<PAGE>
INNOTECH, INC.
Form 10-Q Index
Three Months ended March 31, 1996
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - March 31, 1996 and
December 31, 1995................................. 2-3
Condensed Statements of Loss - Three Months Ended
March 31, 1996 and 1995........................... 4
Condensed Statement of Stockholders' Equity - Three
Months Ended March 31, 1996....................... 5
Condensed Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995..................... 6-7
Condensed Notes to Condensed Financial Statements... 8-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION................ 12-15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES............................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 17
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNOTECH, INC.
Condensed Balance Sheets
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 26,466,198 $ 4,921,700
Accounts receivable, net
Trade, net of allowance for doubtful accounts
of $88,368 and $92,367 at March 31,
1996 and December 31, 1995, respectively 2,564,664 2,135,568
Other 25,478 28,709
--------------- ---------------
Total accounts receivable, net 2,590,142 2,164,277
--------------- ---------------
Inventories:
Raw materials 1,200,082 891,306
Work-in-process 621,995 274,794
Finished goods 2,138,806 1,454,667
--------------- ---------------
Total inventories 3,960,883 2,620,767
--------------- ---------------
Prepaid expenses and other current assets 438,349 241,950
--------------- ---------------
Total current assets 33,455,572 9,948,694
--------------- ---------------
Property and equipment, net 2,340,204 1,790,075
Deferred public offering charges - 333,430
Other assets, net of accumulated amortization:
Organization costs 16,859 18,882
Patents and technology rights 1,379,958 1,337,387
Debt issuance costs 67,087 72,677
Deferred loss on sale/leaseback 23,362 25,958
--------------- ---------------
Total other assets 1,487,266 1,454,904
--------------- ---------------
Total assets $ 37,283,042 $ 13,527,103
=============== ===============
--------------- ---------------
</TABLE>
See accompanying condensed notes to condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 53,332 $ 63,332
Current installments of obligations under capital leases 179,703 182,804
Accounts payable 2,622,097 2,034,560
Accrued expenses and other current liabilities 822,376 772,510
Customer deposits 67,980 149,439
Liability to financing companies 15,439 61,076
Option payment - 1,500,000
--------------- ---------------
Total current liabilities 3,760,927 4,763,721
Long-term debt, net of unamortized discount of $277,238 at
March 31, 1996 and $300,341 at December 31, 1995,
excluding current installments 2,426,930 2,416,327
Obligations under capital leases, excluding current installments 315,470 364,903
--------------- ---------------
Total liabilities 6,503,327 7,544,951
--------------- ---------------
Stockholders' equity:
Series A convertible, redeemable preferred stock, $.001 par
value. Authorized 850,000 shares; issued and outstanding
none at March 31, 1996 and 700,000 shares at December 31,
1995 (liquidation value $10 per share plus accrued dividends) - 8,080,207
Series B convertible, redeemable preferred stock, $.001 par
value. Authorized 152,500 shares; issued and outstanding
none at March 31, 1996 and 152,500 shares at December 31,
1995 (liquidation value $10 per share plus accrued dividends) - 1,510,260
Series D convertible, redeemable preferred stock, $.001 par value.
Authorized 2,150,000 shares; issued and outstanding none at
March 31, 1996 and 1,999,999 shares at December 31, 1995
(liquidation value $10 per share plus accrued dividends) - 13,011,157
Common stock, $.001 par value. Authorized 70,000,000 shares;
issued and outstanding 7,823,756 and 772,991 shares at
March 31, 1996 and December 31, 1995, respectively 7,824 773
Preferred stock warrants, 23,415 common stock warrants
(following conversion) issued and outstanding at March 31,
1996 and 38,462 issued and outstanding at December 31, 1995 - -
Common stock warrants, 1,199,090 issued and outstanding at
March 31, 1996 and 1,207,052 issued and outstanding at
December 31, 1995 7,821,395 7,878,377
Additional paid-in capital 57,000,003 5,844,007
Deferred compensation (1,827,150) (1,937,453)
Accumulated deficit (32,222,357) (28,405,176)
--------------- ---------------
Total stockholders' equity 30,779,715 5,982,152
Commitments and contingencies
--------------- ---------------
Total liabilities and stockholders' equity $ 37,283,042 $ 13,527,103
=============== ===============
</TABLE>
3
<PAGE>
INNOTECH, INC.
Condensed Statements of Loss
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Net sales $ 2,011,145 $ 963,662
Cost of sales 1,550,611 885,128
-------------- -------------
Gross profit 460,534 78,534
Selling, general and administrative expenses 2,731,213 1,584,884
Research and development costs 491,656 402,010
-------------- -------------
Operating loss (2,762,335) (1,908,360)
Other income (deductions):
Interest expense (133,158) (434,313)
Interest income 51,831 362
Other, net (767) (2,589)
-------------- -------------
Other income (deductions), net (82,094) (436,540)
-------------- -------------
Net loss $ (2,844,429) $ (2,344,900)
============== =============
Net loss per common share (pro forma for 1995) $ (0.55) $ (0.38)
============== =============
Weighted average number of common shares
outstanding (pro forma for 1995) 5,200,706 6,223,932
============== =============
</TABLE>
See accompanying condensed notes to condensed financial statements.
4
<PAGE>
INNOTECH, INC.
Condensed Statement of Stockholders' Equity
Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Series A Series B Series D
Convertible, Redeemable Convertible, Redeemable Convertible, Redeemable
Preferred Stock Preferred Stock Preferred Stock
--------------------------- --------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 700,000 $ 8,080,207 152,500 $ 1,510,260 1,999,999 $ 13,011,157
Issuance of Series D Convertible,
Redeemable Preferred Stock in
satisfaction of option payment
liability - - - - 150,000 1,500,000
Exchange of Series A Convertible,
Redeemable Preferred Stock for
common stock (cash paid in lieu of
16.8 fractional shares of common
stock at $10 per share) (700,000) (8,242,069) - - - -
Exchange of Series B Convertible,
Redeemable Preferred Stock for
common stock (cash paid in lieu of
10.4 fractional shares of common
stock at $10 per share) - - (152,500) (1,547,141) - -
Exchange of Series D Convertible,
Redeemable Preferred Stock for
common stock (cash paid in lieu of
43.6 fractional shares of common
stock at $10 per share) - - - - (2,149,999) (15,285,166)
Issuance of common stock for cash
($10 per share, less issuance costs of
$3,979,019; cash paid in lieu of 52.6
fractional shares of common stock at
$10 per share) - - - - - -
Exercise of common stock options
(12,204 shares at $.0079 per share,
13,697 shares at $.079 per share and
1,620 shares at $6.556 per share) - - - - - -
Exercise of common stock warrants
(6,831 shares at $.0079 per share
and 1,131 shares at $.079 per share - - - - - -
Accretion on convertible, redeemable
preferred stock - 21,844 - 6,377 - 374,092
Undeclared dividends on convertible,
redeemable preferred stock - 140,018 - 30,504 - 399,917
Amortization of deferred compensation - - - - - -
Net loss - - - - - -
---------- -------------- ---------- -------------- ------------- ---------------
Balance, March 31, 1996 - $ - - $ - - $ -
========== ============== ========== ============== ============= ===============
---------- -------------- ---------- -------------- ------------- ---------------
</TABLE>
See accompanying condensed notes to condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Common Additional Total
Common Stock Paid-in Deferred Accumulated Stockholders'
Stock Warrants Capital Compensation Deficit Equity
- ----------------------- --------------------------- ------- ------------ ------- ------
Equivalent
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
772,991 $ 773 1,207,052 $ 7,878,377 $ 5,844,007 $ (1,937,453) $(28,405,176) $ 5,982,152
- - - - - - - 1,500,000
426,136 426 - - 8,241,475 - - (168)
159,042 159 - - 1,546,878 - - (104)
3,430,104 3,430 - - 15,281,300 - - (436)
3,000,000 3,000 - - 26,017,455 - - 26,020,455
27,521 28 - - 11,771 - - 11,799
7,962 8 (7,962) (56,982) 57,117 - - 143
- - - - - - (402,313) -
- - - - - - (570,439) -
- - - - - 110,303 - 110,303
- - - - - - (2,844,429) (2,844,429)
- ------------ -------- ------------ ------------ ------------- -------------- -------------- --------------
7,823,756 $ 7,824 1,199,090 $ 7,821,395 $57,000,003 $ (1,827,150) $(32,222,357) $ 30,779,715
============ ======== ============ ============ ============= ============== ============== ==============
</TABLE>
5a
<PAGE>
INNOTECH, INC.
Condensed Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------------
1996 1995
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,844,429) $ (2,344,900)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of property
and equipment 78,472 83,013
Amortization of other assets 32,595 80,499
Amortization of discounts on borrowings
under line of credit and long-term debt 23,103 165,422
Amortization of deferred compensation 110,303 4,535
Loss (gain) on sale of equipment (1,779) 2,596
Loss on litigation settlement - 111,892
Net (increase) decrease in current assets (1,962,380) 65,655
Net increase (decrease) in current liabilities,
exclusive of changes shown separately
and noncash transactions 510,307 (630,963)
-------------- -------------
Net cash used in operating activities (4,053,808) (2,462,251)
-------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (637,322) (47,855)
Proceeds from sale of equipment 10,500 500,000
Additions to other assets (64,957) (40,700)
-------------- -------------
Net cash provided by (used in) investing
activities (691,779) 411,445
-------------- -------------
Cash flows from financing activities:
Net increase in borrowings under line of credit - 50,000
Proceeds from issuance of long-term debt - 500,000
Payments on long-term debt and capital leases (75,034) (36,647)
Proceeds from issuance of common stock, net of
issuance costs 26,032,923 -
Deferred public offering charges offset against public
offering proceeds 333,430 -
Proceeds from issuance of preferred stock and common
stock warrants, net of issuance costs - 1,457,550
Cash paid in lieu of fractional shares of common stock (1,234) -
-------------- -------------
Net cash provided by financing activities 26,290,085 1,970,903
-------------- -------------
Net increase (decrease) in cash and cash equivalents 21,544,498 (79,903)
Cash and cash equivalents, beginning of period 4,921,700 119,468
-------------- -------------
Cash and cash equivalents, end of period $ 26,466,198 $ 39,565
============== =============
(Continued)
</TABLE>
6
<PAGE>
INNOTECH, INC.
Condensed Statements of Cash Flows - (Continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Ended March 31,
-----------------------------------
1996 1995
(Unaudited)
<S> <C> <C>
Suppplemental disclosures of cash flows information:
Cash paid for interest $ 105,050 $ 156,683
============= =============
Noncash transactions:
A capital lease obligation of $560,125 was incurred in
1995 when the Company entered into a sale/leaseback
agreement. The deferred loss of $36,340 was recorded
as an other noncurrent asset.
55,725 shares of common stock and a note payable for
$240,000 were issued in 1995 to satisfy accrued
litigation costs.
Long-term debt of $400,000, with related accrued interest
payable of $5,289, was converted into a combination
of 40,529 shares of Series C Convertible, Redeemable
Preferred Stock and 362,885 Class I warrants in 1995.
</TABLE>
See accompanying condensed notes to condensed financial statements.
7
<PAGE>
INNOTECH, INC.
Condensed Notes to Condensed Financial Statements
Three Months Ended March 31, 1996 and 1995
- --------------------------------------------------------------------------------
(1) General
-------
The accompanying unaudited condensed financial statements of
Innotech, Inc. (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial
reporting information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all material adjustments (consisting only of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
The unaudited condensed financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual financial statements
and notes to financial statements.
(2) Stockholders' Equity
--------------------
Common Stock:
The Company effected a 1-for-7.89789 reverse stock split of common stock on
December 21, 1995. All share and per share data, as well as all preferred
stock conversion ratios, stock options and warrants, have been adjusted
retroactively to reflect the aforementioned stock split.
Preferred Stock:
The Company has authorized a total of 5,000,000 shares of preferred stock, of
which 850,000 shares were authorized for Series A Convertible, Redeemable
Preferred Stock (Series A Stock), 152,500 shares were authorized for Series B
Convertible, Redeemable Preferred Stock (Series B Stock) and 2,150,000 shares
were authorized for Series D Convertible, Redeemable Preferred Stock (Series
D Stock) (collectively Preferred Stock) until March 20, 1996. On March 20,
1996, upon the consummation of the Company's initial public offering of
common stock (see note 6), all outstanding shares of Preferred Stock and
accrued dividends thereon, as defined, were converted into common stock. In
addition, the Company filed an amendment to its Amended and Restated
Certificate of Incorporation which deleted the provisions regarding the
rights, preferences and privileges of the Preferred Stock, and replaced them
with a provision that enables the Board of Directors of the Company to issue
up to the authorized 5,000,000 shares of preferred stock at its discretion.
The Company was obligated to offer to redeem on June 30, 2000 at the
liquidation value of $10 per share, plus any accrued and unpaid dividends,
any outstanding shares of the Preferred Stock not previously converted into
common stock. The Preferred Stock was recorded at fair value on the date of
issuance less issuance costs. The excess of the liquidation value over the
carrying value was being accreted by periodic charges to accumulated deficit
over the life of the issue.
(Continued)
8
<PAGE>
INNOTECH, INC.
Condensed Notes to Condensed Financial Statements - (Continued)
- --------------------------------------------------------------------------------
(2) Stockholders' Equity (Continued)
--------------------
The holders of the Preferred Stock were entitled to receive cumulative
dividends at the rate of 9 percent per annum accruing from the date of
issuance. In the event of a liquidation and with respect to the payment
of dividends, the Series D Stock was senior in rank to the common stock,
the Series A Stock and the Series B Stock. All accrued dividends were to
be paid only upon a merger, sale of control, consolidation (and certain
similar events) or liquidation of the Company. In the event of a
liquidation of the Company, the holders of the Series D Stock were
entitled to receive, prior and in preference to any distributions to all
other Company equity holders, a per share liquidation preference equal to
$10.00 plus accrued and unpaid dividends through the date of the
liquidation for each share of Series D Stock (the Liquidation
Preference). Thereafter, any remaining payments were to be paid to
holders of shares of the Series A Stock and the Series B Stock up to
their respective Liquidation Preferences, and the holders of common stock
and the holders of the Series D Stock (on a common stock equivalent
basis) will share in any remaining payments, pro rata based upon their
respective stockholdings.
(3) Stock Options and Warrants
--------------------------
Stock Options:
Pursuant to various stock option agreements, the Company has granted
options to acquire the Company's common stock to certain officers,
directors, employees and consultants of the Company.
The aggregate number of shares under option pursuant to these agreements
was as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
---------- --------------
<S> <C> <C>
Options outstanding at December 31, 1995 1,363,269 $.0079-16.4260
Exercised (27,521) $ .0079-6.56
Expired (456) $ 6.56
---------
Options outstanding at March 31, 1996 1,335,292 $.0079-16.4260
=========
</TABLE>
Generally, options vest within one to five years of the grant date. Options
exercisable at March 31, 1996 and December 31, 1995 approximated 995,074
and 418,772, respectively.
The Company has recorded deferred compensation on certain options granted to
officers at exercise prices which were less than the estimated fair value
of the common stock at the date of the grant of the options. Deferred
compensation is recorded as a reduction of stockholders' equity, with a
corresponding increase in additional paid-in capital, and is being
amortized as compensation expense over the vesting periods of the related
options.
(Continued)
9
<PAGE>
INNOTECH, INC.
Condensed Notes to Condensed Financial Statements - (Continued)
- --------------------------------------------------------------------------------
(3) Stock Options and Warrants (continued)
--------------------------
Deferred compensation at December 31, 1995 will be amortized as
compensation expense, based on vesting provisions, as follows:
Years ending December 31,
1996 $ 441,195
1997 427,043
1998 398,738
1999 398,738
2000 271,739
---------- ---------
Total $1,937,453
=========
Warrants:
A summary of detachable warrants outstanding at March 31, 1996 is
presented below:
<TABLE>
<CAPTION>
Warrant Equivalent Exercise Price Expiration
Class Type Shares per Share Date
- ---------- ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
B Common Stock 23,415 $ 21.35 January 30, 1999
C Common Stock 48,592 $ 0.079 March 31, 1999
D Common Stock 63,308 $ 6.56 March 31, 2004
E Common Stock 17,403 $ 0.079 September 30, 1999
G Common Stock 58,915 $0.0079 September 23, 2004
H Common Stock 13,009 $ 0.079 December 1, 1996
I Common Stock 993,643 $0.0079 March 29, 2005
J Common Stock 4,220 $ 9.64 September 30, 2004
</TABLE>
(4) Income Taxes
------------
At December 31, 1995, the Company had net operating loss carryforwards
(NOLs) for income tax purposes available to offset future taxable income as
follows:
<TABLE>
<CAPTION>
Net Operating Loss Expiration
Carryforwards Dates
- -------------------- ------------------
<S> <C>
$ 2,099 September 30, 2006
495,945 September 30, 2007
1,849,550 September 30, 2008
6,609,798 September 30, 2009
2,613,567 December 31, 2009
9,701,478 December 31, 2010
- ------------
$ 21,272,437
============
</TABLE>
(Continued)
10
<PAGE>
INNOTECH, INC.
Condensed Notes to Condensed Financial Statements - (Continued)
- --------------------------------------------------------------------------------
(4) Income Taxes (Continued)
------------
Previous securities transactions have resulted in an "ownership change"
within the meaning of Section 382 of the Internal Revenue Code of 1986, as
amended. The Company's ability to use its NOLs existing at the time of such
an ownership change to offset its taxable income, if any, generated in
future taxable periods is subject to an annual limitation. The public
offering (see note 6) will likely result in an additional Section 382
ownership change. This could further limit the ability of the Company to
use its NOLs to offset any future taxable income. The change in ownership
provisions of Section 382 do not have any impact on the expiration dates of
the NOLs.
(5) Commitments and Contingencies
-----------------------------
The Company and certain of its stockholders, optionholders and
warrantholders entered into an option agreement with another party
(Optionholder), under which the Optionholder acquired an option to purchase
ultimately all of the outstanding shares of capital stock of the Company at
a net aggregate exercise price of approximately $85,000,000. In
consideration of the grant of the option, the Company received $1,500,000,
which was reflected as an option payment liability in the accompanying
December 31, 1995 condensed balance sheet. Pursuant to the terms of the
option agreement, the option has terminated and the Optionholder received
150,000 shares of Series D Stock (which converted into 228,824 shares of
common stock upon the consummation of the initial public offering of the
Company's common stock) in satisfaction of the option payment liability on
the effective date of the registration statement for the initial public
offering of the Company's common stock (see note 6).
The Company is subject to environmental laws and regulations at both the
federal and state levels. At March 31, 1996, the Company is not aware of
any material violations or areas of noncompliance with respect to federal
and state laws and regulations covering environmental matters. In the
opinion of management, any costs incurred resulting from existing
environmental matters will not have a material adverse effect on the
Company's financial position or results of operations.
(6) Public Offering
---------------
In December 1995, the Company's Board of Directors authorized the filing of
a registration statement for a public offering of the Company's common
stock. On March 20, 1996, the Company consummated a public offering of
3,000,000 shares of the Company's common stock and received net proceeds of
approximately $26,020,000.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Management's Discussion and Analysis of Results of Operations and Financial
Condition contains forward-looking statements including those concerning
management's expectations regarding future financial performance and future
events. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those anticipated by such forward-
looking statements.
OVERVIEW
Innotech, Inc. (the Company or Innotech) develops, manufactures and sells lens
casting fabrication systems that enable optometrists, opticians,
ophthalmologists and other optical retailers to custom fabricate high-quality
multifocal and single vision plastic eyeglass lenses at the point of sale. The
Company's fabrication system (the Excalibur System), which is based upon its
patented SurfaceCasting technology, is capable of fabricating lenses of various
styles, materials and prescriptions. The Company also sells single vision
optics (Power Plates) and polymerizable resins (Power Plates and resins are
collectively referred to as consumables) for use in the Excalibur System. The
consumables create a recurring revenue stream for the Company as customers
replenish the consumables used in the Excalibur System. Historically, sales of
Excalibur Systems have accounted for a majority of the Company's net sales. As
the cumulative number of installed Excalibur Systems grows, it is expected that
usage and sales of the consumables also will increase and eventually account for
the majority of the Company's total net sales. In 1994, Innotech revised its
marketing strategy and reduced the price of the Excalibur System to increase
market penetration and thereby increase and accelerate demand for consumables.
Since the implementation of this strategy, the Company has experienced
significant increases in sales of Excalibur Systems and consumables, together
with an increase in total gross profit.
The Company's business strategy is to increase sales and achieve profitability
through the continued development and commercialization of its patented
SurfaceCasting technology and related patented and proprietary Power Plates and
resins. The Company intends to pursue this strategy by (i) increasing sales of
Excalibur Systems, (ii) increasing sales of consumables and (iii) further
commercializing the Company's new products developed through its research and
development efforts. As consumables revenue increases, the Company expects that
its profitability will be enhanced. The Company believes it will require
additional Excalibur System sales and, therefore, time before the Company can
realize the overall benefits of its strategy. Any future profitability of the
Company will also be significantly impacted by its success in reducing
manufacturing costs of the Power Plates and, to a lesser extent, the Excalibur
Systems and resins.
The Company was formed in October 1990 and, until June 1993, devoted
substantially all of its resources to the development and testing of
SurfaceCasting technology and a product which could be commercialized. In May
1993, the Company shipped the first commercial Excalibur System, and has sold
approximately 625 Excalibur Systems through March 31, 1996. As a result of its
present growth and in anticipation of future growth, the Company has
significantly expanded its administrative, selling, service, and research and
development capabilities, and the related expenses have increased. Further
expansion will continue to result in increases in such expenses. In the first
half of 1995, the Company began the internal assembly of the curing chambers and
mold storage cabinets from outside suppliers. Innotech is also purchasing the
equipment and tooling necessary to manufacture certain new consumables products
on a commercial scale to reduce its cost of goods and to augment its current
sources of supply.
12
<PAGE>
In connection with common stock options granted to executive officers having
exercise prices below the estimated fair value of the common stock, the Company
expects to incur compensation expense of approximately $100,000 in each fiscal
quarter, beginning with the first quarter of 1996, until the third quarter of
fiscal year 2000 as the options vest. Such expense would increase during a
particular quarter if the vesting of stock options were to accelerate during
that period upon the occurrence of certain events.
RESULTS OF OPERATIONS
Quarters Ended March 31, 1996 and 1995
Net sales. Total net sales increased by $1,047,000, or 109%, to $2,011,000 for
the quarter ended March 31, 1996 from $964,000 for the quarter ended March 31,
1995. This increase was due to a significant volume increase in sales of
consumables as well as an increase in the number of Excalibur Systems sold by
the Company. Net sales for the quarter ended March 31, 1995 were adversely
affected by the Company's weakened liquidity condition, which impaired its
ability to maintain desired levels of inventory and limited spending on sales
and marketing efforts. With the completion of 1995 third and fourth quarter
financing closings and the initial public offering in March 1996, the Company's
liquidity position has significantly improved, allowing the Company to acquire
inventory to fulfill order backlogs, resume selling and marketing programs and
expand the number of sales personnel. The Company anticipates that these
actions should have a positive impact upon sales in the near future, although
there can be no assurance regarding such impact.
Net sales of consumables increased $510,000, or 110%, to $973,000 for the
quarter ended March 31, 1996 from $463,000 for the quarter ended March 31, 1995.
This increase in net sales of consumables was primarily attributable to
increased demand resulting from an increase in the cumulative number of
installed Excalibur Systems and the introduction of new consumables products,
most of which were higher-priced premium products.
Net sales of Excalibur Systems increased $537,000, or 107%, to $1,038,000 for
the quarter ended March 31, 1996 from $501,000 for the quarter ended March 31,
1995. This sales growth was due to a 165% increase in the number of Excalibur
Systems sold by the Company, offset in part by price decreases for Excalibur
Systems initiated in July 1994 in connection with the Company's revised
marketing strategy. Growth in Excalibur System unit sales during the quarter
ended March 31, 1996 versus the corresponding period in 1995 was due in part to
fulfilling a large order for Excalibur Systems from a single large optical
retailer coupled with a 120% increase in Excalibur System unit sales to
independent practitioners.
Gross profit. Gross profit for the quarter ended March 31, 1996 of $461,000 was
$382,000, or 486%, greater than the quarter ended March 31, 1995. Gross profit
margin increased 187% to 23% in 1996 from 8% in 1995. The increase in gross
profit was due to the increase in sales of consumables, which included an
increase in the sale of higher-priced consumables, as well as the increased
sales of Excalibur Systems. The increase in gross profit margin was primarily
due to reduced overhead costs per unit and manufacturing efficiencies achieved
in the production of Power Plates, which resulted principally from volume
increases, and an increase in the sales of higher-priced consumables. The gross
margin on Excalibur Systems improved during the first quarter of 1996 over the
first quarter of 1995 due also to the in-house assembly of the chamber, which
during the first quarter of 1995 was still being assembled outside of the
Company. The margin was further enhanced by the additional sales of mold
products which are higher margin sales. However, the gross profit and gross
profit margin have been in the past and will be in the future adversely affected
by the reduction of the sales price of the Excalibur System started in July 1994
in connection with the implementation of the Company's revised marketing
strategy.
13
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1,146,000, or 72%, to $2,731,000 for the
quarter ended March 31, 1996 from $1,585,000 for the quarter ended March 31,
1995. The increase was primarily attributable to planned growth in the
Company's sales and marketing departments. The number of employees related to
this function increased by 33, or 77%, to 76 for the quarter ended March 31,
1996 from 43 for the quarter ended March 31, 1995. This increase was
attributable to the sales force build-up necessary to accommodate the current
and future sales volumes of Excalibur Systems and consumables. With this
increase in employees, the Company now has in place the planned 13-person sales
force whose focus is on selling consumables to users of Excalibur Systems.
Research and development costs. Research and development costs increased
$90,000, or 22%, to $492,000 for the quarter ended March 31, 1996 from $402,000
for the quarter ended March 31, 1995. This increase was primarily attributable
to increased development and testing of new consumables products planned for
release in 1996 and enhancements of the Excalibur System.
Other income (deductions), net. Other income (deductions), net decreased
$355,000 to $(82,000) for the quarter ended March 31, 1996 from $(437,000) for
the quarter ended March 31, 1995. The decrease was primarily a result of a
reduction of interest expense due to lower levels of debt outstanding in 1996 as
compared to 1995, as well as an increase in interest income as a result of the
investment of the proceeds from the initial public offering in March 1996.
Interest expense for the quarters ended March 31, 1996 and 1995 was inclusive of
non-cash interest expense of $23,000 and $165,000, respectively, for the
amortization of debt discounts related to the issuances of common stock warrants
with exercise prices below the common stock's estimated fair value in connection
with debt incurred during 1995 and 1994.
Net Loss. The Company's net loss increased $499,000, or 21%, to $2,844,000 for
the quarter ended March 31, 1996 from $2,345,000 for the quarter ended March 31,
1995 due to the factors discussed above.
Liquidity and Capital Resources. As of March 31, 1996, the Company had cash and
cash equivalents and working capital of approximately $26,466,000 and
$29,695,000, respectively. During the quarter ended March 31, 1996, the Company
completed an initial public offering with net proceeds received of approximately
$26,020,000. Capital expenditures for the quarter ended March 31, 1996 were
approximately $637,000. Cash usage for the period consisted of $4,054,000 to
fund operating activities, $692,000 for investing activities and $3,980,000 to
pay issuance costs associated with the initial public offering.
The Company expects that its capital requirements will increase in the future
depending on numerous factors, including but not limited to the market
penetration of Excalibur Systems, growth in sales of consumables, expansion of
its manufacturing capabilities, success of the Company's research and
development efforts and additional costs associated with the potential
commercialization of products under development. The Company expects that its
capital expenditures for the remainder of 1996 will total approximately
$1,800,000, primarily in connection with the establishment and operation of its
consumables manufacturing facilities.
The Company anticipates that its existing capital resources and anticipated cash
flows from planned operations, together with the interest income earned on the
investment of the proceeds from the initial public offering in March 1996, will
be adequate to satisfy its capital requirements through mid-1997. There can be
no assurance, however, that the Company will ever generate significant revenues
or achieve profitability. As of March 31, 1996, the Company had firm orders for
Excalibur Systems and consumables amounting to approximately $277,000. The
Company has no committed external sources of capital.
14
<PAGE>
Seasonality. The Company's business is somewhat seasonal, with first quarter
and third quarter results generally stronger than the other two quarters.
New Accounting Standards. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to Be
Disposed Of (SFAS 121). SFAS 121 requires companies to review long-lived
assets and certain identifiable intangibles to be held, used or disposed of,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company adopted SFAS
121 on January 1, 1996; the adoption of SFAS 121 did not have a material
impact on the Company's financial statements for the quarter ended March 31,
1996.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), which is effective for transactions entered into in fiscal years
beginning after December 15, 1995. The Company is currently evaluating the
requirements of SFAS 123.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On March 20, 1996, the Company filed an amendment to its Certificate of
Incorporation with the Delaware Secretary of State (the Amendment) in connection
with the initial public offering. Prior to the Amendment, the Certificate of
Incorporation provided for three classes of preferred stock, par value $.001 per
share (Preferred Stock), with a specific number of shares designated for each
class and each with specific rights, preferences and privileges.
Upon the consummation of the Company's initial public offering, all shares of
all classes of Preferred Stock converted, pursuant to their terms, into common
stock, par value $.001 per share (Common Stock). Accordingly, the Amendment
deleted the provisions in the Certificate of Incorporation regarding the rights,
preferences and privileges of the classes of Preferred Stock and replaced them
with a provision that enables the Board of Directors (the Board) of the Company
to issue Preferred Stock at its discretion from time to time, with such voting,
dividend, liquidation and other rights, preferences and privileges as the Board
may determine prior to issuance.
In addition, prior to the Amendment, the Board and stockholders holding at least
fifty percent (50%) of the voting power of the issued and outstanding shares of
stock each had authority to request that a special meeting of the stockholders
be called. The Amendment eliminated the power of the stockholders to call such
a meeting. Also, the Amendment eliminated the power of stockholders to act by
written consent.
Prior to the consummation of the Company's initial public offering, the
Company's By-laws provided that each director was elected annually to the Board.
The Amendment and the Company's Amended and Restated By-laws, which became
effective upon the consummation of the initial public offering on March 20,
1996, provide for three classes of directors with each newly-elected director to
hold office for a term of three years commencing with the first Annual Meeting
of Stockholders after the closing of the initial public offering. This change
could discourage unsolicited takeovers and challenges to Board control.
The General Corporation Law of the State of Delaware provides that changes in
the By-laws and the Certificate of Incorporation may be made by the
stockholders. The Amendment retains this requirement, but requires that changes
in the By-laws by the stockholders of the Company be approved by the affirmative
vote of not less than sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of stock of the Company entitled to vote upon the election of
directors, and that changes to the Certificate of Incorporation regarding the
items discussed in this paragraph and the two preceding paragraphs be approved
by the affirmative vote of not less than sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of stock of the Company entitled to vote on the
election of directors. Such changes will make it more difficult for the holders
of the Company's Common Stock to effect changes of corporate governance issues
relating to the Company.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
-------------
Exhibit
-------
3.1 Certificate of Incorporation, as amended
3.2 By-Laws, as amended
11 Computation of Net Loss and Pro Forma Net Loss
Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the three months ended March 31,
1996.
None.
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.
INNOTECH, INC.
(Registrant)
Date: May 13, 1996 /s/ Ronald D. Blum
------------------
Ronald D. Blum
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date: May 13, 1996 /s/ Steven A. Bennington
------------------------
Steven A. Bennington
Chief Operating Officer and Vice
President
(principal financial and accounting officer)
17
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3.1 Certificate of Incorporation, as amended
3.2 By-Laws, as amended
11 Computation of Net Loss and Pro Forma Net Loss
Per Common Share
27 Financial Data Schedule
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INNOTECH, INC.
Pursuant To Sections 242 And 245 Of
Delaware General Corporation Law
Innotech, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
(a) the name of the corporation is Innotech, Inc;
(b) the Certificate of Incorporation of the Corporation was originally
filed with the Secretary of State, Dover, Delaware, on the 5th day of November
1992;
(c) this Second Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware (the "GCL"), the Board of
Directors and the stockholders of the Corporation having duly adopted this
Second Amended and Restated Certificate of Incorporation;
(d) the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is Innotech, Inc. (the
-----
"Corporation").
SECOND: The address of the Corporation's registered office in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
<PAGE>
2
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which corporations may be organized under the General
Corporation Law of Delaware (the "GCL").
FOURTH: The total number of shares of capital stock that the
------
Corporation shall have authority to issue is 75,000,000, shares of which
70,000,000 shares of the par value of $.001 per share shall be designated
Common Stock ("Common Stock"), and 5,000,000 shares of the par value of
$.001 per share shall be designated Preferred Stock ("Preferred Stock").
A. Preferred Stock. The Board of Directors is authorized, subject to
---------------
limitations prescribed by law and the terms of this Certificate, to provide
for the issuance of shares of Preferred Stock in one or more series, to
establish the number of shares to be included in each such series, and to
fix the designations, powers, preferences and rights of the shares of each
such series and any qualifications, limitations or restrictions thereof.
B. Common Stock.
------------
(a) Dividends. Subject to the preferential rights, if any, of
---------
the Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive, when and if declared by the Board of Directors,
out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares
of Common Stock.
(b) Voting Rights. At every annual or special meeting of
-------------
stockholders of the Corporation, every holder of Common Stock shall be
entitled to one vote, in person or by proxy, for each share of Common
Stock outstanding in his name on the books of the Corporation.
(c) Liquidation. In the event of any liquidation, after payment
-----------
or provision for payment of the debts and other liabilities of the
Corporation and of the preferential amounts, if any, to which the
holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably
in the remaining net assets of the Corporation.
FIFTH: The Board of Directors is expressly authorized to adopt,
-----
amend, or repeal the By-Laws of
<PAGE>
3
the Corporation. By-Laws shall not be made, repealed, altered, amended or
rescinded by the stockholders of the Corporation except by the vote of the
holders of not less than 66 2/3 percent of the outstanding shares of stock
of the Corporation entitled to vote upon the election of Directors.
SIXTH: Elections of directors need not be by written ballot unless
-----
the By-Laws of the Corporation shall otherwise provide.
SEVENTH: A director of the Corporation shall not be personally
-------
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided, however, that the
-------- -------
foregoing shall not eliminate or limit the liability of a director (1) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174
of the GCL, or (4) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to permit further elimination or limitation of the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the GCL as so amended. Any repeal or modification of this Article
SEVENTH by the stockholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
EIGHTH: Whenever a compromise or arrangement is proposed between this
------
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolutions or of any
receiver or receivers appointed for this Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-
<PAGE>
4
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of this Corporation, as the case may be, and also
on this Corporation.
NINTH: No action shall be taken by the stockholders of this
-----
Corporation except at an annual or special meeting of Stockholders.
TENTH: Special meetings of the stockholders of this Corporation may
-----
be called only by the Chairman of the Board or the Board of Directors of
the Corporation pursuant to a resolution adopted by a majority of the
members of the Board of Directors, and special meetings may not be called
by any other person or persons.
ELEVENTH: The Board of Directors shall be divided, with respect to
--------
the time for which they severally hold office into three classes, as nearly
equal in number as possible, with the term in office of the first class to
expire at the first annual meeting of stockholders after the filing of this
Second Amended and Restated Certificate of Incorporation (the "Effective
Date"), the term in office of the second class to expire at the second
annual meeting of stockholders after the Effective Date and the term in
office of the third class to expire at the third annual meeting of
stockholders after the Effective Date. At each annual meeting of
stockholders, commencing with the first annual meeting after the Effective
Date, (i) directors elected to succeed those directors' whose terms then
expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and
qualified and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
TWELFTH: The Corporation reserves the right to amend, alter, change
-------
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights
<PAGE>
5
conferred upon the stockholders herein are granted subject to this
reservation.
Notwithstanding the foregoing, the provisions set forth in Articles
FIFTH, NINTH, TENTH, ELEVENTH and this Article TWELFTH may not be repealed
or amended in any respect unless such repeal or amendment is approved by
the affirmative vote of the holders of not less than 66 2/3 percent of the
outstanding shares of the stock of the Corporation entitled to vote upon
the election of Directors.
IN WITNESS WHEREOF, Innotech, Inc. has caused this Certificate to be
signed and attested to by its duly authorized officers as of the 20th day of
March, 1996.
INNOTECH, INC.
By: /s/ Steven A. Bennington
-----------------------------------
Steven A. Bennington
Vice President
ATTEST:
By: /s/ Ronald D. Blum
-------------------------
Ronald D. Blum
Secretary
<PAGE>
Exhibit 3.2
SECOND AMENDED AND RESTATED
BY-LAWS OF
Innotech, Inc.
(A Delaware Corporation)
ARTICLE I.
Offices
SECTION 1. Registered Office. The registered office of the
-----------------
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. Other Offices. The Corporation may also have an office
-------------
or offices other than said registered office at such place or places, either
within or without the State of Delaware, as the Board of Directors shall from
time to time determine or the business of the Corporation may require.
ARTICLE II.
Meetings of Stockholders
SECTION 2.1. Place of Meetings. All meetings of the stockholders
-----------------
for the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2.2. Annual Meeting. The annual meeting of stockholders,
--------------
commencing with the year these By-Laws become effective shall be held at 10:00
A.M. on the 1st of June, if not a legal holiday, and if a legal holiday, then on
the next succeeding day not a legal holiday, at 10:00 A.M., or at such other
date and time as shall be designated from time to time by the Board of Directors
and stated in the notice of meeting or in a duly executed waiver thereof. At
such annual meeting, the stockholders shall elect, by a plurality vote, a Board
of Directors and transact such other business as may properly be brought before
the meeting.
SECTION 2.3. Special Meetings. Special meetings of the stockholders
----------------
may be called only by the Chairman of the Board or by the Board of Directors of
the Corporation pursuant to a resolution adopted by a majority of the members of
the Board of Directors, and special meetings may not be called by any other
persons.
<PAGE>
2
SECTION 2.4. Notice of Meetings. Except as otherwise expressly
------------------
required by statute, or by the Corporation's Certificate of Incorporation,
written notice of each annual and special meeting of stockholders stating the
date, place and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder of record entitled to vote thereat not less than ten nor more than
sixty days before the date of the meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Notice shall be given personally or by mail and, if by mail, shall be sent in a
postage prepaid envelope, addressed to the stockholder at his address as it
appears on the records of the Corporation. Notice by mail shall be deemed given
at the time when the same shall be deposited in the United States mail, postage
prepaid. Notice of any meeting shall not be required to be given to any person
who attends such meeting, except when such person attends the meeting in person
or by proxy 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, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 2.5. List of Stockholders. The officer who has charge of
--------------------
the stock ledger of the Corporation shall prepare and make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city, town or
village where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to be
held. The list shall be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.6. Quorum Adjournments. The holders of a majority of the
-------------------
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be
<PAGE>
3
present or represented by proxy. At such adjourned meeting at which a quorum
shall be present or represented by proxy, any business may be transacted which
might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.7. Organization. At each meeting of stockholders, the
------------
Chairman of the Board, if one shall have been elected, or, in his absence or if
one shall not have been elected, the President, or, in his absence or if one
shall not have been elected, a Vice President selected by the Board of Directors
shall act as chairman of the meeting. The Secretary or, in his absence or
inability to act, the person whom the chairman of the meeting shall appoint
secretary of the meeting shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 2.8. Notice of Stockholder Nominations and Proposals. (a)
-----------------------------------------------
Notwithstanding anything herein to the contrary, at an annual meeting of
stockholders, only such business shall be conducted, and only such nominations
and proposals shall be acted upon, as shall have been brought before the annual
meeting (i) by, or at the direction of, the Board of Directors or (ii) by any
stockholder of the Corporation who complies with the notice procedures set forth
in this Section 2.8 of these By-Laws. For a nomination or proposal to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be received at the principal executive
offices of the Corporation not less than one hundred twenty days calendar in
advance of the date the Corporation's notice of the annual meeting is released
to stockholders in connection with the preceding year's annual meeting;
provided, however, that in the event that no annual meeting was held in the
- -------- -------
previous year or the date of the annual meeting is advanced or delayed by more
than thirty days from the date the notice of the annual meeting was released to
stockholders in connection with the previous year's annual meeting notice of
stockholder nominations or proposals to be timely must be so delivered not
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the sixtieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made. A stockholder's notice to the Secretary
shall set forth (A) as to each person who the stockholder proposes to nominate
for election or re-election as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee
<PAGE>
4
and to serve as a director if elected); and (B) as to any other business that
the stockholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting,
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder notice, (iv) any financial interest of the stockholder in
such proposal and (v) any and all information relating to such stockholder's
eligibility to submit a proposal to the stockholders of the Corporation or
otherwise required by Regulation 14A under the Exchange Act.
(b) Notwithstanding anything in Section 2.8(a) of these By-Laws to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the increased
Board of Directors made by the Corporation at least seventy days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Corporation. For purposes of this
Section 2.8, public announcement shall mean disclosure in a press release
reported by Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act
or in a document mailed to the Corporation's stockholders.
(c) Only persons who are nominated in accordance with the procedures
set forth in this Section 2.8 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 2.8. If the nomination or a stockholder proposal was not made in
accordance with the terms of this Section 2.8 and Regulation 14A of the Exchange
Act, such nomination or proposal shall not be acted upon at the annual meeting.
(d) This Section 2.8 shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors and
committees of the Board but, in connection with such reports, no business shall
be acted upon at such annual meeting unless stated, filed and received as herein
provided.
(e) Notwithstanding the foregoing provisions of this Section 2.8, a
stockholder shall also comply with all applicable
<PAGE>
5
requirements of the Exchange Act and the rules and regulations promulgated
thereunder with respect to the matters set forth in this Section 2.8. Nothing
in this Section 2.8 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 promulgated under the Exchange Act.
SECTION 2.9. Order of Business. Subject to Section 2.8 hereof, the
-----------------
order of business at all meetings of the stockholders shall be as determined by
the chairman of the meeting.
SECTION 2.10. Voting. Except as otherwise provided by statute or the
------
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his name on the record book of stockholders
of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 5.7 hereof
as the record date for the determination of the stockholders who shall be
entitled to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice thereof shall
be given, or, if notice is waived, at the close of business on the date
next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
notice of meeting for so delivering such proxies. When a quorum is present at
any meeting, in all matters other than the election of directors, the
affirmative vote of the holders of a majority of the voting power of the issued
and outstanding stock of the Corporation entitled to vote thereon present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statute
or of the Certificate of Incorporation or of these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Unless required by statute, or determined by the
Chairman of the meeting to be advisable, the vote on any matter need not be by
written ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there by such proxy, and shall state the
number of shares voted.
SECTION 2.11. Inspectors. The Board of Directors shall,
----------
<PAGE>
6
in advance of any meeting of stockholders, appoint one or more inspectors to act
at such meeting or any adjournment thereof. If any of the inspectors so
appointed shall fail to appear or act, the chairman of the meeting shall, or if
inspectors shall not have been appointed, the chairman of the meeting may,
appoint one or more inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares of
capital stock of the Corporation outstanding and the voting power of each, the
number of shares represented at the meeting, the validity of ballots and proxies
and the existence of a quorum, and shall receive votes, ballots or consents,
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, count all votes, ballots
or consents, determine the results, certify their determination of the number of
shares of capital stock represented at the meeting and their count of all votes
and ballots and do such acts as are required by statute or are proper to conduct
the election or vote with fairness to all stockholders. The inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders.
SECTION 2.12. No Action by Consent. Any action required or permitted
--------------------
to be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
ARTICLE III.
Board of Directors
SECTION 3.1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
SECTION 3.2. Number, Qualifications, Election and Term of Office.
----------------------------------------- ---------
The number of directors constituting the initial Board of Directors shall be
nine. Thereafter, the number of directors may be fixed, from time to time
exclusively pursuant to a resolution adopted by a majority of the entire Board
of Directors but shall consist of not more than fifteen nor less than three
directors. The directors shall be divided, with respect to the time for which
they severally hold office, into three classes, as
<PAGE>
7
nearly equal in number as possible, with the term of office of the first class
to expire at the first annual meeting of stockholders after these By-Laws become
effective, the term of office of the second class to expire at the second annual
meeting of stockholders after these By-Laws become effective and the term of
office of the third class to expire at the third annual meeting of stockholders
after these By-Laws become effective. Any decrease in the number of directors
shall be effective at the time of the next succeeding annual meeting of
stockholders unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next succeeding
annual meeting to the extent of the number of such vacancies. Directors need
not be stockholders. Except as otherwise provided by statute, the Certificate
of Incorporation or these By-Laws, directors shall be elected at the annual
meeting of stockholders. Each director shall hold office until his successor
shall have been elected and qualified, or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in these By-Laws.
At each annual meeting of stockholders, commencing with the at the first annual
meeting of stockholders after these By-Laws become effective, (i) directors
elected to succeed those directors whose terms then expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
SECTION 3.3. Place of Meetings. Meetings of the Board of Directors
-----------------
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting.
SECTION 3.4. Annual Meeting. The Board of Directors shall meet for
--------------
the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such other time or place (within or without the State of Delaware) as
shall be specified in a notice thereof given as hereinafter provided in Section
3.7 hereof.
SECTION 3.5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day.
<PAGE>
8
Notice of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 3.6. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by a majority of the Board of Directors of the Corporation or by the
President. The person or persons authorized to call special meetings of the
Board of Directors may fix the time and place of the meetings.
SECTION 3.7. Notice of Meetings. Notice of each special meeting of
------------------
the Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 3.7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first class mail, at least two days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone or other similar means, at least
twenty-four hours before the time at which such meeting is to be held. Notice
of any such meeting need not be given to any director who shall, either before
or after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he shall attend 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.
SECTION 3.8. Quorum and Manner of Acting. Except as otherwise
---------------------------
expressly required by statute or the Certificate of Incorporation or these By-
Laws, a whole number of directors equal to at least a majority of the entire
Board of Directors shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, and, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all of the directors unless such time and
place were announced at the meeting at which the adjournment was taken, in which
case such notice shall only be given to the directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board of Directors, and the
individual directors shall have no power as such.
SECTION 3.9. Organization. At each meeting of the
------------
<PAGE>
9
Board of Directors, the Chairman of the Board, if one shall have been elected,
or, in the absence of the Chairman of the Board or if one shall not have been
elected, the President (or, in his absence, another director chosen by a
majority of the directors present) shall act as chairman of the meeting and
preside thereat. The Secretary or, in his absence, any person appointed by the
chairman shall act as secretary of the meeting and keep the minutes thereof.
SECTION 3.10. Resignations. Any director of the Corporation may
------------
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.11. Vacancies. Except as otherwise provided in the
---------
Certificate of Incorporation, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled only by the vote of a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof, and a director so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which he has been elected expires or until his
successor shall have been elected and qualified. No decrease in the number of
authorized directors constituting the Board of Directors shall shorten the term
of an incumbent director.
SECTION 3.12. Removal of Directors. Except as otherwise provided in
--------------------
the Certificate of Incorporation, any director may be removed at any time but
only for cause and only by the affirmative vote of the holders of at least 66
2/3% of the voting power of the issued and outstanding capital stock of the
Corporation entitled to vote at an election of directors.
SECTION 3.13. Compensation. The Board of Directors shall have
------------
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in any capacity.
SECTION 3.14. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Except to the extent restricted by statute or the Certificate of Incorporation,
each such committee, to the extent
<PAGE>
10
provided in the resolution creating it, shall have and may exercise all the
powers and authority of the Board of Directors and may authorize the seal of the
Corporation to be affixed to all papers which require it. Each such committee
shall serve at the pleasure of the Board of Directors and have such name as may
be determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors.
SECTION 3.15. Action by Consent. Unless restricted by the
-----------------
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
SECTION 3.16. Telephonic Meeting. Unless restricted by the
------------------
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation by such means shall constitute presence in person at
a meeting.
SECTION 3.17. Presumption of Assent. A director of the Corporation
---------------------
present at a Board of Directors or committee meeting at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent is entered in the minutes of the meeting, or unless such
director files a written dissent to such actions with the person acting as the
secretary of the meeting before adjournment thereof, or forwards such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. A director who voted in favor of such action may
not subsequently dissent.
ARTICLE IV.
Officers
SECTION 4.1. Number and Qualifications. The officers of the
-------------------------
Corporation shall be elected by the Board of Directors and shall include the
Chairman of the Board, the President, one or more Vice-Presidents, the
Secretary, the Chief Operating Officer and the Treasurer. If the Board of
Directors wishes, it may also elect other officers (including one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or desirable for the business of the Corporation. Any two or more offices may
be held by the same person, and no officer except the Chairman of the Board need
be a director. Each officer shall hold office until his
<PAGE>
11
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned or have been removed, as hereinafter
provided in these By-Laws.
SECTION 4.2. Resignations. Any officer of the Corporation may
------------
resign at any time by giving written notice of his resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 4.3. Removal. Any officer elected by the Board of Directors
-------
may be removed by a majority of the members of the Board of Directors whenever,
in their judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
SECTION 4.4. Chairman of the Board. The Chairman of the Board shall
---------------------
be a member of the Board of Directors, an officer of the Corporation and, if
present, shall preside at each meeting of the Board of Directors and the
stockholders. The Chairman of the Board shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to his office which may be required by law and all such other duties
as are properly required of him by the Board of Directors. Except where by law
the signature of the President is required, the Chairman of the Board shall
possess the same power as the President to sign all certificates, contracts, and
other instruments of the Corporation which may be authorized by the Board of
Directors. He shall make reports to the Board of Directors and the
stockholders, and shall perform all such other duties as are properly required
of him by the Board of Directors. He shall see that all orders and resolutions
of the Board of Directors and of any committee thereof are carried into effect.
SECTION 4.5. The President. The President shall act in a general
-------------
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence of
or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors. The President may sign, alone or with the
Secretary, or an Assistant Secretary, or any other proper officer of the
Corporation authorized by the Board of Directors, certificates, contracts, and
other instruments of the Corporation
<PAGE>
12
as authorized by the Board of Directors. He shall perform all duties incident
to the office of President and such other duties as may from time to time be
assigned to him by the Board of Directors or the Chairman of the Board.
SECTION 4.6. Vice-President. Each Vice-President shall perform all
--------------
such duties as from time to time may be assigned to him by the Board of
Directors, the President or the Chairman of the Board. At the request of the
President or in his absence or in the event of his inability or refusal to act,
the Vice-President, or if there shall be more than one, the Vice-Presidents in
the order determined by the Board of Directors (or if there be no such
determination, then the Vice-Presidents in the order of their election), shall
perform the duties of the President, and, when so acting, shall have the powers
of and be subject to the restrictions placed upon the President in respect of
the performance of such duties.
SECTION 4.7. Chief Operating Officer. The Chief Operating Officer,
-----------------------
if one shall have been elected, shall perform all duties incident to the
operation and management of the day-to-day affairs of the Corporation and
perform all such other duties as may from time to time be assigned to him by the
President and the Board of Directors.
SECTION 4.8. The Treasurer. The Treasurer shall
-------------
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor:
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
Board of Directors.
<PAGE>
13
SECTION 4.9. The Secretary. The Secretary shall
-------------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the
Board of Directors.
SECTION 4.10. The Assistant Treasurer. The Assistant Treasurer, or
-----------------------
if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
SECTION 4.11. The Assistant Secretary. The Assistant Secretary, or
-----------------------
if there shall be more than one, the Assistant Secretaries in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Secretary or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
SECTION 4.12. Officers' Bonds or Other Security. If required by the
---------------------------------
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety as the Board of Directors may require.
SECTION 4.13. Compensation. The compensation of the officers of the
------------
Corporation for their services as such officers
<PAGE>
14
shall be fixed from time to time by the Board of Directors. An officer of the
Corporation shall not be prevented from receiving compensation by reason of the
fact that he is also a director of the Corporation.
SECTION 4.14. Vacancies. A newly created office and a vacancy in any
---------
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term.
ARTICLE V.
Stock Certificates and Their Transfer
SECTION 5.1. Stock Certificates. Every holder of stock in the
------------------
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a Vice-
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation. If the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 5.2. Facsimile Signatures. Any or all of the signatures on
--------------------
a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 5.3. Lost Certificates. The Board of Directors may direct a
-----------------
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When
<PAGE>
15
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct sufficient to indemnify it against any claim that may
be made against the Corporation on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 5.4. Transfers of Stock. Upon surrender to the Corporation
------------------
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its records; provided, however, that the Corporation
-------- -------
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 5.5. Transfer Agents and Registrars. The Board of Directors
------------------------------
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars.
SECTION 5.6. Regulations. The Board of Directors may make such
-----------
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 5.7. Fixing the 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 sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
-------- -------
date for the adjourned meeting.
SECTION 5.8. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to
<PAGE>
16
receive dividends and to vote as such owner, shall be entitled to hold liable
for calls and assessments a person registered on its records as the owner of
shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VI.
Indemnification of Directors and Officers
SECTION 6.1. General. The Corporation shall indemnify any person
-------
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding") (other than an
action by or in the right of the Corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement, actually and reasonably incurred by
such person in connection with such proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
----
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 6.2. Derivative Actions. The Corporation shall indemnify
------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or
<PAGE>
17
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION 6.3. Indemnification in Certain Cases. To the extent that a
--------------------------------
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.1 and 6.2 hereof, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
SECTION 6.4. Procedure. Any indemnification under Sections 6.1 and
---------
6.2 hereof, (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 6.1 and
6.2. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders.
SECTION 6.5. Advances for Expenses. Expenses (including attorneys'
---------------------
fees) incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VI. Such expenses
(including attorneys' fees) incurred may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
SECTION 6.6. Rights Not-Exclusive. The indemnification and
--------------------
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article VI shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
<PAGE>
18
SECTION 6.7. Insurance. The Corporation shall have power to
---------
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.
SECTION 6.8. Definition of Corporation. For the purposes of this
-------------------------
Article VI, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article VI with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
SECTION 6.9. Survival of Rights. The indemnification and advancement
------------------
of expenses provided by, or granted pursuant to this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE VII.
General Provisions
SECTION 7.1. Dividends. Subject to the provisions of statute and
---------
the Certificate of Incorporation, dividends upon the shares of capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in property or in shares of
stock of the Corporation, unless otherwise provided by statute or the
Certificate of Incorporation.
SECTION 7.2. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of
<PAGE>
19
Directors may modify or abolish any such reserves in the manner in which it was
created.
SECTION 7.3. Seal. The seal of the Corporation shall be in such
----
form as shall be approved by the Board of Directors.
SECTION 7.4. Fiscal Year. The fiscal year of the Corporation shall
-----------
begin on January 1 and end on December 31 of each year.
SECTION 7.5. Checks, Notes, Drafts, Etc. All checks, notes, drafts
--------------------------
or other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 7.6. Execution of Contracts, Deeds, Etc. The Board of
----------------------------------
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7.7. Voting of Stock in Other Corporations. Unless
-------------------------------------
otherwise provided by resolution of the Board of Directors, the Chairman of the
Board or the President, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes which the Corporation may be entitled to
cast as a shareholder or otherwise in any other corporation, any of whose shares
or securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may,
or may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
SECTION 7.8. Audits. The accounts, books and records of the
------
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be made
annually.
ARTICLE VIII.
<PAGE>
20
SECTION 8.1. Amendments. These By-Laws may be amended, added to,
----------
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given not less than two days prior to the meeting; and provided, however, that,
-------- -------
in the case of amendments by stockholders, notwithstanding any other provision
of these By-Laws or any provision of law which might otherwise permit a lesser
vote or no vote, the affirmative vote of the holders of at least 66 2/3 percent
of the voting power of the issued and outstanding capital stock of the
Corporation entitled to vote at the election of directors, shall be required to
alter, amend or repeal any provision of these By-Laws.
SECTION 8.2. Effective Date. These By-Laws shall be effective on
--------------
the date of closing of an initial public offering of shares of common stock, par
value $.001 per share, of the Corporation.
As adopted in December, 1995.
<PAGE>
EXHIBIT 11
INNOTECH, INC.
Computation of Net Loss and Pro Forma Net Loss
Per Common Share
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Weighted average shares of common stock outstanding 1,714,849 704,285
Common stock issued during 1995, deemed to be outstanding
for entire period (1) -- 68,706
Convertible, redeemable preferred stock (2)(3) 3,485,857 3,954,370
Common stock warrants (1)(4) -- 999,340
Common stock options (1)(4) -- 497,231
----------- -----------
Weighted average number of common shares outstanding
(pro forma for 1995) 5,200,706 6,223,932
=========== ===========
Net loss $(2,844,429) $(2,344,900)
=========== ===========
Net loss per common share (pro forma for 1995) $ (0.55) $(0.38)
=========== ===========
</TABLE>
(1) For the three months ended March 31, 1995, common stock, common stock
warrants and common stock options issued within a one-year period prior to
the initial filing of the registration statement related to the initial
public offering have been treated as outstanding for the entire period. In
the case of common stock warrants and common stock options, the treasury
stock approach has been utilized. Common stock warrants and common stock
options issued prior to one year before the initial filing date have not
been considered as their effect would be anti-dilutive.
(2) For the three months ended March 31, 1995, convertible, redeemable preferred
stock issued within a one-year period prior to the initial filing of the
registration statement related to the initial public offering has been
treated as outstanding for the entire period. In addition, convertible,
redeemable preferred stock issued prior to one year before the initial
filing date was considered converted into common stock on the respective
original dates of issuance.
(3) For the three months ended March 31, 1996, convertible, redeemable preferred
stock was considered converted into common stock on the respective original
dates of issuance.
(4) For the three months ended March 31, 1996, common stock warrants and common
stock options have not been considered as their effect would be anti-
dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 26,466
<SECURITIES> 0
<RECEIVABLES> 2,678
<ALLOWANCES> 88
<INVENTORY> 3,961
<CURRENT-ASSETS> 33,456
<PP&E> 2,854
<DEPRECIATION> (514)
<TOTAL-ASSETS> 37,283
<CURRENT-LIABILITIES> 3,761
<BONDS> 2,742
0
0
<COMMON> 8
<OTHER-SE> 30,772
<TOTAL-LIABILITY-AND-EQUITY> 37,283
<SALES> 2,011
<TOTAL-REVENUES> 2,063
<CGS> 1,551
<TOTAL-COSTS> 4,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> (2,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,844)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
