UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from __________ to __________
Commission File Number 1-6247
ALZA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0142070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Page Mill Road
P.O. Box 10950
Palo Alto, California 94303-0802
(Address of principal executive offices)
Registrant's telephone number, including area code (650) 494-5000
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 ( )
Number of shares outstanding of each of the registrant's classes
of common stock as of April 30, 1999:
Common Stock, $.01 par value - 100,809,606 shares
ALZA CORPORATION
FORM 10-Q for the Quarter Ended
March 31, 1999
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Financial Statements 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-24
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 25
Part II. Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Exhibits
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALZA CORPORATION
Condensed Consolidated Statement of Operations (unaudited)
(In millions, except per share amounts)
Quarter Ended
March 31,
1999 1998
______________________________
Revenues
Net sales $ 96.2 $ 66.8
Royalties, fees and other 58.9 50.4
Research and development 30.4 26.3
______________________________
Total revenues 185.5 143.5
Costs and expenses
Costs of products shipped 34.3 31.3
Research and development 44.1 40.2
Selling, general and
administrative 55.2 24.4
SEQUUS merger-related costs 32.6 -
______________________________
Total costs and expenses 166.2 95.9
______________________________
Operating income 19.3 47.6
Interest expense 14.9 14.2
Interest and other income (5.0) (6.9)
______________________________
Net interest and other
expense 9.9 7.3
______________________________
Income before income taxes 9.4 40.3
Provision for income taxes 5.7 13.8
______________________________
Net income $ 3.7 $ 26.5
==============================
Earnings per share
Basic $ 0.04 $ 0.27
==============================
Diluted $ 0.04 $ 0.27
==============================
Shares used in per share computation
Basic 100.4 98.2
==============================
Diluted 103.2 100.1
==============================
See accompanying notes.
ALZA Corporation
Condensed Consolidated Balance Sheet (unaudited)
(In millions)
March 31, December 31,
1999 1998
______________________________
ASSETS
Current assets:
Cash and cash equivalents $ 68.4 $ 110.1
Short-term investments 68.5 86.1
Receivables, net 166.5 148.6
Inventories, at cost:
Raw materials 16.1 18.2
Work in process 10.1 10.6
Finished goods 29.3 25.8
______________________________
Total inventories 55.5 54.6
Prepaid expenses and other
current assets 44.5 26.3
______________________________
Total current assets 403.4 425.7
Property, plant and equipment 501.5 504.7
Less accumulated depreciation
and amortization (130.1) (132.3)
______________________________
Net property, plant and equipment 371.4 372.4
Investments in long-term securities 347.3 317.9
Deferred product acquisition payments 272.9 279.1
Other assets 271.3 271.5
______________________________
Total assets $ 1,666.3 $ 1,666.6
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27.4 $ 59.6
Accrued liabilities 71.1 61.5
Other current liabilities 6.8 7.4
______________________________
Total current liabilities 105.3 128.6
5% convertible subordinated debentures 500.0 500.0
5-1/4% zero coupon convertible
subordinated debentures 428.2 422.6
Other long-term liabilities 74.0 83.5
Stockholders' equity:
Common stock and additional
paid-in capital 660.8 645.5
Accumulated other comprehensive loss (2.8) (10.6)
Accumulated deficit (99.2) (103.0)
______________________________
Total stockholders' equity 558.8 531.9
______________________________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,666.3 $ 1,666.6
==============================
See accompanying notes.
ALZA CORPORATION
Condensed Consolidated Statement of Cash Flows (unaudited)
(In millions)
Quarter Ended
March 31,
1999 1998
____________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3.7 $ 26.5
Non-cash adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8.9 10.4
Amortization of product acquisition payments 6.3 2.6
Interest on 5-1/4% zero coupon convertible
subordinated debentures 5.6 5.2
Changes in current assets:
Receivables (17.9) (8.2)
Inventories (0.8) 4.4
Prepaid expenses and other current assets (4.4) (1.9)
Changes in liabilities:
Accounts payable (12.3) (8.9)
Accrued liabilities 11.8 (16.0)
Other long-term liabilities (3.4) (0.6)
Asset write-down 9.5 -
____________________
Total adjustments 3.3 (13.0)
____________________
Net cash provided by operating activities 7.0 13.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15.8) (13.4)
Product acquisition payments (20.0) (5.0)
Purchases of available-for-sale securities (72.8) (99.1)
Sales and maturities of available-for-sale
securities 50.9 92.0
Maturities of available-for-sale securities 4.0 17.5
Other investing activities (1.5) (5.4)
____________________
Net cash used in investing activities (55.2) (13.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 13.0 20.0
Principal payments on long-term debt (6.5) (2.9)
____________________
Net cash provided by financing activities 6.5 17.1
____________________
Net (decrease) increase in
cash and cash equivalents (41.7) 17.2
Cash and cash equivalents at
beginning of period 110.1 71.7
____________________
Cash and cash equivalents at end of period $ 68.4 $ 88.9
====================
See accompanying notes.
ALZA CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
The information at March 31, 1999 and for the quarters ended
March 31, 1999 and 1998 includes all adjustments (consisting only
of normal recurring adjustments) that the management of ALZA
Corporation ("ALZA") believes necessary for fair presentation of
the results for the periods presented.
Results for any interim period are not necessarily
indicative of results for any future interim period or for the
entire year. The accompanying financial statements should be
read in conjunction with the financial statements and notes
thereto included in ALZA's Annual Report on Form 10-K for the
year ended December 31, 1998 and the Form 8-K filed concurrently
with this Form 10-Q, which restates financial information for
prior periods to reflect the combined results of ALZA and SEQUUS
Pharmaceuticals, Inc. ("SEQUUS").
In March 1999, all of the outstanding shares of SEQUUS were
acquired by ALZA in a business combination accounted for as a
pooling-of-interests. Accordingly, the financial data for prior
periods has been restated to represent the combined financial
results of ALZA and SEQUUS (Note 4).
Comprehensive Income
Total comprehensive income includes net income plus other
comprehensive income, which, for ALZA, primarily comprises net
unrealized gains or losses on available-for-sale securities.
Other comprehensive income (loss) was $7.9 million and $(0.1)
million for the quarters ended March 31, 1999 and 1998,
respectively. Total comprehensive income was $11.6 million and
$26.4 million for the quarters ended March 31, 1999 and 1998,
respectively.
Supplemental Disclosures of Cash Flow Information
Noncash Investing and Financing Quarter Ended March 31,
Activities (In millions) 1999 1998
____________________________
Investment in low-income housing
in exchange for long-term debt $ - $ 10.1
Acquisition of building in lieu of
repayment of note receivable - 17.5
Reclassification
Certain amounts in the prior year's financial statements
have been reclassified to conform to the 1999 presentation.
NOTE 2. PER SHARE INFORMATION
Basic earnings per share is calculated by dividing net
income by the weighted average common shares outstanding for the
period. Diluted earnings per share is calculated by dividing net
income, as adjusted, by the weighted average common shares
outstanding for the period plus the dilutive effect of stock
options, warrants and convertible securities.
The following table sets forth the computation of ALZA's
basic and diluted earnings per share:
Quarter Ended March 31,
(in millions, except per share amounts) 1999 1998
_______________________________________________________________
NUMERATOR:
Basic
Net income $ 3.7 $ 26.5
===============================================================
Diluted
Net income $ 3.7 $ 26.5
===============================================================
DENOMINATOR:
Basic
Weighted average shares 100.4 98.2
===============================================================
Diluted
Weighted average shares 100.7 98.2
Effect of dilutive securities:
Employee stock options 2.5 1.7
Warrants - 0.2
_______________________________________________________________
Weighted average shares and
assumed conversions 103.2 100.1
===============================================================
Basic earnings per share $ 0.04 $ 0.27
===============================================================
Diluted earnings per share $ 0.04 $ 0.27
===============================================================
Stock options and warrants to purchase 1.1 million shares of
common stock were excluded from the diluted earnings per share
calculation for the quarters ended March 31, 1999 and 1998, because
the exercise price of the options and warrants was greater than the
average market price of the common shares during the quarter, and
therefore the effect of including those options and warrants would
have been anti-dilutive. Assumed conversions of ALZA's outstanding
5% convertible subordinated debentures due 2006 ("5% Debentures")
and 5-1/4% zero coupon convertible subordinated debentures due 2014
("5-1/4% Debentures") were not included in the diluted earnings per
share calculation for the periods presented, as their inclusion
would have been anti-dilutive.
NOTE 3. CRESCENDO PHARMACEUTICALS CORPORATION (RELATED PARTY)
Under the Development Agreement between ALZA and Crescendo
Pharmaceuticals Corporation ("Crescendo"), ALZA recorded product
development revenues of $23.3 million for the quarter ended March
31, 1999, compared with $19.9 million for the quarter ended March
31, 1998. ALZA expects that Crescendo will have expended all its
available funds during 2000.
Under the Technology License Agreement between ALZA and
Crescendo, ALZA recorded technology fee revenue from Crescendo of
$2.0 million for the first quarter of 1999, compared with $3.0
million for the first quarter of 1998, in accordance with the
terms of the agreement.
ALZA recognizes the technology fee from Crescendo when
earned. Since Crescendo owes the fee at the end of each month
if, and only if, at least two of the "Initial Products" remain in
development and/or have been licensed by ALZA at the end of each
month, the fee is not earned until the end of each month in which
these conditions are met. Development of any or all of the
Initial Products could be terminated by Crescendo at any time.
Three of the seven Initial Products were in development and/or
had been licensed at March 31, 1999. The monthly technology fee
payments are not guaranteed, and the conditions precedent to
their payment have not been fulfilled and cannot be fulfilled
before the end of each month. At the time ALZA accrues the
Crescendo technology fee, ALZA has no future performance
obligations to Crescendo in order to earn the fee that is being
accrued.
ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement. The option is exercisable on a product-by-
product, country-by-country, basis. In December 1998, ALZA
exercised its option to obtain a worldwide license to OROS-
registered trademark- oxybutynin (marketed by ALZA in the United
States as Ditropan-registered trademark- XL). Under the license
agreement for this product, ALZA must pay Crescendo 2.5% of net
sales of the licensed product in the first year of sales, and 3%
in the second and third years. Thereafter, until 15 years after
the date of the first commercial sale of the product, the
percentage owed to Crescendo would be based upon development
costs paid by Crescendo; based upon current information this rate
is expected to be between 5% and 6%.
NOTE 4. ACQUISITION OF SEQUUS PHARMACEUTICALS, INC.
On March 16, 1999, ALZA completed a merger with SEQUUS by
acquiring all of SEQUUS' outstanding stock in a tax-free, stock-
for-stock transaction. SEQUUS stockholders received 0.4 shares
of ALZA common stock for each share of SEQUUS common stock. ALZA
issued 13.2 million shares in the merger. ALZA accounted for the
transaction as a pooling of interests. Accordingly, ALZA's
consolidated financial statements have been retroactively
restated for prior periods to include the combined financial
results of ALZA and SEQUUS. For the quarter ended March 31,
1999, the consolidated results of operations of the combined
companies have been presented and no adjustments were necessary
to conform the accounting practices of the two companies.
The table below presents the separate results of operations
for ALZA and SEQUUS for the periods prior to the merger and
combined results after the merger:
Merger-
related
(In millions) ALZA SEQUUS adjustments Total
_________________________________________________________________
Quarter Ended March 31, 1999
Revenues $ 173.1 $ 12.4 $ - $ 185.5
Net income 42.0 (5.7) (a)(32.6) 3.7
_________________________________________________________________
Quarter Ended March 31, 1998
Revenues $ 130.7 $ 12.4 $ - $ 143.5
Net income (loss) 28.3 (3.0) (b) 1.2 26.5
_________________________________________________________________
(a) Represents expenses incurred by ALZA related to the SEQUUS
merger.
(b) Represents a 40% tax benefit derived from SEQUUS' net loss.
As a result of the SEQUUS acquisition, ALZA incurred merger-
related costs that consisted of merger transaction costs, exit
costs and employee severance costs. Merger transaction costs
consisted primarily of fees for investment bankers, attorneys,
accountants, filing fees, financial printing costs and other
related charges. Exit costs include costs such as cancellation of
lease agreements and the write-down of SEQUUS assets that will
not be used in continuing operations. The following table shows
the details of the merger-related costs for the quarter ended
March 31, 1999:
Merger- Balance
related at March 31,
(In millions) costs Utilized 1999
_________________________________________________________________
Merger transaction costs $13.2 $ 5.4 $ 7.8
Exit costs 14.3 9.5 4.8
Employee severance 5.1 5.0 0.1
_______________________________
Total $32.6 $19.9 $12.7
===============================
NOTE 5. SEGMENT REPORTING
ALZA has two operating segments: ALZA Pharmaceuticals and
ALZA Technologies. The ALZA Pharmaceuticals segment includes
sales of products directly to the pharmaceutical marketplace,
research and development of potential products to be marketed by
ALZA (including revenues and expenses relating to products under
development with Crescendo) and co-promotion revenues for
products co-promoted by ALZA. The ALZA Technologies segment
includes research, development and manufacturing for client
companies and ALZA Pharmaceuticals, and royalties and fees
(including milestone payments) from ALZA's client companies under
joint product development and commercialization agreements. The
"Other" category primarily comprises corporate general and
administrative expenses, including finance, legal, human
resources, commercial development, executive and other functions
not directly attributable or allocated to the activities of the
operating segments, as well as rental and service fee revenues.
SEQUUS' net sales, costs of products shipped, research and
development for potential products to be marketed by ALZA and
sales and marketing expenses are included in ALZA
Pharmaceuticals; royalties and fee revenues and research and
development expenses are included in ALZA Technologies; and
general and administrative expenses are included in Other.
ALZA evaluates performance and allocates resources based on
operating income or loss from operations (before allocation of
certain general and administrative expenses, net interest
expense, investment gains and losses and income taxes). ALZA
does not assess segment performance or allocate resources based
on a segment's total assets, and therefore ALZA's assets are not
reported by segment. ALZA allocates certain long-lived assets to
operating segments for purposes of allocating depreciation and
amortization expense. The accounting policies of the reportable
segments are the same as those described in the summary of
significant accounting policies. ALZA accounts for intersegment
revenues based on prices negotiated between the segments, which
generally approximate the prices charged to third parties.
ALZA's reported segments are strategic operating units that
distribute products to different types of customers and provide
different types of services. They are managed differently
because ALZA Pharmaceuticals' sales and marketing efforts are
extensive and disparate from the revenue generation process
resulting from arrangements with client companies.
The following tables contain information about segment
operating income (loss) for the quarter ended March 31, 1999 and
1998:
Quarter Ended March 31,
(In millions) 1999 1998
____________________________________________________________
Revenues from external customers
Net sales
ALZA Pharmaceuticals $ 67.9 $ 41.8
ALZA Technologies 28.3 25.0
Royalties, fees and other
ALZA Pharmaceuticals 3.1 3.8
ALZA Technologies 55.4 46.3
Other 0.4 0.3
Research and development
ALZA Pharmaceuticals 23.2 19.5
ALZA Technologies 7.2 6.8
___________________________
Total $185.5 $143.5
===========================
Intersegment revenues
Net sales
ALZA Pharmaceuticals $ - $ -
ALZA Technologies 4.2 1.5
Research & development
ALZA Pharmaceuticals - -
ALZA Technologies 32.5 31.2
___________________________
Total $ 36.7 $ 32.7
===========================
Segment operating income (loss)
ALZA Pharmaceuticals $ (3.0) $ 2.2
ALZA Technologies 61.0 51.4
Other (38.7) (6.0)
___________________________
Total $ 19.3 $ 47.6
===========================
The following table contains a reconciliation of ALZA's
income before taxes to that reported by segment in the tables
above:
Quarter Ended March 31,
(In millions) 1999 1998
____________________________________________________________
Income (loss) before taxes
Total operating income for
reportable segments $ 58.0 $ 53.6
Other loss (38.7) (6.0)
Unallocated amounts:
Interest income 5.0 6.9
Interest expense (14.9) (14.2)
____________________________
Income before income taxes $ 9.4 $ 40.3
============================
NOTE 6. SUBSEQUENT EVENTS
In April 1999, AlZA sold three of its buildings located in
Palo Alto, California. The net proceeds from the sale of the
buildings were $6.4 million. ALZA will lease back these
buildings through December 31, 1999, when it expects to complete
occupancy of its new premises under construction in Mountain
View, California.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Notice Concerning Forward-Looking Statements
Some of the statements made in this Form 10-Q are forward-
looking in nature, including, without limitation, plans
concerning the commercialization of products, statements
concerning potential product sales, future costs of products
shipped (and gross margins), associated sales and marketing
expenses, plans concerning development of products and other
statements that are not historical facts. The occurrence of the
events described, and the achievement of the intended results,
are subject to various risk factors that could cause ALZA's
actual results to be materially different than those presented,
some or all of which are not predictable or within ALZA's
control. Many risks and uncertainties are inherent in the
pharmaceutical industry; others are more specific to ALZA's
business. Many of the significant risks related to ALZA's
business are described in ALZA's Annual Report on Form 10-K for
the year ended December 31, 1998.
RESULTS OF OPERATIONS
SUMMARY Quarter Ended March 31,
(In millions, except per share amounts) 1999 1998
________________________________________________________________
Revenues $ 185.5 $ 143.5
________________________________________________________________
Operating income 19.3 47.6
________________________________________________________________
Net income 3.7 26.5
________________________________________________________________
Diluted earnings per share 0.04 0.27
________________________________________________________________
ALZA's net income for the quarter ended March 31, 1999 was
$3.7 million or $0.04 per diluted share compared with a net
income of $26.5 million or $0.27 per diluted share for the
quarter ended March 31, 1998. Net income for the quarter ended
March 31, 1999 included merger-related charges of $24.8 million
(net of tax effect of $7.8 million), or $0.24 per share, and
should be excluded in order to analyze comparable operating
results for the two quarters.
On a comparable basis, for the quarter ended March 31, 1999,
ALZA's net income increased 8% to $28.5 million, or $0.28 per
diluted share, excluding the merger-related charges discussed
above, compared with $26.5 million or $0.27 per share for the
quarter ended March 31, 1998. The increase in net income for the
quarter ended March 31, 1999 resulted primarily from the
following:
- Net sales increased 44% to $96.2 million for the quarter
ended March 31, 1999 from $66.8 million for the quarter ended
March 31, 1998. The increase in sales resulted from a 63%
increase in sales of products by ALZA Pharmaceuticals to $67.9
million for the quarter ended March 31, 1999 from $41.8 million
for the quarter ended March 31, 1998. This increase in ALZA
Pharmaceuticals' sales can be primarily attributed to $22.0
million in sales of Ditropan-registered trademark- XL (oxybutynin
chloride), which was launched on February 1, 1999, and a 29%
increase in sales of Doxil-registered trademark-/Caelyx-
registered trademark- (doxorubicin HCl liposome injection) for
the quarter ended March 31, 1999 compared to the quarter ended
March 31, 1998. In addition, revenues from contract
manufacturing increased 13% to $28.3 million for the quarter
ended March 31, 1999 from $25.0 million for the quarter ended
March 31, 1998 due to higher shipments of NicoDerm-registered
trademark- CQ-trademark- (nicotine) to SmithKline Beecham ("SB"),
Covera-HS-trademark- (verapamil) to G.D. Searle & Co. ("Searle")
and Glucotrol XL-registered trademark- (glipizide) to Pfizer Inc.
("Pfizer").
- Gross margin increased to 64% for the quarter ended March
31, 1999 from 53% for the quarter ended March 31, 1998. The
increase in gross margin was due to an increase in sales of ALZA-
marketed products as a percentage of total net sales and, to a
lesser extent, an improvement in margins of contract manufactured
products.
- Royalties, fees and other revenues increased 17% to $58.9
million for the quarter ended March 31, 1999 from $50.4 million
for the quarter ended March 31, 1998. The increase in royalties
is primarily due to an increase in royalties on sales of
Duragesic-registered trademark- (fentanyl) by Janssen
Pharmaceutica, Inc.(together with its affiliates, "Janssen"),
NicoDerm CQ by SB and Cardura XL-registered trademark- (doxazosin
mesylate) and Glucotrol XL by Pfizer, partially offset by a
decrease in royalties from sales of Procardia XL-registered
trademark- by Pfizer. Fee revenue decreased for the quarter
ended March 31, 1999 compared to the quarter ended March 31,
1998.
- Research and development revenues increased 16% to $30.4
million for the quarter ended March 31, 1999 from $26.3 million
for the quarter ended March 31, 1998. The increase is due to
research and development revenue from Crescendo of $23.3 million
for the quarter ended March 31, 1999 compared with $19.9 million
for the quarter ended March 31, 1998.
- ALZA's effective tax rate declined to 32% for the quarter
ended March 31, 1999 compared to 34% for the quarter ended March
31, 1998.
Substantially offsetting these contributions to net income
in 1999 were the following:
- Research and development expenses increased 10% to $44.1
million for the quarter ended March 31, 1999 from $40.2 million
for the quarter ended March 31, 1998.
- Selling, general and administrative expenses increased 127%
to $55.2 million for the quarter ended March 31, 1999 from $24.4
million for the quarter ended March 31, 1998. The increase was
due to the expansion of the sales organization in 1998, the
increase in marketing expenditures related to the launch of
Ditropan XL in the first quarter of 1999 and increased marketing
expenses for ALZA's expanded product portfolio.
- Interest income declined 27% to $5.0 million for the quarter
ended March 31, 1999 compared with $6.9 million for the quarter
ended March 31, 1998, primarily due to lower cash balances as a
result of a payment in the third quarter of 1998 of $91.2 million
for the exercise of the option to acquire all of the outstanding
limited partnership interests in ALZA TTS Research Partners, Ltd.
(the "TTS Partnership").
OPERATING SEGMENT SUMMARY
ALZA has two operating segments: ALZA Pharmaceuticals and
ALZA Technologies.
ALZA Pharmaceuticals markets and sells products developed by
ALZA Technologies or others directly to the pharmaceutical
marketplace in the United States and Canada and to distributors
who sell such products outside the United States and Canada.
ALZA Pharmaceuticals also conducts product development, co-
promotes products with third parties, and engages ALZA
Technologies and others to conduct product development and
manufacture products for ALZA Pharmaceuticals.
ALZA Technologies conducts research and development of
ALZA's drug delivery technologies and products for ALZA
Pharmaceuticals and Crescendo and other pharmaceutical company
clients, and manufactures products for sale by ALZA
Pharmaceuticals and client companies.
The "Other" category primarily comprises corporate general
and administrative activities and the associated costs related to
finance, legal, human resources, commercial development,
executive and other functions not directly attributable (or
allocated) to the activities of the operating segments, as well
as rental and service fee revenues.
SEQUUS' net sales, costs of products shipped, research and
development for products marketed by, and potential products to be
marketed by, ALZA and sales and marketing expenses are included in
ALZA Pharmaceuticals; royalties and fee revenues, research and
development revenues and related expenses (largely for activities
undertaken on behalf of ALZA Pharmaceuticals) are included in ALZA
Technologies; and general and administrative expenses are included
in Other.
OPERATING SEGMENT SUMMARY Quarter Ended March 31,
(In millions) 1999 1998
_________________________________________________________________
Revenues
ALZA PHARMACEUTICALS $ 94.2 $ 65.1
ALZA TECHNOLOGIES 127.6 110.8
OTHER 0.4 0.3
_________________________________________________________________
Total segment revenues 222.2 176.2
Intersegment elimination (36.7) (32.7)
_________________________________________________________________
Total revenues $ 185.5 $ 143.5
_________________________________________________________________
Operating income (loss)
ALZA PHARMACEUTICALS $ (3.0) $ 2.2
ALZA TECHNOLOGIES 61.0 51.4
OTHER (38.7) (6.0)
_________________________________________________________________
Total operating income $ 19.3 $ 47.6
_________________________________________________________________
ALZA PHARMACEUTICALS
The decrease in ALZA Pharmaceuticals' operating income in
the quarter ended March 31, 1999 compared to the quarter ended
March 31, 1998, was due to a 55% increase in operating expenses
reflecting the substantial expansion of ALZA's sales organization
and increased marketing expenses related to the launch of
Ditropan-registered trademark- XL and its expanded product
portfolio. The increase in operating expenses was partially
offset by a 63% increase in net sales of ALZA-marketed products.
ALZA TECHNOLOGIES
Operating income for ALZA Technologies increased 19% in the
quarter ended March 31, 1999 compared to the quarter ended March
31, 1998. This increase was primarily due to a 20% increase in
royalties, fees and other revenues and a 13% increase in contract
manufacturing sales.
OTHER
Operating loss for the "Other" segment increased
significantly in the quarter ended March 31, 1999 compared to the
quarter ended March 31, 1998. The increase in the operating loss
was due primarily to $32.6 million of merger-related charges
recorded in the quarter ended March 31, 1999 related to the
SEQUUS acquisition.
NET SALES
Net Sales Quarter Ended March 31,
(In millions) 1999 1998
__________________________________________________________________
ALZA PHARMACEUTICALS
Ditropan-registered trademark- XL $ 22.0 $ -
Doxil-registered trademark-/
Caelyx-registered trademark- 14.3 10.7
Ethyol-registered trademark- 8.6 8.1
Mycelex-registered trademark- Troche 5.0 5.9
Elmiron-registered trademark- 4.9 7.0
Testoderm-registered trademark- TTS line 4.5 2.0
Other 8.6 8.1
__________________________________________________________________
Total 67.9 41.8
__________________________________________________________________
ALZA TECHNOLOGIES
Contract manufacturing 28.3 25.0
Intersegment 4.2 1.5
__________________________________________________________________
Total 32.5 26.5
__________________________________________________________________
Intersegment eliminations (4.2) (1.5)
__________________________________________________________________
Total net sales $ 96.2 $ 66.8
__________________________________________________________________
Total net sales as a percentage
of total revenues 52% 47%
__________________________________________________________________
ALZA PHARMACEUTICALS
Included in net sales of ALZA-marketed products are sales of
the products marketed directly by ALZA in the United States and
Canada, and sales of those products in other countries through
distributors. Net sales of ALZA-marketed products increased 63%
for the quarter ended March 31, 1999 compared to the quarter
ended March 31, 1998, resulting from initial sales of Ditropan
XL, which was launched in February 1999, and a 29% increase in
sales of Doxil for the quarter ended March 31, 1999 compared to
the quarter ended March 31, 1998. Partially offsetting these
increases was a 31% decline in sales of Elmiron-registered
trademark- (pentosan polysulfate sodium) and a 14% decline in
sales of Mycelex-registered trademark- (clotrimazole) Troche.
Net sales of ALZA-marketed products can be expected to vary
from quarter to quarter, particularly in the first years after
launch of a new product. Ditropan XL was launched in the first
quarter of 1999, and Doxil, Ethyol-registered trademark-
(amifostine), Elmiron and Testoderm-registered trademark- TTS
(Testosterone Transdermal System) were cleared for marketing
during the past few years. These products have not yet achieved
their steady-state sales levels. Wholesaler stocking patterns,
managed care and formulary acceptance, the introduction of
competitive products, and acceptance by patients and physicians
will affect future sales of these products.
ALZA TECHNOLOGIES
Net sales from contract manufacturing include sales
generated from contract manufacturing activities for ALZA's
client companies and for ALZA Pharmaceuticals. Net sales from
contract manufacturing increased 13% for the quarter ended March
31, 1999 compared to the quarter ended March 31, 1998, primarily
due to an increase in ALZA shipments of NicoDerm CQ to SB and
Covera-HS to Searle.
The timing and quantities of orders for products marketed by
client companies are not within ALZA's control. Net sales to
client companies can be expected to fluctuate from period to
period, sometimes significantly, depending on the volume, mix and
timing of orders of products shipped to client companies, and in
some quarters, due to the shipment of launch quantities of
products to clients.
GROSS MARGIN
Quarter Ended March 31,
Gross margin 1999 1998
________________________________________________________________
ALZA PHARMACEUTICALS (1) 83% 76%
ALZA TECHNOLOGIES (1) 20% 13%
________________________________________________________________
Gross margin(2) 64% 53%
________________________________________________________________
(1) Includes intersegment revenues or expenses.
(2) After intersegment eliminations.
The increase in total gross margin for the quarter ended
March 31, 1999 compared to March 31, 1998 was due to increased
sales of higher-margin products by ALZA Pharmaceuticals and, to a
lesser extent, an increase in margins on products shipped by ALZA
Technologies to client companies. ALZA expects its gross margin
on net sales to increase from historical rates over the longer
term, although quarter-to-quarter fluctuations, even significant
ones, can be expected to continue to occur. A trend of higher
gross margins may be achieved through a proportionate increase in
direct sales by ALZA Pharmaceuticals in relation to sales from
contract manufacturing and, to a lesser extent, increased
utilization of capacity and greater operating efficiencies by
ALZA Technologies.
ALZA PHARMACEUTICALS
The gross margin on net sales of ALZA-marketed products
increased in the quarter ended March 31, 1999 compared to the
quarter ended March 31, 1998 due to a shift in product mix toward
sales of higher-margin products, including Ditropan XL, which was
launched February 1, 1999.
ALZA TECHNOLOGIES
The gross margin on net sales of products manufactured by
ALZA Technologies for sale by client companies and ALZA
Pharmaceuticals increased in the quarter ended March 31, 1999
compared with the quarter ended March 31, 1998 as a result of an
increase in shipments of higher-margin products to client
companies. ALZA Technologies' gross margin on its contract
manufacturing sales is usually considerably lower than ALZA
Pharmaceuticals' gross margin on its sales of ALZA-marketed
products. ALZA's client-funded product development agreements
generally provide for a supply price that is intended to cover
ALZA's costs to manufacture the product plus a small margin.
ALZA also receives royalties on the clients' sales of the
products, which are included in royalties, fees and other
revenues. Sales to ALZA Pharmaceuticals are based upon
negotiated prices, which generally approximate the prices charged
to third parties.
ROYALTIES, FEES AND OTHER REVENUES
Royalties, Fees and Other Revenues Quarter Ended March 31,
(In millions) 1999 1998
_________________________________________________________________
ALZA PHARMACEUTICALS $ 3.1 $ 3.8
ALZA TECHNOLOGIES 55.4 46.3
OTHER 0.4 0.3
_________________________________________________________________
Total royalties, fees and
other revenues $ 58.9 $ 50.4
_________________________________________________________________
Percentage of total revenues 32% 35%
_________________________________________________________________
ALZA PHARMACEUTICALS
For the quarter ended March 31, 1999, fee revenue for AlZA
Pharmaceuticals included technology fees of $2.0 million from
Crescendo compared to $3.0 million from Crescendo for the quarter
ended March 31, 1998, as provided in the agreements between ALZA
and Crescendo.
ALZA TECHNOLOGIES
Royalties, fees and other revenues increased 20% for the
quarter ended March 31, 1999, compared to the quarter ended March
31, 1998. The first quarter increase in royalties, fees and
other revenues was primarily due to an increase of 26% in
royalties resulting from higher royalties on product sales of
Duragesic, NicoDerm CQ, Cardura XL, and Glucotrol XL, partially
offset by a decrease in royalties from sales of Procardia XL.
Sales of Procardia XL, as reported by Pfizer, decreased 27%
in the quarter ended March 31, 1999 compared to the quarter ended
March 31, 1998. Several companies have filed Abbreviated New
Drug Applications ("ANDA") with the United States Food and Drug
Administration ("FDA") requesting clearance to market generic
equivalents to Procardia XL, and one company has received
tentative FDA approval of its ANDA. Pfizer has filed suit
against these companies for infringement of patent rights
relating to the nifedipine active drug substance in Procardia XL,
and is also involved in litigation with the FDA and one of the
ANDA applicants concerning the regulatory status of the
applicant's product. It is not possible to predict the timing
and amount of the negative impact on sales of Procardia XL that
will result from competition from these or other potential
generic sustained release nifedipine products.
During the next several years, ALZA intends to continue to
reduce its dependence on royalties and fees by further expanding
ALZA's sales and marketing activities and by directly marketing
and selling more products. However, there can be no assurance
that ALZA will be successful in undertaking this expansion, or
that any expanded sales and marketing activities will be
successful, due to factors such as the risks associated with
developing, clinically testing and obtaining regulatory clearance
of products for ALZA marketing, the difficulties and costs
associated with acquiring products from third parties for ALZA to
market, the length of the regulatory approval process, the
uncertainties surrounding the acceptance of new products by the
intended markets, the marketing of competitive products, the
risks relating to patents and proprietary rights and the current
health care cost containment environment in the United States.
ALZA expects that, in the near term, royalties on sales by
clients of currently marketed products will continue to be a
substantial contributor to net income.
RESEARCH AND DEVELOPMENT
Research and Development Revenues Quarter Ended March 31,
(In millions) 1999 1998
_________________________________________________________________
ALZA PHARMACEUTICALS
Crescendo $ 23.2 $ 19.5
_________________________________________________________________
ALZA TECHNOLOGIES
Crescendo $ - $ 0.5
Other clients 7.2 6.3
Intersegment 32.5 31.2
_________________________________________________________________
Total 39.7 38.0
_________________________________________________________________
Intersegment elimination (32.5) (31.2)
_________________________________________________________________
Total research and development revenues $ 30.4 $ 26.3
_________________________________________________________________
Percentage of total revenues 16% 18%
_________________________________________________________________
ALZA PHARMACEUTICALS
ALZA Pharmaceuticals derives research and development
revenues from Crescendo. Revenues from Crescendo are offset by
intersegment charges from ALZA Technologies for research and
development expenses incurred on behalf of ALZA Pharmaceuticals
related to products under development for marketing by ALZA
Pharmaceuticals. ALZA expects that Crescendo will have expended
all its available funds during 2000.
ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement. The option is exercisable on a product-by-
product, country-by-country, basis. In December 1998, ALZA
exercised its option to obtain a worldwide license to OROS
oxybutynin (Ditropan XL). Under the license agreement, ALZA must
pay Crescendo 2.5% of net sales of the licensed product for the
first year of sales and 3% for the second and third years.
Thereafter, until 15 years after the date of the first commercial
sale of the product, the percentage owed to Crescendo would be
based upon development costs paid by Crescendo; based upon
current information this rate is expected to be between 5% and
6%.
ALZA TECHNOLOGIES
Research and development revenues increased 4% for the
quarter ended March 31, 1999 compared to the quarter ended March
31, 1998 reflecting an increase in product development activities
under agreements with client companies.
Research and Development Expenses Quarter Ended March 31,
(In millions) 1999 1998
_________________________________________________________________
ALZA PHARMACEUTICALS
Intersegment $ 32.5 $ 31.2
Product development expense 6.0 3.7
_________________________________________________________________
Total ALZA Pharmaceuticals 38.5 34.9
_________________________________________________________________
ALZA TECHNOLOGIES 38.1 36.5
_________________________________________________________________
Intersegment elimination (32.5) (31.2)
_________________________________________________________________
Total research and development
expenses $ 44.1 $ 40.2
_________________________________________________________________
As a percentage of total revenues 24% 28%
_________________________________________________________________
ALZA PHARMACEUTICALS
ALZA Pharmaceuticals engages ALZA Technologies to perform
research and development services, which are charged under the
same formula ALZA charges client companies. Expenses related to
these services were relatively constant for the quarters ended
March 31, 1999 and 1998. Product development expense increased
in the quarter ended March 31, 1999 compared to the quarter ended
March 31, 1998 primarily due to an increase in development costs
related to products currently marketed by ALZA Pharmaceuticals.
ALZA TECHNOLOGIES
Research and development expenses increased 4% in the
quarter ended March 31, 1999, compared to the quarter ended March
31, 1998, reflecting an increase in product development
activities under agreements with client companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses
Quarter Ended March 31,
(In millions) 1999 1998
__________________________________________________________________
ALZA PHARMACEUTICALS
Sales and marketing expenses $ 42.8 $ 15.4
__________________________________________________________________
ALZA PHARMACEUTICALS
Amortization of product acquisition payments 3.9 2.6
ALZA TECHNOLOGIES
Amortization of product acquisition payments 2.2 -
__________________________________________________________________
Total 6.1 2.6
__________________________________________________________________
OTHER
General and administrative expenses 6.3 6.4
__________________________________________________________________
Total selling, general and
administrative expenses $ 55.2 $ 24.4
==================================================================
Total selling, general and administrative
expenses as a percentage of total revenues 30% 17%
__________________________________________________________________
ALZA PHARMACEUTICALS
Sales and marketing expense increased substantially for the
quarter ended March 31, 1999 compared to the quarter ended March
31, 1998 as a result of the significant increase in the size of
ALZA's sales organization, the increased sales and marketing
activities due to the launch of Ditropan XL and the increased
marketing expense for ALZA's expanded product portfolio. During
the second half of 1998, ALZA expanded its sales organization by
approximately 260 sales professionals. In 1998, ALZA entered
into an agreement with UCB Pharma, Inc. ("UCB Pharma") under
which approximately 350 sales professionals of UCB Pharma are co-
promoting Ditropan XL in the United States with ALZA. UCB Pharma
receives payments based on sales of Ditropan XL above certain
levels, as well as payments for calls made. The term of the co-
promotion arrangement continues through March 2002.
Amortization of product acquisition payments for the ALZA
Pharmaceuticals segment increased 50% in the quarter ended March
31, 1999 compared to the quarter ended March 31, 1998 due to the
amortization of payments for products that were acquired in the
second half of 1998 and the amortization of additional payments
made since the first quarter of 1998 related to product
acquisitions.
ALZA TECHNOLOGIES
Amortization of product acquisition payments for ALZA
Technologies relates to three months amortization of the $91.2
million exercise price paid in August 1998 to acquire all of the
outstanding limited partnership interests in the TTS Partnership.
NET INTEREST
Net Interest Quarter Ended March 31,
(In millions) 1999 1998
_________________________________________________________________
Interest and other income $ (5.0) $ (6.9)
Interest expense 14.9 14.2
_________________________________________________________________
Net interest and other expense $ 9.9 $ 7.3
_________________________________________________________________
Interest and other income declined 28% for the quarter ended
March 31, 1999 compared to the quarter ended March 31, 1998 due
to significantly lower average invested cash balances. ALZA's
lower cash balance in the first quarter of 1999 was attributable
to the payment of $91.2 million for the exercise of the option to
acquire all of the outstanding limited partnership interest in
the TTS Partnership, which occurred in the third quarter of 1998.
Interest expense was slightly higher for the quarter ended March
31, 1999 as compared to the same period for 1998, primarily due
to accreted interest on ALZA's outstanding 5-1/4% Debentures.
Effective Tax Rate
For the first quarter of 1999, the effective income tax rate
was 32%, excluding the tax effect of $7.8 million on merger-
related costs of $32.6 million, compared to 34% for the first
quarter of 1998. ALZA's annual effective combined federal and
state income tax rate for 1999 is estimated to be 32% assuming
utilization of SEQUUS' net operating losses. The actual
effective income tax rate will depend upon the actual level of
earnings, potential changes in the tax laws, the amount of
investment and research credits available and ALZA's ability to
utilize such credits.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES March 31, December 31,
(In millions) 1999 1998
__________________________________________________________________
Working capital $ 298.1 $ 297.1
Cash and investments 484.2 514.1
Total assets 1,666.3 1,666.6
Long-term debt 962.7 966.1
__________________________________________________________________
Quarter ended March 31,
(In millions) 1999 1998
__________________________________________________________________
Net cash provided by (used in)
operating activities $ 7.0 $ (13.0)
Capital expenditures 15.8 13.4
Product acquisition payments 20.0 5.0
__________________________________________________________________
Cash flow provided by operating activities for the quarter
ended March 31, 1999 was $7.0 million (or $17.3 million excluding
payments for merger-related expenses) compared to $13.5 million
for the quarter ended March 31, 1998.
ALZA's capital spending for the quarter ended March 31, 1999
was $15.8 million for additions to facilities and equipment to
support its research, development and manufacturing activities,
compared to capital spending of $13.4 million in the same period
in 1998. While ALZA believes its current facilities and
equipment (including the facilities currently under construction)
are sufficient to meet its current operating requirements, ALZA
is expanding its facilities and equipment to support its medium-
term and long-term requirements. Capital expenditures during the
remainder of 1999 are expected to continue to increase over 1998
levels to complete the Mountain View facilities discussed below.
As a result of ALZA's investment in a real estate joint
venture and construction of buildings in Mountain View,
California, which are scheduled to be completed in late 1999,
ALZA has been evaluating its real estate holdings and future
facilities needs. In April 1999, ALZA sold three of its
buildings located in Palo Alto, California for a total of $6.4
million. ALZA will lease back these buildings through December
31, 1999, when it expects to complete occupancy of the new
buildings in Mountain View. ALZA expects to sell or lease
certain other Palo Alto and/or Mountain View properties in the
near term, which could result in additional gains in 1999 and
lease income in 2000 and beyond.
ALZA believes that its existing cash and investment balances
are adequate to fund its cash needs for 1999 and beyond. In
addition, should the need arise, ALZA believes it would be able
to borrow additional funds or otherwise raise additional capital.
ALZA may consider using its capital to make strategic investments
or to acquire or license technology or products.
Year 2000
ALZA is reliant upon its computer systems and applications,
including scientific and manufacturing equipment containing
computer-related components, to conduct its business. Key
internal systems and applications include manufacturing
production management, raw materials supply, inventory control,
research and development activities and project management,
documentation, marketing and financial systems. The majority of
ALZA's significant operating and accounting systems are currently
Year 2000 compliant. The financial and accounting systems that
are not currently Year 2000 compliant have been identified and
are in the process of being upgraded or replaced. Other internal
systems have been inventoried and evaluated for Year 2000
compliance. Internal systems will be upgraded or replaced or
contingency plans will be developed, as necessary. Year 2000
issues are expected to be resolved with respect to all systems
critical to ALZA's business by the end of 1999.
In addition to its internal systems, ALZA is also reliant
upon the capabilities of the computer systems of its
distributors, customers, vendors, banks, and government agencies.
ALZA has initiated communications with third parties with whom it
has material direct business relationships in order to determine
their level of Year 2000 compliance.
Year 2000 costs incurred to date have not been material.
Total costs to modify ALZA's systems for Year 2000 compliance are
expected to be less than $2.0 million. Such costs do not include
normal system upgrades and replacements and the actual financial
impact could exceed this estimate.
If ALZA is unable to bring its systems into compliance in
the expected timeframe, any noncompliance could have a material
impact on ALZA's operations, and could result in delays or
failures in manufacturing, research and development and similar
activities. The extent of such impact cannot presently be
determined. ALZA may also experience delays or failures in
manufacturing, distribution, order entry, order processing,
product shipping and distribution, invoicing, payment, or similar
normal business activities, if certain third party distributors,
customers, vendors and banks are not Year 2000 compliant. In
addition, ALZA may experience some delay in obtaining approvals
to market ALZA products from government agencies if government
computer systems are not Year 2000 compliant. There can be no
assurances that third parties' failure to ensure Year 2000
compliance would not have an adverse impact on ALZA's financial
condition or results of operations.
ALZA is currently identifying and developing specific
contingency plans intended to mitigate the effects of any
potential Year 2000 disruption, including the effects of
operational problems and costs that may result from a failure of
ALZA and certain third parties to complete efforts necessary to
achieve Year 2000 compliance on a timely basis or from abnormal
buying patterns in anticipation of Year 2000. ALZA expects to
have contingency plans in place by the middle of 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Financial market risks related to changes in interest rates
and foreign currency exchange rates are described in Part II,
Item 7A, Quantitative and Qualitative Disclosure About Market
Risk, in ALZA's Annual Report on Form 10-K for the year ended
December 31, 1998 and the Form 8-K filed concurrently with this
Form 10-Q, which restates financial information for prior periods
to reflect the combined results of ALZA and SEQUUS.
ALZA is exposed to equity price risks on the marketable
portion of equity securities included in its portfolio of
investments entered into to further its business and strategic
objectives. These investments are generally in small
capitalization stocks in the pharmaceutical and biotechnology
industry sector, in companies with which ALZA has research and
development or product agreements. ALZA typically does not
attempt to reduce or eliminate its market exposure on these
securities. A 20% adverse change in equity prices would result
in an approximate $14 million decrease in ALZA'S available-for-
sale securities, based upon a sensitivity analysis performed on
ALZA's financial position at March 31, 1999. However, actual
results may differ materially.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Product liability suits have been filed against Janssen and
ALZA from time to time relating to the Duragesic product.
Janssen is managing the defense of these suits in consultation
with ALZA under an agreement between the parties.
Historically, the cost of resolution of liability claims
against ALZA (including product liability claims) has not been
significant,
and ALZA is not aware of any asserted or unasserted claims
pending against it, including the suits mentioned above, the
resolution of which would have a material adverse impact on the
operations or financial position of ALZA.
Pursuant to a Remedial Action Order No. HSA 88/89-016 issued
by the California Department of Toxic Substances Control
("DTSC"), ALZA has been named as one of a number of potentially
responsible parties in connection with the cleanup and
environmental remediation of the Hillview-Porter Regional Site
Project near ALZA's Palo Alto facilities. The purpose of the
DTSC action is, in part, to apportion responsibility for cleanup
costs among the parties involved. Cleanup costs for the entire
region have been estimated at approximately $16 million. ALZA
believes that it did not discharge any of the chemicals of
concern at the site in question. ALZA does not believe that its
liability in this matter, if any, will be material.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Composite By-laws of ALZA Corporation
27 Financial Data Schedule
(b) On March 16, 1999, ALZA filed a current report on Form 8-K
to report the closing of its acquisition of SEQUUS.
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.
ALZA CORPORATION
Date: May 12, 1999 By: /s/ E. Mario
________________________________
Dr. Ernest Mario
Chairman and Chief
Executive Officer
Date: May 12, 1999 By: /s/ Bruce C. Cozadd
________________________________
Bruce C. Cozadd
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
3.1 Composite bylaws of ALZA Corporation
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN PART I, ITEM 1 FOR FORM 10-Q DATED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 68
<SECURITIES> 69
<RECEIVABLES> 171
<ALLOWANCES> 4
<INVENTORY> 56
<CURRENT-ASSETS> 403
<PP&E> 502
<DEPRECIATION> 130
<TOTAL-ASSETS> 1,666
<CURRENT-LIABILITIES> 105
<BONDS> 928
0
0
<COMMON> 1
<OTHER-SE> 558
<TOTAL-LIABILITY-AND-EQUITY> 1,666
<SALES> 96
<TOTAL-REVENUES> 186
<CGS> 34
<TOTAL-COSTS> 78
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 9
<INCOME-TAX> 6
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
EXHIBIT 3.1
COMPOSITE BYLAWS OF ALZA CORPORATION
REGISTERED OFFICE AND REGISTERED AGENT
1. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington County of New
Castle, State of Delaware.
2. OTHER OFFICES. The corporation may also have offices
at such other places, both within or without the State of
Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require.
MEETINGS OF STOCKHOLDERS
3. TIME AND PLACE OF MEETINGS. All meetings of the
stockholders shall be held at such time and place, either within
or without the State of Delaware, as shall be fixed by the Board
of Directors and stated in the notice or waiver of notice of the
meeting.
4. ANNUAL MEETING. An annual meeting of the stockholders
for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be
held on such date and at such time and place as the Board of
Directors shall each year designate.
5. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes prescribed in the
notice of meeting, may be called only by the Board of Directors,
the Chairman of the Board or the President of the corporation.
6. NO ACTION WITHOUT MEETING. At any time when the
corporation has more than one stockholder of any class of capital
stock, no action required to be taken or which may be taken at
any annual or special meeting of the stockholders of such class
of capital stock of the corporation may be taken without a
meeting, and the power of stockholders to consent in writing
without a meeting, to the taking of any action is specifically
denied.
7. NOTICE.
(a) Written notice of the place, date, and time of all
meetings of the stockholders shall be given not less than ten nor
more than 60 days before the date on which the meeting is to be
held to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the
Delaware General Corporation Law or the Certificate of
Incorporation of the corporation).
(b) When a meeting is adjourned to another place, date or
time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting
at which the adjournment is taken and the adjournment is for not
more than thirty days; provided, however, that if the date of
any adjourned meeting is more than thirty days after the date for
which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the
place, date and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may
be transacted which might have been transacted at the original
meeting.
8. NOMINATIONS AND PROPOSALS:
(a) The Board of Directors of the corporation may nominate
candidates for election as directors of the corporation and may
propose such other matters for approval of the stockholders as
the board deems necessary or appropriate.
(b) Any stockholder entitled to vote for directors may
nominate candidates for election as directors of the corporation;
provided, however, that so long as the corporation has more than
one stockholder, no nominations for director of the corporation
by any person other than the Board of Directors shall be
presented to any meeting of stockholders unless the person making
the nomination is a record stockholder and shall have delivered a
written notice to the Secretary of the corporation in a timely
manner in accordance with paragraph (d). Such notice shall (i)
set forth the name and address of the person advancing such
nomination and the nominee, together with such information
concerning the person making the nomination and the nominee as
would be required by the appropriate rules and regulations of the
Securities and Exchange Commission to be included in a proxy
statement soliciting proxies for the election of such nominee,
and (ii) shall include the duly executed written consent of such
nominee to serve as director if elected.
(c) No proposal by any person other than the Board of
Directors shall be submitted for the approval of the stockholders
at any regular or special meeting of the stockholders of the
corporation unless the person advancing such proposal shall have
delivered a written notice to the Secretary of the corporation in
a timely manner in accordance with paragraph (d). Such notice
shall set forth the name and address of the person advancing the
proposal, any material interest of such person in the proposal,
and such other information concerning the person making such
proposal and the proposal itself as would be required by the
appropriate rules and regulations of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies
for the proposal.
(d) In order to be timely, a notice by a stockholder under
paragraph (b) or (c) shall be delivered to the Secretary of the
corporation not later than 75 days prior to the first anniversary
of the date on which the corporation first mailed its proxy
materials for the preceding year's annual meeting of
stockholders; provided, however, that if the date of the annual
meeting is advanced by more than 30 days prior to, or delayed by
more than 30 days after, the anniversary of the preceding year's
annual meeting, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of
(i) the 90th day prior to such annual meeting or (ii) the 10th
day following the day on which public announcement of the date of
such meeting is first made.
9. QUORUM AND REQUIRED VOTE.
(a) At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote on
the subject matter at the meeting, present in person or by proxy
shall constitute a quorum, unless or except to the extent that
the presence of a larger number may be required by law. Except
as provided in Section 42 of these bylaws or as may be required
by law, the affirmative vote of a majority of shares present in
person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the stockholders.
(b) If a quorum shall fail to attend any meeting, the
chairman of the meeting or the holders of a majority of the
shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or
time.
(c) If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote
thereat, stating that it will be held with those present
constituting a quorum, then, except as provided in Section 42 of
these bylaws or as otherwise required by law, those present at
such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at
such meeting.
10. VOTE REQUIRED FOR BUSINESS COMBINATION.
(a) In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as expressly
provided in Subparagraph (b) of this Section 10, any Business
Combination (as hereinafter defined) with a Related Person (as
hereinafter defined) shall require the affirmative vote of the
holders of at least eighty percent of the voting power of all of
the then outstanding shares of all classes of stock of the
corporation entitled to vote for the election of directors (the
"Voting Stock"), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be
specified, by law or in any agreement.
(b) The provisions of this Section 10 shall not apply to
any Business Combination if:
(i) A majority of the Continuing Directors (as hereinafter
defined) of the corporation then in office has by resolution
approved the Business Combination either in advance of or
subsequent to such Related Person's having become a Related
Person;
(ii) The Business Combination is solely between the
corporation and another corporation, one hundred percent of the
Voting Stock of which is owned directly or indirectly by the
corporation; or
(iii) The Business Combination is a merger or consolidation
and the cash or fair market value (as determined by a majority of
the Continuing Directors) of the property, securities or other
consideration to be received per share by holders of stock of
the corporation in the Business Combination is not less than the
Highest Per Share Price or the Highest Equivalent Price (as these
terms are hereinafter defined) paid by the Related Person in
acquiring any of the corporation's stock.
(c) For the purpose of this Section 10:
(i) The term "Business Combination" shall mean (A) any
merger or consolidation of the corporation with or into a Related
Person, (B) any sale, lease, exchange, transfer or other
disposition, including, without limitation, a mortgage or any
other security device, of assets of the corporation or any
subsidiary of the corporation, to a Related Person if such assets
constitute a Substantial Part (as hereinafter defined), (C) any
merger or consolidation of a Related Person with or into the
corporation or a subsidiary of the corporation, (D) the issuance
of any securities of the corporation or a subsidiary of the
corporation to a Related Person, (E) any recapitalization that
would have the effect of increasing the voting power in the
corporation of a Related Person, and (F) any agreement, contract
or other arrangement providing for any of the transactions
described in this definition of Business Combination.
(ii) The term "Related Person" shall mean any individual,
corporation or other entity which, alone or together with (A) its
"Affiliates" and "Associates" (as defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect at the date of the adoption of this Section
10 by the stockholders of the corporation (collectively, and as
so in effect, the "Exchange Act")) or (B) members of a "group"
(as defined with reference to Section 13(d)(3) of the Exchange
Act) of which such individual, corporation or other entity is a
member, "beneficially owns" (as defined in Rule 13d-3 of the
Exchange Act) shares of the outstanding common stock of the
corporation which, in the aggregate, have (or, in the case of
convertible securities, would have, if such convertible
securities were, at the time the determination is being made,
convertible and had been converted) 20 percent or more of the
total combined power to elect directors of the corporation.
(iii) For the purposes of subparagraph (b)(iii) of this
Section 10, the term "other consideration to be received" shall
include, without limitation, common stock of the corporation
retained by its existing stockholders in the event of a Business
Combination in which the corporation is the surviving
corporation.
(iv) The term "Continuing Director" shall mean a director
who is unaffiliated with the Related Person and who was a member
of the Board of Directors of the corporation immediately prior
to the time that the Related Person involved in a Business
Combination became a Related Person.
(v) The term "Substantial Part" shall mean assets having a
book value in excess of 30 percent of the book value of the total
consolidated assets of the corporation and its subsidiaries
taken as a whole as of the end of its most recent fiscal year
ended prior to the time the determination is made.
(vi) The terms "Highest Per Share Price" and "Highest
Equivalent Price" shall mean the following: If there is only one
class of capital stock of the corporation issued and
outstanding, the Highest Per Share Price shall mean the highest
price that can be determined by a majority of the Continuing
Directors then in office to have been paid at any time by the
Related Person for any share or shares of that class of capital
stock. If there is more than one class of capital stock of the
corporation issued and outstanding, the Highest Equivalent Price
shall mean, with respect to each class of capital stock of the
corporation, the amount determined by a majority of the
Continuing Directors then in office, on whatever basis they
believe is appropriate, to be the highest per share price
equivalent to the highest per share price that can be determined
to have been paid at any time by the Related Person for any share
or shares of any class of capital stock of the corporation. In
determining the Highest Per Share Price and Highest Equivalent
Price, all purchases by the Related Person shall be taken into
account regardless of whether the shares were purchased before
or after the Related Person became a Related Person. Also, the
Highest Per Share Price and the Highest Equivalent Price shall
include any brokerage commissions, transfer taxes and soliciting
dealers' fees paid by the Related Person with respect to the
shares of capital stock of the corporation acquired by the
Related Person.
(d) A majority of the Continuing Directors of the
corporation then in office (including directors purporting, in
good faith, to be Continuing Directors) shall have the power and
duty to determine, for the purposes of this Section 10, on the
basis of information then known to them, whether any individual,
corporation or other entity is a Related Person. Any such
determination made in good faith shall be conclusive and binding
for all purposes of this Section 10.
(e) The provisions set forth in this Section 10 may not be
repealed or amended in any respect without:
(i) The affirmative vote of not less than 80 percent of the
Board of Directors and of a majority of the Continuing Directors
then in office, and
(ii) The affirmative vote of the holders of 80 percent or
more of the Voting Stock, voting together as a single class;
PROVIDED, HOWEVER, that the provisions of this paragraph (e)
shall not apply to any amendment or repeal of any provision of
this Section 10 that is recommended to the stockholders by a
resolution adopted by (A) a majority of the Board of Directors,
and (B) not less than 80 percent of the Continuing Directors then
in office, in which case any such amendment or repeal shall
require only the affirmative vote of a majority of the Voting
Stock.
11. ORGANIZATIONS. The Chairman of the Board or, in his or
her absence, the President of the corporation or, in the absence
of both, such person as may be designated by the Board of
Directors or, if there is no such designation, such person as may
be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order
any meeting of the stockholders and act as chairman of the
meeting.
12. CONDUCT OF BUSINESS. The Chairman of any meeting of
stockholders shall determine the order of business and the
procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or
her in order.
13. PROXIES AND VOTING. At any meeting of the
stockholders, every stockholder entitled to vote may vote in
person or by proxy authorized by an instrument in writing filed
in accordance with the procedures established for the meeting.
14. STOCK LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical
order and showing the address of each such stockholder and the
number of shares of each class registered in his or her name,
shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours
for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or,
if not so specified, at the place where the meeting is to be
held. The stock list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to the
examination of any stockholder present.
BOARD OF DIRECTORS
15. POWERS. The business and affairs of the corporation
shall be managed by or under the direction of its Board of
Directors.
16. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number
of directors of the corporation who shall constitute the whole
board shall be eight but may be increased or decreased from time
to time either by a resolution or bylaw duly adopted by the Board
of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III, which shall
be as nearly equal in number as possible. Each director shall
serve for a term ending on the date of the third annual meeting
of stockholders following the annual meeting at which the
director was elected; provided, however, that each initial
director in Class I shall hold office until the annual meeting of
stockholders in 1988; each initial director in Class II shall
hold office until the annual meeting of stockholders in 1989;
and each initial director in Class III shall hold office until
the annual meeting of stockholders in 1990. Notwithstanding the
foregoing, each director shall serve until his successor is duly
elected and qualified or until his death, resignation or
removal.
17. REMOVAL. Any director may be removed from office, only
with cause, by the holders of a majority of the shares entitled
to vote in an election of directors.
18. RESIGNATIONS. A director may resign at any time by
giving written notice to the corporation. Such resignation shall
be effective when given unless the director specifies a later
time. The resignation shall be effective regardless of whether
it is accepted by the corporation.
19. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES. In the
event of any increase or decrease in the authorized number of
directors, any newly-created or eliminated directorships
resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as
to maintain such classes as nearly equal in number as possible.
No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Newly-created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a
majority of the remaining directors then in office (and not by
stockholders), even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created
or the vacancy occurred and until such director's successor
shall have been elected and qualified.
20. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or
dates, and at such time or times as shall have been established
by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
21. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the
President or any two directors.
22. NOTICE OF MEETINGS.
(a) Special meetings, and regular meetings not fixed as
provided in these Bylaws, shall be held upon four days' notice by
mail or two days' notice delivered personally or by telephone or
telegraph to each director who does not waive such notice. The
notice shall state the place, date and time of the meeting.
Unless otherwise indicated in the notice, any and all business
may be transacted at a special meeting.
(b) Notice of a reconvened meeting need not be given if the
place, date and time of the reconvened meeting are announced at
the meeting at which the adjournment is taken and the
adjournment is not for more than 24 hours. If a meeting is
adjourned for more than 24 hours, notice of the reconvened
meeting shall be given prior to the time of that reconvened
meeting to the directors who were not present at the time of the
adjournment.
23. ACTION WITHOUT MEETING. Except as required by law, any
action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or any
committee thereof, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes
of the Board of Directors or committee.
24. MEETING BY TELEPHONE. Except as required by law, members of
the Board of Directors or any committee thereof may participate
in the meeting of the Board of Directors or committee by means
of conference telephone or similar communications equipment if
all persons who participate in the meeting can hear each other.
Such participation in a meeting shall constitute presence in
person at such meeting.
25. QUORUM AND MANNER OF ACTING. At any meeting of the
Board of Directors, a majority of the directors then in office
shall constitute a quorum for all purposes. A meeting at which
a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors. If a quorum shall
fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date or time, without
further notice or waiver thereof. Except as provided herein,
the act of the majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of
Directors.
26. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors by a vote of a majority of the whole Board, may from
time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to
serve at the pleasure of the Board and shall for those
committees and any others provided for herein, elect a director
or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the
committee. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend or
to authorize the issuance of stock if the resolution which
designates the committee or a supplemental resolution of the
Board of Directors shall so provide. The principles set forth
in Sections 15 through 25 of these Bylaws shall apply to
committees of the Board of Directors and to actions taken by such
committees. All members of any Audit Committee of this Company
designated by the Board of Directors shall be directors who are
not also employees of the corporation.
27. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors or a
committee thereof, and may receive fixed fees and other
compensation for their services as directors. No such payment
shall preclude any director from serving the corporation in any
other capacity and receiving compensation for such service.
OFFICERS
28. TITLES. The officers of the corporation shall be
chosen by the Board of Directors and shall include a Chairman of
the Board or a President or both, a Secretary and a Treasurer.
The Board of Directors may also appoint one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers or other
officers. Any number of offices may be held by the same person.
All officers shall perform their duties and exercise their
powers subject to the Board of Directors.
29. ELECTION, TERM OF OFFICE AND VACANCIES. The officers
shall be elected annually by the Board of Directors at its
regular meeting following the annual meeting of the
stockholders, and each officer shall hold office until the next
annual election of officers and until the officer's successor is
elected and qualified, or until the officer's death, resignation
or removal. Any officer may be removed at any time, with or
without cause, by the Board of Directors. Any vacancy occurring
in any office may be filled by the Board of Directors.
30. RESIGNATION. Any officer may resign at any time upon
notice to the corporation without prejudice to the rights, if
any, of the corporation under any contract to which the officer
is a party. The resignation of an officer shall be effective
when given unless the officer specifies a later time. The
resignation shall be effective regardless of whether it is
accepted by the corporation.
31. CHIEF EXECUTIVE OFFICER. The Board of Directors shall
designate either the Chairman of the Board or the President as
the chief executive officer and may prescribe the duties and
powers of the chief executive officer. In the absence of such a
designation, the Chairman of the Board shall be the chief
executive officer. If there is no Chairman of the Board, the
President shall be the chief executive officer. Subject to the
provisions of these Bylaws and to the direction of the Board of
Directors, the chief executive officer shall have the
responsibility for the general management and control of the
business and affairs of the corporation and shall perform all
duties and have all powers which are commonly incident to the
office of chief executive or which are delegated to him or her
by the Board of Directors. Either the Chairman of the Board or
the President and such other officers as may, from time to time,
be expressly designated by the Board of Directors shall have
power to sign all stock certificates, contracts and other
instruments of the corporation which are authorized.
32. SECRETARY AND ASSISTANT SECRETARIES. The Secretary
shall issue all authorized notices for, and shall keep minutes
of, all meetings of the stockholders and the Board of Directors.
He or she shall have charge of the corporate books and shall
perform such other duties as the Board of Directors may from
time to time prescribe. At the request of the Secretary, or in
the Secretary's absence or disability, any Assistant Secretary
shall perform any of the duties of the Secretary and when so
acting shall have all the powers of, and be subject to all the
restrictions upon, the Secretary.
33. TREASURER AND ASSISTANT TREASURERS. Unless the Board
of Directors designates another chief financial officer, the
Treasurer shall be the chief financial officer of the
corporation. Unless otherwise determined by the Board of
Directors or the chief executive officer, the Treasurer shall
have custody of the corporate funds and securities, shall keep
adequate and correct accounts of the corporation's properties
and business transactions, shall disburse such funds of the
corporation as may be ordered by the Board or the chief executive
officer (taking proper vouchers for such disbursements), and
shall render to the chief executive officer and the Board, at
regular meetings of the Board or whenever the Board may require,
an account of all transactions and the financial condition of
the corporation. At the request of the Treasurer, or in the
Treasurer's absence or disability, any Assistant Treasurer may
perform any of the duties of the Treasurer and when so acting,
shall have all the powers of, and be subject to all the
restrictions upon, the Treasurer.
34. OTHER OFFICERS. The other officers of the corporation,
if any, shall exercise such powers and perform such duties as the
Board of Directors or the chief executive officer shall
prescribe.
35. COMPENSATION. The Board of Directors shall fix the
compensation of the chief executive officer and may fix the
compensation of other employees of the corporation, including
the other officers. If the Board does not fix the compensation
of the other officers, the chief executive officer shall fix such
compensation.
36. ACTIONS WITH RESPECT TO SECURITIES OF OTHER
CORPORATIONS. Unless otherwise directed by the Board of
Directors, the Chairman of the Board, the President or any
officer of the corporation authorized by the Chairman of the
Board or the President, shall have power to vote and otherwise
act on behalf of the corporation, in person or by proxy, at any
meeting of stockholders of, or with respect to any action of
stockholders of, any other corporation in which the corporation
may hold securities and otherwise shall have power to exercise
any and all rights and powers which the corporation may possess
by reason of its ownership of securities in such other
corporation.
STOCK AND DIVIDENDS
37. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a certificate signed by, or in the name of, the
corporation by the Chairman, the President or a Vice President,
and by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, certifying the number of shares owned
by him or her. Any or all of the signatures on the certificates
may be facsimile.
38. TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the transfer books of the corporation kept at an office
of the corporation or by transfer agents designated to transfer
shares of the stock of the corporation. Except where a
certificate is issued in accordance with the next sentence of
this Section, an outstanding certificate for the number of shares
involved shall be surrendered for cancellation before a new
certificate is issued therefor. In the event of the loss, theft
or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.
39. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such
other regulations as the Board of Directors may establish.
RECORD DATE
40. RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors
may fix in advance, a record date, which shall not be more than
60 nor less than ten days before the date of such meeting, nor
more than 60 days prior to any other action. If no record date
is fixed, the record date (1) for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held; and (2) for determining stockholders for any
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the reconvened
meeting.
WAIVER OF NOTICE
41. WAIVER OF NOTICE. Whenever notice is required to be
given by law or these Bylaws, a written waiver of notice, signed
by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Unless so required by the
Certificate of Incorporation or these Bylaws, neither the
business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of
notice.
AMENDMENTS
42. AMENDMENTS. These Bylaws may be amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of
Directors. Notwithstanding the foregoing, no provision of
Section 10 may be amended or repealed except in accordance with
Section 10(e) and no provision of Sections 16 or 19 may be
amended or repealed except by a resolution adopted by the
affirmative vote of not less than 75% of the members of the
Board of Directors or by the affirmative vote of the holders of
at least 80% of the outstanding shares of capital stock entitled
to vote in an election of directors.
MISCELLANEOUS
43. FISCAL YEAR. The fiscal year of the corporation shall
be as fixed by the Board of Directors.
44. TIME PERIODS. In applying any provision of these
Bylaws which requires that an act be done or not done within a
specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the
act shall be excluded, and the day of the event shall be
included.
45. FACSIMILE SIGNATURES. In addition to the provisions
for use of facsimile signatures elsewhere specifically authorized
in these Bylaws, facsimile signatures of any officer or officers
of the corporation may be used whenever and as authorized by the
Board of Directors.
46. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the corporation, which seal
shall be in the charge of the Secretary. Duplicates of the seal
may be kept and used by the Treasurer or by an Assistant
Secretary or Assistant Treasurer.
47. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each
director, each member of any committee designated by the Board of
Directors, and each officer of the corporation shall, in the
performance of his or her duties, be fully protected in relying
in good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of
its officers, by an independent certified public accountant or
by an appraiser.
48. INDEMNIFICATION OF EMPLOYEES. Each person who was or
is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("a proceeding"),
because he or she is or was an employee of the corporation or is
or was serving at the request of the corporation as a director,
officer, employee, agent or trustee of another corporation,
partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans from the date of
plan adoption), shall be indemnified and held harmless by the
corporation against all expense, liability and loss (including
attorneys' fees, judgments, penalties, fines, Employee
Retirement Income Security Act of 1974 excise taxes or
penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith; provided in any event that such person acted in good
faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation; and
provided further that the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if the
proceeding (or part thereof) was authorized by the Board of
Directors of the corporation. Such indemnification shall
continue as to a person who has ceased to be an employee and
shall inure to the benefit of his or her heirs, executors or
administrators.
