a successor. Any director may resign effective upon
giving written notice to the Chairman of the Board, if any, the Chief
Executive Officer, the President, the Secretary or the Board of Directors
of this corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective. A reduction of the authorized number of directors shall
not remove any director prior to the expiration of such director's term of
office.
Section 2.7: Removal. The entire Board of Directors or any
individual director may be removed without cause from office by an
affirmative vote of a majority of the outstanding shares entitled to vote;
provided that, unless the entire Board of Directors is removed, no director
shall be removed when the votes cast against removal, or not consenting in
writing to such removal, would be sufficient to elect such director if
voted cumulatively (without regard to whether such shares may be voted
cumulatively) at an election at which the same total number of votes were
cast, or, if such action is taken by written consent, all shares entitled
to vote were voted, and either the number of directors elected at the most
recent annual meeting of shareholders, or if greater, the number of
directors for whom removal is being sought, were then being elected. If
any or all directors are so removed, new directors may be elected at the
same meeting or at a subsequent meeting. If at any time a class or series
of shares is entitled to elect one or more directors under authority
granted by the Articles of Incorporation of this corporation, the
provisions of this Section 2.7 shall apply to the vote of that class or
series and not to the vote of the outstanding shares as a whole.
Section 2.8: Powers and Duties. Without limiting the generality or
extent of the general corporate powers to be exercised by the Board of
Directors pursuant to Section 2.1 of these By-Laws, it is hereby provided
that the Board of Directors shall have full power with respect to the
following matters:
(a) To purchase, lease, and acquire any and all kinds of
property, real, personal or mixed, and at its discretion to pay therefor in
money, in property and/or in stocks, bonds, debentures or other securities
of this corporation.
(b) To enter into any and all contracts and agreements which in
its judgment may be beneficial to the interests and purposes of this
corporation.
(c) To fix and determine and to vary from time to time the
amount or amounts to be set aside or retained as reserve funds or as
working capital of this corporation or for maintenance, repairs,
replacements or enlargements of its properties.
(d) To declare and pay dividends in cash, shares and/or property
out of any funds of this corporation at the time legally available for the
declaration and payment of dividends on its shares.
22
<PAGE>
(e) To adopt such rules and regulations for the conduct of its
meetings and the management of the affairs of this corporation as it may
deem proper.
(f) To prescribe the manner in which and the person or persons
by whom any or all of the checks, drafts, notes, bills of exchange,
contracts and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the
office of a director as provided in Section 2.6 hereof; and, in case of
vacancy in the office of directors, to fill the same to the extent provided
in Section 2.6 hereof.
(h) To create offices in addition to those for which provision
is made by law or these By-Laws; to elect and remove at pleasure all
officers of this corporation, fix their terms of office, prescribe their
powers and duties, limit their authority and fix their salaries in any way
it may deem advisable which is not contrary to law or these By-Laws; and,
if it sees fit, to require from the officers or any of them security for
faithful service.
(i) To designate some person to perform the duties and exercise
the powers of any officer of this corporation during the temporary absence
or disability of such officer.
(j) To appoint or employ and to remove at pleasure such agents
and employees as it may see fit, to prescribe their titles, powers and
duties, limit their authority, and fix their salaries in any way it may
deem advisable which is not contrary to law or these By-Laws; and, if it
sees fit, to require from them or any of them security for faithful
performance.
(k) To fix a time in the future, which shall not be more than 60
days nor less than 10 days prior to the date of the meeting nor more than
sixty (60) days prior to any other action for which it is fixed, as a
record date for the determination of the shareholders entitled to notice of
and to vote at any meeting, or entitled to receive any payment of any
dividend or other distribution, or allotment of any rights, or entitled to
exercise any rights in respect of any other lawful action; and in such case
only shareholders of record on the date so fixed shall be entitled to
notice of and to vote at the meeting or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of this
corporation after any record date fixed as aforesaid. The Board of
Directors may close the books of this corporation against transfers of
shares during the whole or any part of such period.
(l) To fix and locate from time to time the principal office for
the transaction of the business of this corporation and one or more branch
or other subordinate office or offices of this corporation within or
without the State of California; to designate any place within or without
the State of California for the holding of any meeting or meetings of the
shareholders or the Board of
23
<PAGE>
Directors, as provided in Sections 10.1 and 11.1 hereof; to adopt, make and
use a corporate seal, and to prescribe the forms of certificates for shares
and to alter the form of such seal and of such certificates from time to
time as in its judgment it may deem best, provided such seal and such
certificates shall at all times comply with the provisions of law now or
hereafter in effect.
(m) To authorize the issuance of shares of stock of this
corporation in accordance with the laws of the State of California and the
Articles of Incorporation of this corporation.
(n) Subject to the limitation provided in Section 14.2 hereof,
to adopt, amend or repeal from time to time and at any time these By-Laws
and any and all amendments thereof.
(o) To borrow money and incur indebtedness on behalf of this
corporation, including the power and authority to borrow money from any of
the shareholders, directors or officers of this corporation, and to cause
to be executed and delivered therefor in the corporate name promissory
notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor, and the
note or other obligation given for any indebtedness of this corporation,
signed officially by any officer or officers thereunto duly authorized by
the Board of Directors shall be binding on this corporation.
(p) To designate and appoint committees of the Board of
Directors as it may see fit, to prescribe their names, powers and duties
and limit their authority in any way it may deem advisable which is not
contrary to law or these By-Laws.
(q) Generally to do and perform every act and thing whatsoever
that may pertain to the office of a director or to a board of directors.
Article III
OFFICERS
Section 3.1: Election and Qualifications. The officers of this
corporation shall consist of a Chief Executive Officer, a President, one or
more Vice Presidents, a Secretary, a Chief Financial Officer and such other
officers, including, but not limited to, a Chairman of the Board of
Directors, a Treasurer, and Assistant Secretaries and Assistant Treasurers
as the Board of Directors shall deem expedient, who shall be chosen in such
manner and hold their offices for such terms as the Board of Directors may
prescribe. Any two or more of such offices may be held by the same person.
Any Vice President, Assistant Treasurer or Assistant Secretary,
respectively, may exercise any of the powers of the Chief Executive
Officer, the President, the Chief Financial Officer, or the Secretary,
respectively, as directed by the Board of Directors, and shall perform such
other duties as are imposed upon him or her by the By-Laws or the Board of
Directors.
24
<PAGE>
Section 3.2: Term of Office and Compensation. The term of office
and salary of each of said officers and the manner and time of the payment
of such salaries shall be fixed and determined by the Board of Directors
and may be altered by said Board from time to time at its pleasure, subject
to the rights, if any, of an officer under any contract of employment. Any
officer may resign at any time upon written notice to this corporation,
without prejudice to the rights, if any, of this corporation under any
contract to which the officer is a party. If any vacancy occurs in any
office of this corporation, the Board of Directors may elect a successor to
fill such vacancy.
Article IV
CHAIRMAN OF THE BOARD
Section 4.1: Powers and Duties. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings
of the Board of Directors and shall have such other powers and shall be
subject to such other duties as the Board of Directors may from time to
time prescribe.
Article V
CHIEF EXECUTIVE OFFICER
Section 5.1: Powers and Duties. The powers and duties of the Chief
Executive Officer are:
(a) To act as the general manager and chief executive officer of
this corporation and, subject to the control of the Board of Directors, to
have general supervision, direction and control of the business and affairs
of this corporation.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board or if there be no Chairman, at all
meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the
Board of Directors to be held at such times and, subject to the limitations
prescribed by law or by these By-Laws, at such places as he or she shall
deem proper.
(d) To affix the signature of this corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the Chief Executive Officer,
should be executed on behalf of this corporation; to sign certificates for
shares of stock of this corporation; and, subject to the direction of the
Board of Directors, to have general charge of the property of this
corporation and to supervise and control all officers, agents and employees
of this corporation.
25
<PAGE>
Article VA
PRESIDENT
Section 5A.1: Powers and Duties. The powers and duties of the
President are:
(a) To act as the general manager of this corporation and,
subject to the control of the Board of Directors, to have general
supervision, direction and control of the business and affairs of this
corporation.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board and the Chief Executive Officer or if
there be no Chairman or Chief Executive Officer, at all meetings of the
Board of Directors.
(c) To affix the signature of this corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the President, should be executed
on behalf of this corporation; to sign certificates for shares of stock of
this corporation; and, subject to the direction of the Board of Directors,
to have general charge of the property of this corporation and to supervise
and control all officers, agents and employees of this corporation.
Section 5A.2: President Pro Tem. If neither the Chairman of the
Board, the Chief Executive Officer, the President, nor any Vice President
is present at any meeting of the Board of Directors, a President pro tem
may be chosen to preside and act at such meeting. If neither the Chief
Executive Officer, the President nor any Vice President is present at any
meeting of the shareholders, a President pro tem may be chosen to preside
at such meeting.
Article VI
VICE PRESIDENT
Section. 6.1: Powers and Duties. The titles, powers and duties of
the Vice President or Vice Presidents shall be prescribed by the Board of
Directors. In case of the absence, disability or death of the Chief
Executive Officer, the President, the Vice President, or one of the Vice
Presidents, shall exercise all his or her powers and perform all his or her
duties. If there is more than one Vice President, the order in which the
Vice Presidents shall succeed to the powers and duties of the Chief
Executive Officer or President shall be as fixed by the Board of Directors.
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Article VII
SECRETARY
Section 7.1: Powers and Duties. The powers and duties of the
Secretary are:
(a) To keep a book of minutes at the principal executive office
of this corporation, or such other place as the Board of Directors may
order, of all meetings of its directors and shareholders with the time and
place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings and the proceedings thereof.
(b) To keep the seal of this corporation and to affix the same
to all instruments which may require it.
(c) To keep or cause to be kept at the principal executive
office of this corporation, or at the office of the transfer agent or
agents, a record of the shareholders of this corporation, giving the names
and addresses of all shareholders and the number and class of shares held
by each, the number and date of certificates issued for shares and the
number and date of cancellation of every certificate surrendered for
cancellation.
(d) To keep a supply of certificates for shares of this
corporation, to fill in all certificates issued, and to make a proper
record of each such issuance; provided that so long as this corporation
shall have one or more duly appointed and acting transfer agents of the
shares, or any class or series of shares, of this corporation, such duties
with respect to such shares shall be performed by such transfer agent or
transfer agents.
(e) To transfer upon the share books of this corporation any and
all shares of this corporation; provided that so long as this corporation
shall have one or more duly appointed and acting transfer agents of the
shares, or any class or series of shares, of this corporation, such duties
with respect to such shares shall be performed by such transfer agent or
transfer agents, and the method of transfer of each certificate shall be
subject to the reasonable regulations of the transfer agent to which the
certificate is presented for transfer and, also, if this corporation then
has one or more duly appointed and acting registrars, subject to the
reasonable regulations of the registrar to which a new certificate is
presented for registration; and provided, further, that no certificate for
shares of stock shall be issued or delivered or, if issued or delivered,
shall have any validity whatsoever until and unless it has been signed or
authenticated in the manner provided in Section 12.3 hereof.
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(f) To make service and publication of all notices that may be
necessary or proper and without command or direction from anyone. In case
of the absence, disability, refusal or neglect of the Secretary to make
service or publication of any notices, then such notices may be served
and/or published by the Chief Executive Officer, the President or a Vice
President, or by any person thereunto authorized by either of them or by
the Board of Directors or by the holders of a majority of the outstanding
shares of this corporation.
(g) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
Article VIII
CHIEF FINANCIAL OFFICER
Section 8.1: Powers and Duties. The powers and duties of the Chief
Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate and
correct accounts of this corporation's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of
account shall at all reasonable times be open to inspection by any
director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of this corporation and, at his
or her discretion, to cause any or all thereof to be deposited for the
account of this corporation with such depository as may be designated from
time to time by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to
be given, receipts and acquittances for moneys paid in for the account of
this corporation.
(d) To disburse, or cause to be disbursed, all funds of this
corporation as may be directed by the Chief Executive Officer, the
President or the Board of Directors, taking proper vouchers for such
disbursements.
(e) To render to the Chief Executive Officer, the President or
to the Board of Directors, whenever either may require, accounts of all
transactions as Chief Financial Officer and of the financial condition of
this corporation.
(f) Generally to do and perform all such duties as pertain to
such office and as may be required by the Board of Directors.
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Article VIIIA
APPOINTED VICE PRESIDENTS, ETC.
Section 8A.l: Appointed Vice Presidents, Etc.; Appointment, Duties,
etc. The Chief Executive Officer of the corporation shall have the power,
in the exercise of his or her discretion, to appoint additional persons to
hold positions and titles such as vice president of the corporation or a
division of the corporation or president of a division of the corporation,
or similar such titles, as the business of the corporation may require,
subject to such limits in appointment power as the Board may determine.
The Board shall be advised of any such appointment at a meeting of the
Board, and the appointment shall be noted in the minutes of the meeting.
The minutes shall clearly state that such persons are non-corporate
officers appointed pursuant to this Section 8A.l of these By-laws.
Each such appointee shall have such title, shall serve in such
capacity and shall have such authority and perform such duties as the Chief
Executive Officer of the corporation shall determine.
Appointees may hold titles such as "president" of a division or
other group within the corporation, or "vice president" of the corporation
or of a division or other group within the corporation. However, any such
appointee, absent specific election by the Board as an elected corporate
officer, (i) shall not be considered an officer elected by the Board of
Directors pursuant to Article III of these By-Laws and shall not have the
executive powers or authority of corporate officers elected pursuant to
such Article III, (ii) shall not be considered (a) an "officer" of the
corporation for the purposes of Rule 3b-2 promulgated under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act") or an "executive officer" of the
corporation for the purposes of Rule 3b-7 promulgated under the Act, and
similarly shall not be considered an "officer" of the corporation for the
purposes of Section 16 of the Act (as such persons shall not be given the
access to inside information of the corporation enjoyed by officers of the
corporation) or an "executive officer" of the corporation for the purposes
of Section 14 of the Act or (b) a "corporate officer" for the purposes of
Section 312 of the California Corporation Code (the "Code"), except in any
such case as otherwise required by law, and (iii) shall be empowered to
represent himself or herself to third parties as an appointed vice
president, etc., only, and shall be empowered to execute documents, bind
the corporation or otherwise act on behalf of the corporation only as
authorized by the Chief Executive Officer or the President of the
Corporation or by resolution of the Board of Directors.
An elected officer of the corporation may also serve in an appointed
capacity hereunder.
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Article IX
EXECUTIVE COMMITTEE
Section 9.1: Appointment and Procedure. The Board of Directors may,
by resolution adopted by a majority of the authorized number of directors,
appoint from among its members an Executive Committee of two or more
members. The Executive Committee may make its own rules of procedure
subject to Section 11.9 hereof, and shall meet as provided by such rules or
by a resolution adopted by the Board of Directors (which resolution shall
take precedence). A majority of the members of the Executive Committee
shall constitute a quorum, and in every case the affirmative vote of a
majority of all members of the Committee shall be necessary to the adoption
of any resolution by such Committee.
Section 9.2: Powers. During the intervals between the meetings of
the Board of Directors, the Executive Committee, in all cases in which
specific directions shall not have been given by the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of this corporation
in such manner as the Committee may deem best for the interests of this
corporation, except with respect to:
(a) any action for which California law also requires
shareholder approval,
(b) the filling of vacancies on the Board of Directors or in the
committee,
(c) the fixing of compensation of the directors for serving on
the Board of Directors or on any committee,
(d) the amendment or repeal of By-Laws or the adoption of new By-
Laws,
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable,
(f) a distribution to the shareholders of this corporation,
except at a rate or in a periodic amount or within a price range determined
by the Board of Directors,
(g) the appointment of other committees of the Board of
Directors or the members thereof.
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Article X
MEETINGS OF SHAREHOLDERS
Section 10.1: Place of Meetings. Meetings (whether regular, special
or adjourned) of the shareholders of this corporation shall be held at the
principal executive office for the transaction of business of this
corporation, or at any place within or without the State which may be
designated by written consent of all the shareholders entitled to vote
thereat, or which may be designated by resolution of the Board of
Directors. Any meeting shall be valid wherever held if held by the written
consent of all the shareholders entitled to vote thereat, given either
before or after the meeting and filed with the Secretary of this
corporation.
Section 10.2: Annual Meetings. The annual meeting of the
shareholders shall be held at the hour of 10:00 a.m. on the last Wednesday
in January in each year , if not a legal holiday, and if a legal holiday,
then on the next succeeding business day not a legal holiday or at such
other time in a particular year as may be designated by written consent of
all the shareholders entitled to vote thereat or which may be designated by
resolution of the Board of Directors. Such annual meetings shall be held
at the place provided pursuant to Section 10.1 hereof. Said annual
meetings shall be held for the purpose of the election of directors, for
the making of reports of the affairs of this corporation and for the
transaction of such other business as may come before the meeting.
Section 10.3: Special Meetings. Special meetings of the shareholders
for any purpose or purposes whatsoever may be called at any time by the
President or by the Board of Directors, or by two or more members thereof,
or by one or more holders of shares entitled to cast not less than ten
percent (10%) of the votes at the meeting. Upon request in writing sent by
registered mail to the Chief Executive Officer, President, Vice President
or Secretary, or delivered to any such officer in person, by any person
entitled to call a special meeting of shareholders, it shall be the duty of
such officer forthwith to cause notice to be given to the shareholders
entitled to vote that a meeting will be requested by the person or persons
calling the meeting, which shall be not less than 35 days nor more than 60
days after the receipt of such request.
Section 10.4: Notice of Meetings. Notice of any meeting of shareholders
shall be given in writing not less than 10 nor more than 60 days before the
date of the meeting to each shareholder entitled to vote thereat by the
Secretary or an Assistant Secretary, or other person charged with that
duty, or if there be no such officer or person, or in case of his or her
neglect or refusal, by any director or shareholder. The notice shall state
the place, date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, and no other
business may be transacted, or (ii) in the case of the annual meeting,
those matters which the Board of Directors, at the time of the mailing of
the notice, intends to present for action by the shareholders, but any
proper matter may be
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presented at the meeting for such action except that notice must be given
or waived in writing of any proposal relating to approval of contracts
between the corporation and any director of this corporation, amendment of
the Articles of Incorporation, reorganization of this corporation or
winding up of this corporation. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at
the time of the notice to be presented by management for election. Written
notice shall be given by this corporation to any shareholder, either (i)
personally or (ii) by mail or other means of written communication, charges
prepaid, addressed to such shareholder at such shareholder's address
appearing on the books of this corporation or given by such shareholder to
this corporation for the purpose of notice. If a shareholder gives no
address or no such address appears on the books of this corporation, notice
shall be deemed to have been given if sent by mail or other means of
written communication addressed to the place where the principal executive
office of this corporation is located, or if published at least once in a
newspaper of general circulation in the county in which such office is
located. The notice shall be deemed to have been given at the time when
delivered personally or deposited in the United States mail, postage
prepaid, or sent by other means of written communication and addressed as
hereinbefore provided. An affidavit of delivery or mailing of any notice
in accordance with the provisions of this Section 10.4, executed by the
Secretary, Assistant Secretary or any transfer agent, shall be prima facie
evidence of the giving of the notice. If any notice addressed to the
shareholder at the address of such shareholder appearing on the books of
the corporation is returned to this corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable
to deliver the notice to the shareholder at such address, all future
notices shall be deemed to have been duly given without further mailing if
the same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of this corporation for a
period of one year from the date of the giving of the notice to all other
shareholders.
Section 10.5: Consent to Shareholders' Meetings. The transactions of
any meeting of shareholders, however called and noticed, and wherever held,
are as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a
consent to the holding of 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. Attendance
of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver
of any right to object to the consideration of matters required by law to
be included in the notice but not so included, if such objection is
expressly made at the meeting. Neither the business to be transacted at
nor the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, except as to approval of
contracts between this corporation and any of its directors, amendment of
the Articles of Incorporation, reorganization of this corporation or
winding up the affairs of this corporation.
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Section 10.6: Quorum. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business.
Shares shall not be counted to make up a quorum for a meeting if voting of
such shares at the meeting has been enjoined or for any reason they cannot
be lawfully voted at the meeting. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
Section 10.7: Adjourned Meetings. Any shareholders' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote
of a majority of the shares, the holders of which are either present in
person or represented by proxy thereat, but, except as provided in Section
10.6 hereof, in the absence of a quorum, no other business may be
transacted at such meeting. When a meeting is adjourned for more than 45
days or if after adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at a meeting. Except as aforesaid,
it shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted thereat other than by
announcement at the meeting at which such adjournment is taken. At any
adjourned meeting the shareholders may transact any business which might
have been transacted at the original meeting.
Section 10.8: Voting Rights. Only persons in whose names shares entitled
to vote stand on the stock records of this corporation at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held or, if some other day
be fixed for the determination of shareholders of record pursuant to
Section 2.8(j) hereof, then on such other day, shall be entitled to vote at
such meeting. The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors has been taken, shall be the day on
which the first written consent is given. In the absence of any contrary
provision in the Articles of Incorporation or in any applicable statute
relating to the election of directors or to other particular matters, each
such person shall be entitled to one vote for each share.
Section 10.9: Action by Written Consents. Any action which may be
taken at any annual or special meeting of shareholders may be taken without
a meeting and without prior notice, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Unless the consents of all
shareholders entitled to vote have been solicited in writing, notice of any
shareholder approval of (i) contracts between this corporation and any of
its directors, (ii) indemnification of any person, (iii) reorganization of
this corporation or (iv) distributions to
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shareholders upon winding up of this corporation in certain circumstances
without a meeting by less than unanimous written consent shall be given at
least 10 days before the consummation of the action authorized by such
approval, and prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have
not consented in writing. All notices given hereunder shall conform to the
requirements of Section 10.4 hereto and applicable law. When written
consents are given with respect to any shares, they shall be given by and
accepted from the persons in whose names such shares stand on the books of
this corporation at the time such respective consents are given, or any
shareholder's proxy holder, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders, may
revoke the consent by a writing received by this corporation prior to the
time that written consents of the number of shares required to authorize
the proposed action have been filed with the Secretary of this corporation,
but may not do so thereafter. Such revocation is effective upon its
receipt by the Secretary of this corporation. Notwithstanding anything to
the contrary, directors may not be elected by written consent except by
unanimous written consent of all shares entitled to vote for the election
of directors.
Section 10.10: Elections of Directors. In any election of directors,
the candidates receiving the highest number of affirmative votes of the
shares entitled to be voted for them up to the number of directors to be
elected by such shares are elected; votes against the directors and votes
withheld with respect to the election of the directors shall have no legal
effect. Elections of directors need not be by ballot except upon demand
made by a shareholder at the meeting and before the voting begins.
Section 10.11: Proxies. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or such
person's duly authorized agent and filed with the Secretary of this
corporation. No proxy shall be valid (l) after revocation thereof, unless
the proxy is specifically made irrevocable and otherwise conforms to this
Section 10.11 and applicable law, or (2) after the expiration of eleven
months from the date thereof, unless the person executing it specifies
therein the length of time for which such proxy is to continue in force.
Revocation may be effected by a writing delivered to the Secretary of this
corporation stating that the proxy is revoked or by a subsequent proxy
executed by, or by attendance at the meeting and voting in person by, the
person executing the proxy. A proxy is not revoked by the death or
incapacity of the maker unless, before the vote is counted, a written
notice of such death or incapacity is received by this corporation. A
proxy which states that it is irrevocable is irrevocable for the period
specified therein when it is held by any of the following or a nominee of
any of the following: (l) a pledgee, (2) a person who has purchased or
agreed to purchase or holds an option to purchase the shares or a person
who has sold a portion of such person's shares in this corporation to the
maker of the proxy, (3) a creditor or creditors of this corporation or the
shareholder who extended or continued credit to this corporation or the
shareholder in consideration of the proxy if the proxy states that it was
given in consideration of such extension or continuation of credit and the
name of the person extending or continuing the credit, (4) a person who has
contracted to perform services as an employee of this corporation, if a
proxy is required by the contract of
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employment and if the proxy states that it was given in consideration of
such contract of employment, the name of the employee and the period of
employment contracted for, (5) a person designated by or under a close
corporation shareholder agreement or a voting trust agreement. In
addition, a proxy may be made irrevocable if it is given to secure the
performance of a duty or to protect a title, either legal or equitable,
until the happening of events which, by its terms, discharge the obligation
secured by it. Notwithstanding the period of irrevocability specified, the
proxy becomes revocable when the pledge is redeemed, the option or
agreement to purchase is terminated or the seller no longer owns any shares
of this corporation or dies, the debt of this corporation or the
shareholder is paid, the period of employment provided for in the contract
of employment has terminated or the close corporation shareholder agreement
or the voting trust agreement has terminated. In addition, a proxy may be
revoked, notwithstanding a provision making it irrevocable, by a purchaser
of shares without knowledge of the existence of the provision unless the
existence of the proxy and its irrevocability appears on the certificate
representing such shares. Every form of proxy or written consent, which
provides an opportunity to specify approval or disapproval with respect to
any proposal, shall also contain an appropriate space marked "abstain",
whereby a shareholder may indicate a desire to abstain from voting his or
her shares on the proposal. A proxy marked "abstain" by the shareholder
with respect to a particular proposal shall not be voted either for or
against such proposal. In any election of directors, any form of proxy in
which the directors to be voted upon are named therein as candidates and
which is marked by a shareholder "withhold" or otherwise marked in a manner
indicating that the authority to vote for the election of directors is
withheld shall not be voted either for or against the election of a
director.
Section 10.12: Inspectors of Election. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the Chairman
of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting.
The number of inspectors shall be either one (l) or three (3). If
inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (l) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the Chairman of the meeting may, and
upon the request of any shareholder or a shareholder's proxy shall, appoint
a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
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(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
Article XI
MEETINGS OF DIRECTORS
Section 11.1: Place of Meetings. Meetings (whether regular, special or
adjourned) of the Board of Directors of this corporation shall be held at
the principal office of this corporation for the transaction of business,
as specified in accordance with Section 1.1 hereof, or at any other place
within or without the State which has been designated from time to time by
resolution of the Board or which is designated in the notice of the
meeting.
Section 11.2: Regular Meetings. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting of the
shareholders (which regular directors' meeting shall be designated the
"Regular Annual Meeting") and at such other times as may be designated from
time to time by resolution of the Board of Directors. Notice of the time
and place of all regular meetings shall be given in the same manner as for
special meetings, except that no such notice need be given if (l) the time
and place of such meetings are fixed by the Board of Directors or (2) the
Regular Annual Meeting is held at the principal place of business provided
at Section 1.1 hereof and on the date specified in Section 10.2 hereof.
Section 11.3: Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, if any,
or the President, or any Vice President, or the Secretary or by any two or
more directors.
Section 11.4: Notice of Special Meetings. Special meetings of the
Board of Directors shall be held upon no less than four days' notice by
mail or 48 hours' notice delivered personally or by telephone or telegraph
to each director. Notice need not be given to any director who signs a
waiver of notice or who attends the meeting without protesting, prior
thereto or at its commencement, the
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lack of notice to such director. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
home or office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. A notice or
waiver of notice need not specify the purpose of any meeting of the Board.
If the address of a director is not shown on the records and is not readily
ascertainable, notice shall be addressed to him at the city or place in
which the meetings of the directors are regularly held. If the meeting is
adjourned for more than 24 hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to all
directors not present at the time of adjournment.
Section 11.5: Quorum. A majority of all directors elected by the
shareholders and appointed to fill vacancies as provided in Section 2.6
hereof shall constitute a quorum of the Board of Directors for the
transaction of business. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors subject to provisions of law
relating to interested directors and indemnification of agents of this
corporation. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another time and place. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
Section 11.6: Conference Telephone. Members of the Board of
Directors may participate in a meeting through use of conference telephone
or similar communications equipment, so long as all directors participating
in such meeting can hear one another. Participation in a meeting pursuant
to this Section 11.6 constitutes presence in person at such meeting.
Section 11.7: Waiver of Notice and Consent. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever
held, shall be as valid as though had 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 signs a written waiver of
notice, a consent to holding such meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 11.8: Action Without a Meeting. Any action required or
permitted by law to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and
effect as the unanimous vote of such directors.
Section 11.9: Committees. The provisions of this Article XI apply
also to committees of the Board of Directors and action by such committees,
mutatis mutandis.
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Article XII
SUNDRY PROVISIONS
Section 12.1: Instruments in Writing. All checks, drafts, demands for
money and notes of this corporation, and all written contracts of this
corporation, shall be signed by such officer or officers, agent or agents,
as the Board of Directors may from time to time designate. No officer,
agent, or employee of this corporation shall have the power to bind this
corporation by contract or otherwise unless authorized to do so by these By-
Laws or by the Board of Directors.
Section 12.2: Shares Held by the Corporation. Shares in other
corporations standing in the name of this corporation may be voted or
represented and all rights incident thereto may be exercised on behalf of
the corporation by any officer of this corporation authorized so to do by
resolution of the Board of Directors.
Section 12.3: Certificates of Stock. There shall be issued to every
holder of shares in this corporation a certificate or certificates signed
in the name of this corporation by the Chairman of the Board of Directors,
if any, or the Chief Executive Officer or the President or a Vice President
and by the Chief Financial Officer or an Assistant Chief Financial Officer
or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or
all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by this corporation with the same effect as if such person
were an officer, transfer agent or registrar at the date of issue.
Section 12.4: Lost Certificates. Where the owner of any certificate for
shares of this corporation claims that the certificate has been lost,
stolen or destroyed, a new certificate shall be issued in place of the
original certificate if the owner (l) so requests before this corporation
has notice that the original certificate has been acquired by a bona fide
purchaser, (2) files with this corporation an indemnity bond in such form
and in such amount as shall be approved by the Chief Executive Officer, the
President or a Vice President of this corporation, and (3) satisfies any
other reasonable requirements imposed by this corporation. The Board of
Directors may adopt such other provisions and restrictions with reference
to lost certificates, not inconsistent with applicable law, as it shall in
its discretion deem appropriate.
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Section 12.5: Certification and Inspection of By-Laws. This
corporation shall keep at its principal executive or business office the
original or a copy of these By-Laws as amended or otherwise altered to
date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 12.6: Annual Reports. The making of annual reports to the
shareholders is dispensed with and the requirement that such annual reports
be made to shareholders is expressly waived, except as may be directed from
time to time by the Board of Directors or the President.
Section 12.7: Fiscal Quarters. Each fiscal quarter of the
Corporation shall be comprised of 13 weeks each of which shall end at
midnight on Friday of such week, and the fiscal months in any one calendar
quarter shall be comprised of at least four consecutive calendar weeks with
one week to be added, at management's discretion, to any one month during
such fiscal year.
Section 12.8: Officer Loans and Guaranties. If the corporation has
outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money
or property to, or guarantee the obligations of, any officer of the
corporation or its parent or subsidiaries, whether or not the officer is a
director, upon the approval of the Board of Directors alone. Such approval
by the Board of Directors must be determined by a vote of a majority of the
disinterested directors, if it is determined that such a loan or guaranty
may reasonably be expected to benefit the corporation. In no event may an
officer owning 2% or more of the outstanding common shares of the
corporation be extended a loan under this provision.
Article XIII
CONSTRUCTION OF BY-LAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 13.1:By-Law Provisions Additional and Supplemental to Provisions
of Law. All restrictions, limitations, requirements and other provisions
of these By-Laws shall be construed, insofar as possible, as supplemental
and additional to all provisions of law applicable to the subject matter
thereof and shall be fully complied with in addition to the said provisions
of law unless such compliance shall be illegal.
Section 13.2: By-Law Provisions Contrary to or Inconsistent with
Provisions of Law. Any article, section, subsection, subdivision,
sentence, clause or phrase of these By-Laws which, upon being construed in
the manner provided in Section 13.1 hereof, shall be contrary to or
inconsistent with any applicable provision of law, shall not apply so long
as said provisions of law shall remain in
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effect, but such result shall not affect the validity or applicability of
any other portions of these By-Laws, it being hereby declared that these By-
Laws, and each article, section, subsection, subdivision, sentence, clause,
or phrase thereof, would have been adopted irrespective of the fact that
any one or more articles, sections, subsections, subdivisions, sentences,
clauses or phrases is or are illegal.
Article XIV
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Section 14.1: By Shareholders. By-Laws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. By-Laws specifying or changing a
fixed number of directors or the maximum or minimum number or changing
from a fixed to a variable board or vice versa may only be adopted by the
shareholders; provided, however, that a By-Law or amendment of the Articles
of Incorporation reducing the number or the minimum number of directors to
a number less than five cannot be adopted if the votes cast against its
adoption at a meeting or the shares not consenting in the case of action by
written consent are equal to more than 16-2/3% of the outstanding shares
entitled to vote.
Section 14.2: By the Board of Directors. Subject to the right of
shareholders to adopt, amend or repeal By-Laws, By-Laws, other than a By-
Law or amendment thereof specifying or changing a fixed number of directors
or the maximum or minimum number or changing from a fixed to a variable
board or vice versa, may be adopted, amended or repealed by the Board of
Directors. A By-Law adopted by the shareholders may restrict or eliminate
the power of the Board of Directors to adopt, amend or repeal By-Laws.
Article XV
RESTRICTIONS ON TRANSFER OF STOCK
Section 15.1: Subsequent Agreement or By-Law. If (a) any two or more
shareholders of this corporation shall enter into any agreement abridging,
limiting or restricting the rights of any one or more of them to sell,
assign, transfer, mortgage, pledge, hypothecate or transfer on the books of
this corporation any or all of the shares of this corporation held by them,
and if a copy of said agreement shall be filed with this corporation, or if
(b) shareholders entitled to vote shall adopt any By-Law provision
abridging, limiting or restricting the aforesaid rights of any
shareholders, then, and in either of such events, all certificates of
shares of stock subject to such abridgments, limitations or restrictions
shall have a reference thereto endorsed thereon by an officer of this
corporation and such certificates shall not thereafter be transferred on
the books of this corporation except in accordance with the terms and
provisions of such agreement or ByLaw, as the case may be; provided, that
no restriction shall be binding with respect to shares issued prior to
adoption of the restriction unless the holders of such shares voted in
favor of or consented in writing to the restriction.
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Article XVI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 16.1: Indemnification of Directors and Officers. The corporation
shall, to the maximum extent and in the manner permitted by the Code,
indemnify each of its directors and officers against expenses (as defined
in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding
(as defined in Section 317(a) of the Code), arising by reason of the fact
that such person is or was an agent of the corporation. For purposes of
this Article XVI, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who
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, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
Section 16.2: Indemnification of Others. The corporation shall have the
power, to the extent and in the manner permitted by the Code, to indemnify
each of its employees and agents (other than directors and officers)
against expenses (as defined in Section 317(a) of the Code), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding (as defined in Section 317(a) of the Code),
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article XVI, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i)
who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
Section 16.3: Payment of Expenses in Advance. Expenses incurred in
defending any civil or criminal action or proceeding for which
indemnification is required pursuant to Section 16.1 or for which
indemnification is permitted pursuant to Section 16.2 following
authorization thereof by the Board of Directors, shall be paid by the
corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the
indemnified party to repay such amount if it shall ultimately be determined
that the indemnified party is not entitled to be indemnified as authorized
in this Article XVI.
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Section 16.4: Indemnity Not Exclusive. The indemnification provided
by this Article XVI shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in an official capacity and as to action in another
capacity while holding such office, to the extent that such additional
rights to indemnification are authorized in the Articles of Incorporation.
Section 16.5: Insurance Indemnification. The corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or
was an Agent of the corporation against any liability asserted against or
incurred by such person in such capacity or arising out of such person's
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article
XVI.
Section 16.6: Conflicts. No indemnification or advance shall be made
under this Article XVI, except where such indemnification or advance is
mandated by law or the order, judgment or decree of any court of competent
jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders
or an agreement in effect at the time of the accrual of the alleged cause
of the action asserted in the proceeding in which the expenses were
incurred or other amounts were paid, which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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