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 December 26, 1998 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 942404110
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1 Infinite Loop 95014
Cupertino, California
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
___________
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 ____
136,417,113 shares of Common Stock Issued and Outstanding as of February 1, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except share and per share amounts)
<TABLE>
<CAPTION>
December 26, 1998 December 26, 1997
<S> <C> <C>
Net sales $1,710 $1,578
Cost of sales 1,228 1,225
Gross margin 482 353
Operating expenses:
Research and development 76 79
Selling, general, and administrative 279 234
Total operating expenses 355 313
Operating income 127 40
Gain from sale of investment 32 --
Interest and other income (expense), net 10 7
Total interest and other income (expense), net 42 7
Income before provision for income taxes 169 47
Provision for income taxes 17 --
Net income $ 152 $ 47
Earnings per common share:
Basic $1.12 $ 0.37
Diluted $0.95 $ 0.33
Shares used in computing earnings per share (in thousands):
Basic 135,270 127,989
Diluted 172,062 139,839
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share amounts)
<TABLE>
<CAPTION>
ASSETS
December 26, 1998 September 25,1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,221 $1,481
Short-term investments 1,357 819
Accounts receivable, less allowances of
$81 and $81, respectively 913 955
Inventories 25 78
Deferred tax assets 166 182
Other current assets 185 183
Total current assets 3,867 3,698
Property, plant, and equipment, net 344 348
Other assets 381 243
Total assets $4,592 $4,289
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 655 $ 719
Accrued expenses 829 801
Total current liabilities 1,484 1,520
Long-term debt 954 954
Deferred tax liabilities 231 173
Total liabilities 2,669 2,647
Commitments and contingencies
Shareholders' equity:
Series A non-voting convertible preferred
stock, no par value; 150,000 shares
authorized, issued and outstanding 150 150
Common stock, no par value; 320,000,000
shares authorized; 135,348,625 and
135,192,769 shares issued and
outstanding, respectively 637 633
Retained earnings 1,050 898
Accumulated other comprehensive
income (loss) 86 (39)
Total shareholders' equity 1,923 1,642
Total liabilities and
shareholders' equity $4,592 $4,289
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
December 26, 1998 December 26, 1997
<S> <C> <C>
Cash and cash equivalents,
beginning of the period $1,481 $1,230
Operating:
Net income 152 47
Adjustments to reconcile net income to cash
generated by operating activities:
Depreciation and amortization 23 28
Provision for deferred income taxes 10 3
Loss on sale of property, plant, and equipment (1) --
Gain on sale of ARM shares (32) --
Changes in operating assets and liabilities:
Accounts receivable 42 133
Inventories 53 33
Other current assets (2) 27
Other assets 14 5
Accounts payable (64) (30)
Accrued restructuring costs -- (32)
Other current liabilities 28 (82)
Cash generated by operating activities 223 132
Investing:
Purchase of short-term investments (1,135) (399)
Proceeds from sales and maturities of short-
term investments 597 194
Net proceeds from property, plant, and
equipment retirements -- 42
Purchase of property, plant, and equipment (5) (7)
Proceeds from sale of ARM shares 37 --
Other 20 --
Cash used for investing activities (486) (170)
Financing:
Decrease in notes payable to banks -- (1)
Increase in long-term borrowings -- 1
Increases in common stock 3 1
Cash generated by financing activities 3 1
Total cash used (260) (37)
Cash and cash equivalents, end of the period $1,221 $1,193
Supplemental cash flow disclosures:
Cash paid for interest $ 20 $ 20
Cash paid (received) for income taxes, net $ (7) $ (18)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
APPLE COMPUTER, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
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. All adjustments are of a normal recurring nature unless
specified in a separate note included in these Notes to Condensed
Consolidated Financial Statements (Unaudited). The results for interim
periods are not necessarily indicative of results to be expected for the entire
year. These condensed consolidated financial statements and accompanying
notes should be read in conjunction with the Company's annual consolidated
financial statements and the notes thereto for the fiscal year ended September
25, 1998, included in its Annual Report on Form 10-K for the year ended
September 25, 1998 (the 1998 Form 10-K).
During the first quarter of 1999, the Company amended its By-laws to provide
that beginning with the first fiscal quarter of 1999 each of the Company's
fiscal quarters would end on Saturday rather than Friday. Accordingly, one
day was added to the first quarter of 1999 so that the quarter ended on
Saturday, December 26, 1998. This change did not have a material effect on
the Company's results of operations for the quarter and had no effect on the
amount of revenue recognized during the quarter.
Note 2 - Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of
common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method. The dilutive effect of convertible securities is
reflected using the if-converted method.
5
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except net income and per share amounts):
<TABLE>
<CAPTION>
December 26, 1998 December 26, 1997
<S> <C> <C>
Numerator:
Numerator for basic earnings per share -
Net income (in millions) $ 152 $ 47
Interest expense on convertible debt 11 --
Numerator for diluted earnings per share
- -- Adjusted net income (in millions) $ 163 $ 47
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding 135,270 127,989
Effect of dilutive securities:
Convertible preferred stock 9,091 9,091
Dilutive options 5,059 2,759
Convertible debt 22,642 --
Dilutive potential common shares 36,792 11,850
Denominator for diluted earnings per share -
adjusted weighted-average shares
and assumed conversions 172,062 139,839
Basic earnings per share $ 1.12 $ 0.37
Diluted earnings per share $ 0.95 $ 0.33
</TABLE>
Options to purchase approximately 85,000 shares of common stock were
outstanding as of December 26, 1998, that were not included in the
computation of diluted earnings per share for the three months ended December
26, 1998, because the options' exercise price was greater than the average
market price of the Company's common stock during the period and, therefore,
the effect would be antidilutive.
The Company has outstanding $661 million of unsecured convertible
subordinated notes (the Notes) which are convertible by their holders into
approximately 22.6 million shares of common stock at a conversion price of
$29.205 per share subject to the adjustments as defined in the Note agreement.
The common shares represented by these Notes upon conversion were included
in the computation of diluted earnings per share for the three months ended
December 26, 1998, as the effect of using the if-converted method was dilutive
for that period. The common shares represented by these Notes were not
included in the computation of diluted earnings per share for the three months
ended December 26, 1997, because the effect of using the if-converted method
for those periods would be anti-dilutive. For additional disclosures regarding
the outstanding preferred stock, employee stock options and the Notes, see the
1998 Form 10-K.
6
<PAGE>
Note 3 - Consolidated Financial Statement Details (in millions)
<TABLE>
<CAPTION>
Inventories 12/26/98 9/25/98
<S> <C> <C>
Purchased parts $ 10 $ 32
Work in process 3 5
Finished goods 12 41
Total inventories $ 25 $ 78
</TABLE>
<TABLE>
<CAPTION>
Property, Plant, and Equipment 12/26/98 9/25/98
<S> <C> <C>
Land and buildings $ 340 $ 338
Machinery and equipment 277 277
Office furniture and equipment 79 80
Leasehold improvements 129 129
Accumulated depreciation and amortization (481) (476)
Net property, plant, and equipment $ 344 $ 348
</TABLE>
<TABLE>
<CAPTION>
Accrued Expenses 12/26/98 9/25/98
<S> <C> <C>
Accrued compensation and employee benefits $ 80 $ 99
Accrued marketing and distribution 254 205
Accrued warranty and related costs 124 132
Other current liabilities 371 365
Total accrued expenses $ 829 $ 801
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Interest and Other Income (Expense) 12/26/98 12/26/97
<S> <C> <C>
Interest income $ 32 $ 22
Interest expense (16) (16)
Other income (expense), net (6) 1
Interest and other income (expense), net $ 10 $ 7
</TABLE>
7
<PAGE>
Note 4 - Equity Investment Gains
As of September 25, 1998, the Company owned 25.9% of the outstanding stock
of ARM Holdings plc (ARM), a publicly held company in the United Kingdom
involved in the design of high performance microprocessors and related
technology. Through September 25, 1998, the Company accounted for this
investment using the equity method. On October 14, 1998, the Company sold
2.9 million shares of ARM stock for net proceeds of approximately $37 million,
a gain of approximately $32 million recorded as other income, and related
income tax expense of approximately $3 million.
As a result of this sale, the Company's ownership interest in ARM fell to
19%. Consequently, beginning in the first quarter of fiscal 1999, the Company
no longer accounts for its remaining investment in ARM using the equity
method and has categorized its remaining shares as available for sale
requiring the shares be carried at fair value, with unrealized gains and
losses reported as a component of shareholders' equity. During the first
quarter of 1999, the Company increased the carrying value of its remaining
shares in ARM by $180 million to adjust their total carrying value at
December 26, 1998, to their market value of approximately $197 million. The
carrying value of the ARM shares is included in other assets. The total
unrealized gain net of taxes recognized in other comprehensive income during
the first quarter of 1999 was approximately $113 million.
Note 5 - Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income", beginning with the Company's
first quarter of 1999. SFAS No. 130 separates comprehensive income into two
components, net income and other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses that under
generally accepted accounting principles are recorded as an element of
shareholders' equity but are excluded from net income. While SFAS No. 130
establishes new rules for the reporting and display of comprehensive income,
it has no impact on the Company's net income or total shareholders' equity.
The Company's other comprehensive income is comprised of foreign currency
translation adjustments from those subsidiaries not using the U.S. dollar as
their functional currency and from unrealized gains and losses on marketable
securities categorized as available for sale. See Note 4 regarding unrealized
gains on available for sale securities.
The components of comprehensive income, net of tax, are as follows
(in millions):
<TABLE>
<CAPTION>
Three Months Ended
12/26/98 12/26/97
<S> <C> <C>
Net income $ 152 $ 47
Other comprehensive income:
Change in accumulated translation adjustment 12 (4)
Unrealized gain on investments, net 113 --
Total comprehensive income $ 277 $ 43
</TABLE>
8
<PAGE>
Note 6 - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and in
June 1998 issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." A discussion of these accounting standards is included in
the notes to consolidated financial statements included in the 1998 Form 10-K
under the subheading "Recent Accounting Pronouncements."
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the costs of computer
software intended for internal use. SOP 98-1 must be adopted by the Company
effective as of fiscal 2000 and is not expected to have a material impact on
the Company's consolidated results of operations or financial position.
During the fist quarter of 1999, the Company adopted AICPA SOP 97-2,
"Software Revenue Recognition." SOP 97-2 established standards relating to
the recognition of software revenue. SOP 97-2 was effective for transactions
entered into by the Company beginning in the first quarter of fiscal 1999. The
adoption of this accounting standard did not have a material impact on the
Company's results of operations.
Note 7 - Contingencies
The Company is subject to various legal proceedings and claims which are
discussed in detail in the 1998 Form 10-K. The Company is also subject to
certain other legal proceedings and claims which have arisen in the ordinary
course of business and which have not been fully adjudicated. The results of
legal proceedings cannot be predicted with certainty; however, in the opinion
of management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
The Internal Revenue Service ("IRS") has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made
certain prepayments thereon. The Company contested the proposed deficiencies
by filing petitions with the United States Tax Court, and most of the issues in
dispute have now been resolved. On June 30, 1997, the IRS proposed income
tax adjustments for the years 1992 through 1994. Although a substantial
number of issues for these years have been resolved, certain issues still
remain in dispute and are being contested by the Company. Management
believes that adequate provision has been made for any adjustments that may
result from tax examinations.
Note 8 - Reclassifications
Certain amounts in the Condensed Consolidated Statement of Cash Flows for
the three months ended December 26, 1997, have been reclassified to conform
to the 1999 presentation.
9
<PAGE>
Note 9 - Subsequent Events
On February 1, 1999, the Company took further actions to improve the
flexibility and efficiency of its manufacturing operations by moving final
assembly of certain of its products to original equipment manufacturers. These
restructuring actions will result in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999.
On February 2, 1999, the Company sold 2 million shares of ARM stock for net
proceeds of approximately $59 million and a gain before taxes of approximately
$55 million which will be recognized as other income by the Company in the
second quarter of 1999. Subsequent to this sale, the Company holds
approximately 7.3 million shares of ARM stock which represent approximately
14.9% of the currently outstanding shares.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Factors That May
Affect Future Results and Financial Condition" below. The following
discussion should be read in conjunction with the 1998 Form 10-K and the
condensed consolidated financial statements and notes thereto included
elsewhere in this Form 10-Q. All information is based on the Company's fiscal
calendar.
<TABLE>
<CAPTION>
Results of Operations
Tabular information (dollars in millions, except per share amounts):
First First First Fourth
Quarter Quarter Quarter Quarter
1999 1998 Change 1999 1998 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,710 $1,578 8% $1,710 $1.556 10%
Macintosh CPU unit sales
(in thousands) 944 635 49% 944 834 13%
Gross margin $ 482 $ 353 37% $ 482 $ 417 16%
Percentage of net sales 28.2% 22.4% 28.2% 26.8%
Research and development $ 76 $ 79 (4%) $ 76 $ 73 4%
Percentage of net sales 4% 5% 4% 5%
Selling, general and
administrative $ 279 $ 234 19% $ 279 $ 235 19%
Percentage of net sales 16% 15% 16% 15%
Gain from sale of
investment $ 32 $ -- NM $ 32 $ -- NM
Interest and other income
(expense), net $ 10 $ 7 43% $ 10 $ 5 100%
Provision for income taxes $ 17 $ -- NM $ 17 $ 8 112%
Effective tax rate 10% --% 10% 7%
Net income $ 152 $ 47 223% $ 152 $ 106 43%
Basic earnings per share $ 1.12 $ 0.37 203% $ 1.12 $ 0.79 42%
Diluted earnings per share $ 0.95 $ 0.33 188% $ 0.95 $ 0.68 40%
</TABLE>
NM: Not Meaningful
Net income for the first quarter of 1999 includes a $32 million gain before
tax associated with the sale by the Company of 2.9 million shares of its
investment in ARM which were recognized as other income. Income tax expense
recognized in the first quarter on this gain was approximately $3 million.
11
<PAGE>
Net Sales
Net sales for the first quarter of 1999 were $1.71 billion, an 8% increase
over the same quarter in 1998. The increase in net sales is primarily
attributable to a year-over-year 49% increase in Macintosh CPU unit volume.
Volumes were favorably affected by sales of iMac, the Company's moderately
priced Macintosh system designed for education and consumer markets
introduced during the fourth quarter of 1998, which represented 55% or
519,000 of the total Macintosh CPU units sales during the first quarter of
During the first quarter of 1999, the Company also experienced year-over-year
unit volume growth in both its Power Macintosh G3 and Powerbook G3
product lines of 23% and 39%, respectively. Further contributing to the year-
over-year increase in net sales was approximately $33 million of incremental
net sales in the first quarter of 1999 related to the introduction MacOS 8.5,
the most recent version of the Company's Macintosh operating system. The
positive effect of these factors on first quarter 1999 net sales was partially
offset by two principal factors. First, average revenue per Macintosh system,
a function of total net sales related to hardware shipments and total
Macintosh CPU unit sales, fell 26% to $1,776 during the first quarter of 1999
as compared to the same quarter in 1998. The decline in the average revenue
per Macintosh system was the result of lower priced iMac systems comprising a
significant portion of first quarter 1999 net sales, the decline in net sales
from the phase out of certain peripheral products, and the overall industry
trend towards lower priced products. Second, net sales of imaging and display
products decreased by $93 million to $116 million in the first quarter of 1999
compared with the same quarter in 1998 reflecting the Company's continuing
phase-out of most imaging and many display products.
Net sales increased sequentially $154 million or 10% during the first quarter
of 1999 as compared to the fourth quarter of 1998. The sequential revenue
increase is attributable to a 13% rise in Macintosh unit shipments and
incremental net sales from MacOS 8.5 upgrades. The rise in unit sales during
the first quarter is attributable to a 21% increase in iMac unit sales
compared to the fourth quarter of 1998 and a similar 15% increase in unit
shipments of Power Macintosh G3 professional Macintosh systems partially
offset by a 17% sequential decline in unit shipments of G3 Powerbooks
resulting from the introduction of several new Powerbook models during the
fourth quarter of 1998.
International sales for the first quarter of 1999 represented 47% of
consolidated net sales versus 50% in the first quarter of 1998 and 37% during
the fourth quarter of 1998. In total, international net sales during the first
quarter of 1999 were relatively unchanged from the same quarter in 1998, but
rose $229 million or 40% sequentially from the fourth quarter of 1998. This
sequential increase in international net sales was caused by the introduction
of the iMac during the current quarter in Europe and Asia and by strong sales
internationally of the Company's Power Macintosh G3 and Powerbook G3
product lines. On a year-over-year basis, total Macintosh unit sales during
the first quarter of 1999 increased 55% in Europe, 26% in Japan, and 33% in
the rest of Asia. Domestic net sales increased 14% or $114 million during the
first quarter of 1999 as compared to 1998 while declining sequentially from
the fourth quarter of 1998 $75 million or 8%.
12
<PAGE>
Consistent with the historical seasonal pattern, the Company anticipates a
sequential decline in net sales during the second quarter of 1999 but expects
the second quarter to show year-over-year growth in both net sales and unit
shipments. The foregoing statements are forward looking. The Company's
actual results could differ because of several factors, including those set
forth below in the subsection entitled "Factors That May Affect Future Results
and Financial Condition".
Gross Margin
Gross margin for the first quarter of 1999 was 28.2% as compared to 22.4% for
the same quarter in 1998 and 26.8% for the fourth quarter of 1998. The year-
over-year increase in gross margin is attributable to various operational
changes made by the Company throughout fiscal 1998 that improved
operational efficiency and reduced product costs. These changes included
simplification of the Company's product line, focus on the use of industry
standard parts, expanded use of supplier inventory hubs, outsourcing of
various aspects of product manufacturing, and streamlining of product
distribution channels and policies. Margins have also been favorably impacted
during the last year by the declining cost of various components of the
Company's products, particularly those sourced from Asia. The sequential
increase in gross margin from the fourth quarter of 1998 to the first quarter
of 1999 is primarily attributable to high margin incremental net sales of
MacOS 8.5 during the current quarter. Such sales accounted for a sequential
improvement in first quarter 1999 gross margin of approximately 1.5
percentage points.
The Company expects gross margins to decline sequentially during the second
quarter of 1999 due to lower net sales of MacOS upgrades and pricing pressure
on consumer products. The foregoing statements are forward looking. The
Company's actual results could differ because of several factors, including
those set forth in the following paragraph and below in the subsection
entitled "Factors That May Affect Future Results and Financial Condition."
There can be no assurance that current or targeted consolidated gross margin
levels will be achieved or that current margins on existing individual
products will be maintained. In general, gross margins and margins on
individual products will remain under significant downward pressure due to a
variety of factors, including continued industry wide global pricing
pressures, increased competition, compressed product life cycles, potential
increases in the cost of raw material and outside manufacturing services, and
potential changes to the Company's product mix, including higher unit sales of
consumer products with lower average selling prices and lower gross margins.
In response to these downward pressures, the Company expects that it will
continue to take pricing actions with respect to its products. Gross margins
could also be affected by the Company's ability to effectively manage quality
problems and warranty costs and to stimulate demand for certain of its
products. The Company's operating strategy and pricing take into account
anticipated changes in foreign currency exchange rates over time; however,
the Company's results of operations can be significantly affected in the
short term by fluctuations in exchange rates.
13
<PAGE>
Operating Expenses
Selling, general and administrative expenses increased approximately $45
million or 19% during the first quarter of 1999 as compared to both the same
quarter of 1998 and sequentially over the fourth quarter of 1998. These
increases are reflective of increased advertising and promotional spending
during the 1998 holiday season associated with the worldwide introduction of
iMac and MacOS 8.5. Expenditures for research and development remained
relatively consistent in terms of absolute dollars between the first quarter
of 1999, the same quarter in 1998, and the fourth quarter of 1998.
The Company expects operating expenses to decline sequentially during the
second quarter of 1999 by approximately $40 to $45 million due to seasonally
lower marketing expenditures. This expected decline in operating expenses
does not include the effect of the restructuring charge described in the
following paragraph. The foregoing statements are forward looking. The
Company's actual results could differ because of several factors, including
those set forth in the following paragraph and below in the subsection
entitled "Factors That May Affect Future Results and Financial Condition."
On February 1, 1999, the Company took further actions to improve the
flexibility and efficiency of its manufacturing operations by moving final
assembly of certain of its products to original equipment manufacturers. These
restructuring actions will result in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, is comprised of interest income on
the Company's cash and investment balances, interest expense on the
Company's debt, gains and losses recognized on investments accounted for
using the equity method, realized gains and losses on the sale of securities,
certain foreign exchange gains and losses, and other miscellaneous income and
expense items.
As of September 25, 1998, the Company owned 25.9% of the outstanding stock
of ARM Holdings plc ("ARM"), a publicly held company in the United
Kingdom involved in the design of high performance microprocessors and
related technology. Through September 25, 1998, the Company accounted for
this investment using the equity method. On October 14, 1998, the Company
sold 2.9 million shares of ARM stock for net proceeds of approximately $37
million, a gain of approximately $32 million recorded as other income, and
related income tax expense of approximately $3 million.
As a result of this sale, the Company's ownership interest in ARM fell to 19%.
Consequently, beginning in the first quarter of fiscal 1999, the Company no
longer accounts for its remaining investment in ARM using the equity method
and has categorized its remaining shares as available for sale requiring the
shares be carried at fair value, with unrealized gains and losses reported as a
component of shareholders' equity. During the first quarter of 1999, the
14
<PAGE>
Company increased the carrying value of its remaining shares in ARM by $180
million to adjust their total carrying value at December 26, 1998, to their
market value of approximately $197 million. The carrying value of the ARM
shares is included in other assets. The total unrealized gain net of taxes
related to ARM shares recognized in other comprehensive income during the
first quarter of 1999 was approximately $113 million.
On February 2, 1999, the Company sold 2 million shares of ARM stock for net
proceeds of approximately $59 million and a gain before taxes of approximately
$55 million which will be recognized as other income by the Company in the
second quarter of 1999. Subsequent to this sale, the Company holds
approximately 7.3 million shares which represent approximately 14.9% of the
currently outstanding stock of ARM.
Provision for Income Taxes
As of December 26, 1998, the Company had deferred tax assets arising from
deductible temporary differences, tax losses, and tax credits of $663 million
before being offset against certain deferred tax liabilities for presentation
on the Company's balance sheet. A substantial portion of this asset is
realizable based on the ability to offset existing deferred tax liabilities.
As of December 26, 1998, a valuation allowance of $180 million was recorded
against the deferred tax asset for the benefits of tax losses which may not be
realized. Realization of approximately $73 million of the asset representing
tax loss and credit carryforwards is dependent on the Company's ability to
generate approximately $209 million of future U.S. taxable income. Management
believes that it is more likely than not that forecasted U.S. income,
including income that may be generated as a result of certain tax planning
strategies, will be sufficient to utilize the tax carryforwards prior
to their expiration in 2011 and 2012 to fully recover this asset. However,
there can be no assurance that the Company will meet its expectations of
future U.S. taxable income. As a result, the amount of the deferred tax assets
considered realizable could be reduced in the near and long term if estimates
of future taxable U.S. income are reduced. Such an occurrence could materially
adversely affect the Company's consolidated financial results. The Company
will continue to evaluate the realizability of the deferred tax assets
quarterly by assessing the need for and amount of the valuation allowance.
The Company's effective tax rate for the first quarter of 1999 was only 10%
due primarily to the reversal of a portion of the previously established
valuation allowance and certain undistributed foreign earnings for which no
U.S. taxes were provided.
16
<PAGE>
Liquidity and Capital Resources
The following table presents selected financial information and statistics for
each of fiscal quarters ending on the dates indicated (dollars in millions):
<TABLE>
<CAPTION>
12/26/98 9/25/98 12/26/97
<S> <C> <C> <C>
Cash, cash equivalents, and short-
term investments $2,578 $2,300 $1,627
Accounts receivable, net $913 $955 $902
Inventory $ 25 $ 78 $404
Working capital $2,383 $2,178 $1,704
Days sales in accounts receivable (a) 49 56 52
Days of supply in inventory (b) 2 6 30
Days payables outstanding (c) 51 60 50
Operating cash flow $223 $282 $132
</TABLE>
(a) Based on ending net trade receivables and most recent quarterly net sales
for each period
(b) Based on ending inventory and most recent quarterly cost of sales for each
period
(c) Based on ending accounts payable and most recent quarterly cost of sales
adjusted for the change in inventory
As of December 26, 1998, the Company had approximately $2.58 billion in
cash, cash equivalents, and short-term investments, an increase of $278
million over the same balances at the end of fiscal 1998. During the first
quarter of 1999, the most significant sources of cash were $152 million of net
income, declines in net accounts receivable of $42 million and inventory of
$53 million, and proceeds on the sales of ARM shares of $37 million. These
factors were partially offset by a decrease in accounts payable of $64
million. The Company's cash and cash equivalent balances as of December 26,
1998, and September 25, 1998, include $4 million and $56 million,
respectively, pledged as collateral to support letters of credit.
The Company's debt ratings are currently non-investment grade. As of March
27, 1998, the Company's senior and subordinated long-term debt ratings were
B- and CCC, respectively, by Standard and Poor's (S&P) Rating Agency, and
B3 and Caa2, respectively, by Moody's Investor Services (Moody's). In June
1998, Moody's upgraded the Company's senior debt to B2 from B3 and
subordinated debt to Caa1 from Caa2 citing strengthened debtholder protection
measurements as the major reason for the upgrade. On November 9, 1998, S&P
upgraded the Company's senior debt to B+ from B- and upgraded its
subordinated debt to B- from CCC citing the Company's improved profitability
and financial profile for the upgrade. Despite these recent upgrades, the
Company's continued non-investment grade debt ratings will maintain pressure
on the Company's cost of funds in future periods and may require the Company
to pledge additional collateral or agree to more stringent debt covenants.
16
<PAGE>
The Company believes that its balances of cash, cash equivalents, and short-
term investments will be sufficient to meet its cash requirements over
the next twelve months. However, given the Company's current debt ratings, if
the Company should need to obtain short-term borrowings, there can no
assurance that such borrowings could be obtained at favorable rates. The
inability to obtain such borrowings at favorable rates could materially
adversely affect the Company's results of operations, financial condition, and
liquidity.
Year 2000 Compliance
The information presented below related to Year 2000 (Y2K) compliance
contains forward looking statements that are subject to risks and
uncertainties. The Company's actual results may differ significantly from
those discussed below and elsewhere in this Form 10-Q regarding Year 2000
compliance.
The Company's Information Systems and Technology department (IS&T)
began addressing the Y2K issue in 1996 as part of its Next Generation
strategy, which addressed the need for ongoing enhancement and replacement
of the Company's various disparate legacy information technology (IT)
Systems. In 1998, the Company established a Year 2000 Executive Steering
Committee (Steering Committee) composed of senior executives of the
Company and the Company's Year 2000 Project Management Office (PMO).
The PMO reports to the Executive Vice President and Chief Financial Officer,
the Steering Committee, and the Audit and Finance Committee of the Board of
Directors.
The PMO developed and manages the Company's worldwide Y2K strategic
plan (Y2K Plan) to address the potential impact of Y2K on the Company's
operations and business processes. In particular, the Y2K Plan addresses four
principal areas that may be impacted by the Y2K issue: Apple Branded
Products; Third Party Relationships; Non-IT Business Systems; and IT
Systems. With respect to the IT Systems and Non-IT Business Systems, the
Y2K Plan consists of four separate but overlapping phases: Phase I - Inventory
and Risk Assessments; Phase II - Remediation Cost Estimation; Phase III -
Remediation; and Phase IV - Remediation Testing. In addition, the Company
has an ongoing Y2K Awareness Program designed to keep employees informed
about Y2K issues. The Company's goal is to substantially complete Phase III -
Remediation during the third quarter of 1999; complete Phase IV -
Remediation Testing during the fourth quarter of 1999, and to continue
compliance efforts throughout the remainder of calendar year 1999. There
have been no significant changes made to this schedule during the first
quarter of 1999, and the Company remains on schedule to meet these goals.
The Company designs and manufacturers microprocessor-based personal
computers, related peripherals, operating system software and application
software, including Macintosh personal computers and the Mac OS which are
marketed under the "Apple" brand (collectively "Apple Branded Products").
17
<PAGE>
The Company tested certain Apple Branded Products to determine Y2K
compliance, although such testing did not include third party products bundled
with Apple Branded Products and certain Apple Branded Products no longer
supported by the Company. For purposes of this discussion, Y2K compliant
means a product will not produce errors processing date data in connection
with the year change from December 31, 1999, to January 1, 2000, when used
with accurate date data in accordance with the its documentation, provided all
other products (including other software, firmware and hardware) used with it
properly exchange date data with it. A Y2K compliant product will recognize
the Year 2000 as a leap year. Information regarding the Y2K readiness of all
Apple Branded Products is available on the Apple corporate web site at
www.apple.com. Such information is not to be considered part of this quarterly
report. The Company believes that the unsupported Apple Branded Products
are Y2K compliant because, unlike other companies personal computers and
related products, the Company's products do not rely upon the two digit date
format but used a long word approach which allows the correct representation
of dates up to the year 2040. The current date and time utilities utilized by
Apple Branded Products are 64 bit signed value which covers dates from 30081
BC to 29940 AD. Since the Company does not control the design of non-Apple
Branded Products or third party products bundled with Apple Branded
Products, it cannot assure they are Y2K compliant. Certain products acquired
from NeXT Software, Inc., including OpenStep and NextStep, are not currently
Y2K compliant. The Company intends to develop and make available during
the third quarter of 1999 a software patch intended to allow such products to
become Y2K compliant.
The Company's business operations are heavily dependent on third party
corporate service vendors, materials suppliers, outsourced operations
partners, distributors and others. The Company is working with key external
parties to identify and attempt to mitigate the potential risks to it of Y2K.
The failure of external parties to resolve their own Y2K issues in a timely
manner could result in a material financial risk to the Company. As part of
its overall Y2K program, the Company is actively communicating with third
parties through face to face meetings and correspondence, on an ongoing basis,
to ascertain their state of readiness. Although numerous third parties have
indicated to the Company in writing that they are addressing their Y2K issues
on a timely basis, the readiness of third parties overall varies widely.
Because the Company's Y2K compliance is dependent on the timely Y2K
compliance of third parties, there can be no assurances that the Company's
efforts alone will resolve all Y2K issues.
The costs of the Y2K program are primarily costs associated with the
utilization of existing internal resources and incremental external spending.
The Company previously estimated it had incurred approximately $4.1 million
of incremental external spending directly associated with Y2K issues through
the end of fiscal 1998 and that it would incur future incremental external
spending associated with Y2K issues of approximately $5.1 million to address
those risks identified as high and medium. There have been no material
changes to the Company's costs estimates during the first quarter of 1999.
18
<PAGE>
However, as the Company's Y2K Plan continues, the actual future incremental
spending may prove to be higher. Also, this estimate does not include the
costs that could be incurred by the Company if one or more of its significant
third party service providers fails to achieve Y2K compliance. The Company is
not separately identifying and including in these estimates the Y2K costs
incurred that are the result of utilization of the Company's existing internal
resources.
Based on current information, the Company believes the Y2K issue will not
have a material adverse effect on the Company, its consolidated financial
position, results of operations or cash flows. However, there can be no
assurance that the Y2K remediation by the Company or third parties will be
properly and timely completed, and the failure to do so could have a material
adverse effect on the Company, its business, results of operations, and its
financial condition. In particular, the Company has not yet completed its
assessment of the Y2K readiness of its significant third party service
providers. Completion of this assessment may result in the identification of
additional issues which could have a material adverse effect on the Company's
results of operations. In addition, important factors that could cause results
to differ materially include, but are not limited to, the ability of the
Company to successfully identify systems which have a Y2K issue, the nature
and amount of remediation effort required to fix the affected system, and the
costs and availability of labor and resources to successfully address the Y2K
issues.
Further details regarding the Company's Y2K compliance efforts may be found
in the 1998 Form 10-K in Item 7 under the heading "Year 2000 Compliance."
Factors That May Affect Future Results and Financial Condition
The Company operates in a rapidly changing environment that involves a
number of uncertainties, some of which are beyond the Company's control. In
addition to the uncertainties described elsewhere in this report, there are
many factors that will affect the Company's future results and business which
may cause the actual results to differ from those currently expected. The
Company's future operating results and financial condition are dependent upon
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 a favorable financial condition.
Potential risks and uncertainties that could affect the Company's future
operating results and financial condition include, among other things,
continued competitive pressures in the marketplace and the effect of any
reaction by the Company to such competitive pressures, including pricing
actions by the Company; risks associated with international operations,
including economic and labor conditions, the continuing economic problems
being experienced in Asia and Latin America, political instability, tax laws,
and currency fluctuations; increasing dependence on third-parties for
manufacturing and other outsourced functions such as logistics; the
19
<PAGE>
availability of key components on terms acceptable to the Company; the
continued availability of certain components essential to the Company's
business currently obtained by the Company from sole or limited sources,
including PowerPC RISC microprocessors developed by and obtained from
IBM and Motorola; the Company's ability to supply products in certain
categories; the Company's ability to supply products free of latent defects or
other faults; the Company's ability to make timely delivery to the marketplace
of technological innovations, including its ability to continue to make timely
delivery of planned enhancements to the current Mac OS and timely delivery of
future versions of the Mac OS; the availability of third-party software for
particular applications; the Company's ability to attract, motivate and retain
key employees; the effect of Y2K compliance issues; managing the impact of the
European Union's transition to the Euro as its common legal currency; the
Company's ability to retain the operational and cost benefits derived from its
recently completed restructuring program; and the Company's ability to
successfully replace its existing transaction systems in the U.S.
For a discussion of these and other factors affecting the Company's future
results and financial condition, see "Item 7 - Management's Discussion and
Analysis -- Factors That May Affect Future Results and Financial Condition" in
the Company's 1998 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information presented below regarding Market Risk contains forward
looking statements that are subject to risks and uncertainties. The Company's
actual results may differ significantly from those discussed below and
elsewhere in this Form 10-Q regarding market risk. . The following discussion
should be read in conjunction with the 1998 Form 10-K and the condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investments and long-term debt obligations and
related derivative financial instruments. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of credit
exposure to any one issuer. The Company's general policy is to limit the risk
of principal loss and ensure the safety of invested funds by limiting market
and credit risk. All highly liquid investments with a maturity of three months
or less at the date of purchase are considered to be cash equivalents;
investments with maturities between three and twelve months are considered to
be short-term investments. As of December 26, 1998, there are no investments
with maturities greater than 12 months.
Overall, the Company is a net receiver of currencies other than the U.S.
dollar and, as such, benefits from a weaker dollar and is adversely affected
by a stronger dollar relative to major currencies worldwide. Accordingly,
changes in exchange rates, and in particular a strengthening of the U.S.
dollar, may negatively affect the Company's consolidated sales and gross
margins as expressed in U.S. dollars.
20
<PAGE>
The Company enters into foreign exchange forward and option contracts with
financial institutions primarily to protect against currency exchange risks
associated with existing assets and liabilities, certain firmly committed
transactions, and probable but not firmly committed transactions. The
Company's foreign exchange risk management policy requires it to hedge a
majority of its existing material foreign exchange transaction exposures.
However, the Company may not hedge certain foreign exchange transaction
exposures that are immaterial either in terms of their minimal U.S. dollar
value or in terms of the related currency's historically high correlation with
the U.S. dollar. Foreign exchange forward contracts are carried at fair value
in other current liabilities. The premium costs of purchased foreign exchange
option contracts are recorded in other current assets and amortized over the
life of the option.
To ensure the adequacy and effectiveness of the Company's foreign exchange
and interest rate hedge positions, as well as to monitor the risks and
opportunities of the nonhedge portfolios, the Company continually monitors its
foreign exchange forward and option positions, and its interest rate swap,
option and floor positions both on a stand-alone basis and in conjunction with
its underlying foreign currency and interest rate-related exposures,
respectively, from both an accounting and an economic perspective. However,
given the effective horizons of the Company's risk management activities and
the anticipatory nature of the exposures intended to hedge, there can be no
assurance that the aforementioned programs will offset more than a portion of
the adverse financial impact resulting from unfavorable movements in either
foreign exchange or interest rates. In addition, the timing of the accounting
for recognition of gains and losses related to mark-to-market instruments for
any given period may not coincide with the timing of gains and losses related
to the underlying economic exposures and, therefore, may adversely affect the
Company's consolidated operating results and financial position.
For a complete description of the Company's interest rate and foreign currency
related market risks, see the discussion in Part II, Item 7A of the Company's
1998 Form 10-K. There has not been a material change in the Company's
exposure to interest rate and foreign currency risks since September 25, 1998.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings and claims which are
discussed in the 1998 Form 10-K. The Company is also subject to certain other
legal proceedings and claims which have arisen in the ordinary course of
business and which have not been fully adjudicated. The results of legal
proceedings cannot be predicted with certainty; however, in the opinion of
management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.3 By-Laws of the Company, as amended through December 15, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated December 23, 1998 to
report under Item 8 (Change in Fiscal Year), an amendment to the Company's
By-laws to provide that each fiscal quarter shall end at midnight Saturday of
the 13th week of such quarter, rather than midnight Friday.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLE COMPUTER, INC.
(Registrant)
By: /s/ Fred D. Anderson
Fred D. Anderson
Executive Vice President and Chief Financial Officer
February 8, 1999
23
<PAGE>
INDEX TO EXHIBITS
Exhibit
Index
Number Description Page
3.3 By-Laws of the Company, as amended through December 15, 1998. 25
27 Financial Data Schedule. 49
24
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
APPLE COMPUTER, INC.
(a California corporation)
(as amended through December 15, 1998)
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 six (6) 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 outstanding shares entitled to vote; provided, however, that an amendment
25
<PAGE>
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
26
<PAGE>
for such directors may call a special meeting of shareholders to be held to
elect the entire 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.
27
<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
28
<PAGE>
the Board of 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.
29
<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.
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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.
Article VII
SECRETARY
Section 7.1: Powers and Duties. The powers and duties of the
Secretary are:
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(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.
(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.
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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.
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.
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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.
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
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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.
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.
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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 on the record date established pursuant to Section 10.8.
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 or persons entitled to call a special meeting of
shareholders (such request, if sent by a shareholder or shareholders, to
include the information required by Section 10.13), it shall be the duty of
such officer, subject to the immediately succeeding sentence, 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, the date of which
meeting, which shall be set by such officer, to be not less than 35 days nor
more than 60 days after such request or, if applicable, determination of the
validity of such request pursuant to the immediately succeeding sentence.
Within seven days after receiving such a written request from a shareholder or
shareholders of the corporation, the Board of Directors shall determine
whether shareholders owning not less than ten percent (10%) of the shares as
of the record date established pursuant to Section 10.8 for such request
support the call of a special meeting and notify the requesting party or
parties of its finding.
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 presented
at the meeting for such action except
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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
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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.
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.
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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(k)
hereof, then on such other day, shall be entitled to vote at such meeting. 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.
In order that the corporation may determine the shareholders entitled to
consent to corporate action in writing without a meeting or request a special
meeting of the shareholders pursuant to Section 10.3, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,
and which date shall not be more than fourteen (14) days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any shareholder of record seeking to have the shareholders
authorize or take corporate action by written consent or request a special
meeting of the shareholders pursuant to Section 10.3 shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The
Board of Directors shall promptly, but in no event later than twenty eight (28)
days after the date on which such request is received, adopt a resolution
fixing the record date.
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. Within fourteen (14) days after receiving
such written consent or consents from shareholders of the corporation, the
Board of Directors shall determine whether holders of outstanding shares as of
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the record date established pursuant to Section 10.8 having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted have properly consented thereto in writing and notify the requesting
party of its finding. 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 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
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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 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
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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;
(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.
Section 10.13: Advance Notice of Shareholder Proposals and Director
Nominations. Shareholders may nominate one or more persons for election as
directors at a meeting of shareholders or propose business to be brought
before a meeting of shareholders, or both, only if such shareholder has given
timely notice in proper written form of such shareholder's intent to make such
nomination or nominations or to propose such business. To be timely, a
shareholder's notice must be received by the Secretary of the Corporation not
later than 60 days prior to such meeting; provided, however, that in the event
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper written form a
shareholder's notice to the Secretary shall set forth (i) the name and address
of the shareholder who intends to make the nominations or propose the
business and, as the case may be, of the person or persons to be nominated or
of the business to be proposed, (ii) a representation that the shareholder is a
holder of record of stock of the Corporation that intends to vote such stock
at such meeting and, if applicable, intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, (iii)
if applicable, a description of all arrangements or understandings between the
shareholder and each nominee or any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder, (iv) such other information regarding each nominee
or each matter of business to be proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 had the nominee been nominated, or intended
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to be nominated, or the matter been proposed, or intended to be proposed, by
the Board of Directors of the Corporation and (v) if applicable, the consent
of each nominee as director of the Corporation if so elected. The chairman of
a meeting of shareholders may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the
foregoing procedure.
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 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.
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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.
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.
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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.
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
Saturday 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.
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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 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.
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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.
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.
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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.
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
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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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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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