<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------
Commission file number 0-19339
EDMARK CORPORATION
(Exact name of Registrant as specified in its charter)
WASHINGTON 91-0858263
(State of Incorporation) (I.R.S. Employer Identification No.)
6727 185th Ave. N.E., Redmond, WA 98052
(Address of Principal Executive Offices) (Zip Code)
(206) 556-8400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of October 28, 1996 there were 6,632,111 shares outstanding of the
Registrant's Common Stock, no par value.
Page 1 of Sequentially numbered pages.
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EDMARK CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1996
(unaudited) and June 30, 1996 3-4
Condensed Statements of Operations (unaudited) -
Three Months Ended September 30, 1996 and 1995 5
Condensed Statements of Cash Flows (unaudited) -
Three Months Ended September 30, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
EDMARK CORPORATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
Assets 1996 1996
------ ------------- ---------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 24,726,622 25,838,795
Trade accounts receivable, net of allowances
for doubtful accounts and sales returns of
$1,222,572 at September 30, 1996 and $1,524,059
at June 30, 1996 5,053,341 3,828,788
Inventories 1,502,843 1,663,402
Refundable Federal income taxes 792,247 475,403
Deferred Federal income taxes 1,057,491 1,057,491
Prepaid expenses and other
current assets 532,372 549,391
------------ ------------
Total current assets 33,664,916 33,413,270
------------ ------------
Equipment and leasehold improvements, at cost 5,609,994 5,479,361
Less accumulated depreciation
and amortization (2,755,673) (2,442,204)
------------ ------------
Net equipment and
leasehold improvements 2,854,321 3,037,157
Long-term marketable securities 6,853,634 6,957,798
------------ ------------
$ 43,372,871 43,408,225
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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EDMARK CORPORATION
Condensed Balance Sheets
(Continued)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------
(unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 566,623 720,621
Accrued liabilities 2,979,453 2,196,594
----------- -----------
Total current liabilities 3,546,076 2,917,215
----------- -----------
Shareholders' Equity:
Common stock, no par value 37,773,241 37,752,801
Retained earnings 2,053,554 2,738,209
----------- -----------
Total shareholders' equity 39,826,795 40,491,010
----------- -----------
$43,372,871 43,408,225
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
EDMARK CORPORATION
Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Net revenues 6,770,741 6,931,826
Cost of revenues 1,550,697 1,665,701
----------- -----------
Gross profit 5,220,044 5,266,125
----------- -----------
Operating expenses:
Sales and marketing 3,557,828 2,481,407
General and administrative 883,387 630,376
Research and development 2,162,908 2,040,276
----------- -----------
Total operating expenses 6,604,123 5,152,059
----------- -----------
Operating income (loss) (1,384,079) 114,066
Interest income 338,140 208,839
----------- -----------
Earnings (loss) before
income taxes (1,045,939) 322,905
Income tax expense (benefit) (361,367) 81,266
----------- -----------
Net earnings (loss) $ (684,572) 241,639
=========== ===========
Net earnings (loss) per share $ (0.10) 0.03
=========== ===========
Weighted average number
of shares outstanding 6,627,797 7,203,997
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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EDMARK CORPORATION
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Net cash used in operating activities $ (1,106,144) (799,312)
------------ ------------
Cash flows from investing activities:
Decrease (increase) in marketable securities (1,671,021) 3,419,565
Purchase of equipment and leasehold improvements (130,633) (555,716)
------------ ------------
Net cash provided by (used in)
investing activities (1,801,654) 2,863,849
------------ ------------
Cash flows from financing activities - net
proceeds from sale of common stock and
exercise of stock options and stock warrants 20,440 23,152,980
------------ ------------
Net increase (decrease) in cash and
cash equivalents (2,887,358) 25,217,517
Cash and cash equivalents at beginning of period 8,858,704 4,028,632
------------ ------------
Cash and cash equivalents at end of period 5,971,346 29,246,149
Short-term investments 18,755,276 756,078
------------ ------------
Cash and short-term investments at end of period $ 24,726,622 30,002,227
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
6
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EDMARK CORPORATION
Notes to Condensed Financial Statements
(1) BASIS OF PRESENTATION
The unaudited condensed financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
condensed financial statements and related notes should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's 1996 Annual Report to Shareholders.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the results for the interim periods
presented.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal year 1996
financial statements in order for them to conform to the fiscal year
1997 presentation.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ----------
(unaudited)
<S> <C> <C>
Work in Process $ 605,890 821,977
Finished Goods 896,953 841,425
---------- ----------
$1,502,843 1,663,402
========== ==========
</TABLE>
(4) EARNINGS (LOSS) PER SHARE
Per share information is based on the weighted average number of common
shares and common share equivalents outstanding during each period
presented. When dilutive, common stock equivalents are calculated using
the treasury stock method.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information should be read in conjunction with the financial
statements and the notes thereto and in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations in Edmark
Corporation's Annual Report on Form 10-K for the fiscal year ended June 30,
1996. This analysis has been prepared pursuant to the applicable rules and
regulations of the Securities and Exchange Commission and is not intended to
serve as a basis for projections of future events. The following contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in Part I of the Edmark Corporation
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
On September 9, 1996, the Company announced that its Chairman and Chief
Executive Officer, Sally Narodick, resigned her executive positions. Mrs.
Narodick will, however, continue as a member of the Company's Board of
Directors. The Company also announced that Donna Stanger, Vice President -
Product Development, has assumed the duties of Chief Executive Officer on an
interim basis and that Frances Conley, a Director of the Company since 1991 and
a principal of Roanoke Capital, Ltd., will serve as Chair of the Board of
Directors. The Company is actively conducting a search for a permanent CEO.
Also, in May 1996, the Company's Vice President - Marketing resigned and this
position remains unfilled. There can be no assurance that the Company will be
able to recruit qualified individuals for these key senior management positions
in a timely manner nor can there be any assurance that operating results will
not be adversely impacted during the time these positions remain unfilled.
The Company's business is highly seasonal. Generally, sales of products in the
consumer channel are highest during the holiday quarter, the Company's second
fiscal quarter, and weakest during the Company's third fiscal quarter, while
sales of products in the education channel tend to be higher during the
Company's first and fourth fiscal quarters.
The Company's quarterly operating results also fluctuate or may fluctuate as a
result of the number, amount and timing of new product introductions, product
shipments, acceptance by customers of new products, product mix, product
returns, promotional programs, marketing expenditures and product development
expenditures. Net revenues in any quarter are principally dependent on orders
booked and shipped in that quarter. A significant portion of the Company's
operating expense is relatively fixed, and planned expenditures in any given
quarter are based on sales forecasts. Accordingly, if net revenues do not meet
the Company's expectations in any given
8
<PAGE> 9
quarter, operating results could be adversely affected. In addition, if planned
product introductions are delayed beyond the peak selling seasons, the Company's
operating results could be adversely affected. There can be no assurance that
the recent year-to-year and quarter-to-quarter revenue growth rates realized
will be sustained. Any significant shortfall in net revenues from levels
expected by securities analysts or shareholders could result in substantial
volatility in the trading price of the Company's common stock.
RESULTS OF OPERATIONS
Net Revenues
Net revenues were comprised of the following ($000s):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
1996 1995 Change
------ ------ ------
<S> <C> <C> <C>
Multimedia software products:
Consumer channel $2,839 3,801 (25%)
Education channel 1,747 795 120%
------ ------
Subtotal 4,586 4,596 0%
Special education products 1,635 1,772 (8%)
Other 550 564 (2%)
------ ------
Total $6,771 6,932 (2%)
====== ======
</TABLE>
The decrease in consumer channel sales when compared to the comparable prior
year period is due primarily to lower reorder rates for the Company's products
and reductions in the number of retail outlets carrying the Company's products.
A significant majority of the Company's consumer channel product sales are
derived from CD-ROM product. At the time of product shipment, the Company
establishes allowances for stock balancing, including stock balancing, price
protection and returns of defective, shelf-worn and damaged products, and for
estimated potential future returns of products. Actual product returns during
the current quarter amounted to $1,366,000, and the Company's allowance for
sales returns at September 30, 1996, was $1,129,000.
The increase in sales of multimedia software products in the education channel
is due primarily to an increase in the number of products available and expanded
distribution in the education market.
The Company expects sales of its special education products will decline over
time, reflecting the Company's strategic emphasis on its multimedia software
products.
The Company recognized $550,000 of research and development co-funding revenue
during the quarter related to its strategic alliance with Harcourt Brace School
Publishers.
9
<PAGE> 10
Cost of Revenues
Cost of revenues was $1,551,000 in the current quarter, a decrease of 7% from
$1,666,000 in the year ago quarter, and decreased as a percentage of net
revenues to 23% from 24%. Excluding revenues under the Harcourt Agreement, cost
of revenues was 25% in the current quarter compared to 26% in the comparable
prior year period. The decrease as a percentage of net revenues was primarily
due to the relative mix of revenue shifting to products with higher gross profit
margins. Costs associated with revenue recognized under the strategic alliance
with Harcourt are included with research and development expense.
Operating Expenses
Sales and marketing expenses were $3,558,000 in the current quarter, an increase
of 43% from $2,481,000 in the year ago quarter, and increased as a percentage of
net revenues to 53% from 36%. The expense increase was primarily due to
increased costs associated with sales of the Company's line of multimedia
educational software products. A significant portion of the Company's sales and
marketing expense is relatively fixed, and planned expenditures in the quarter
were based on sales forecasts. The increase as a percentage of net revenues
reflects both greater costs in the retail channel and lower than planned sales
in the consumer channel.
General and administrative expenses were $883,000 in the current quarter, an
increase of 40% from $630,000 in the year ago quarter, and increased as a
percentage of net revenues to 13% from 9%. The current quarter includes cost of
approximately $285,000 related to an uncollectible receivable from a distributor
of the Company's products which filed for bankruptcy protection and costs
related to changes in senior management of the Company.
Research and development expenses were $2,163,000 in the current quarter, an
increase of 6% from $2,040,000 in the year ago quarter, and increased as a
percentage of net revenues to 32% from 29%. The increase in research and
development expenses was primarily attributable to costs associated with
continued expansion of the Company's line of multimedia software products.
Salaries and related costs represent a substantial portion of this expense
increase.
Income Taxes
Income taxes amounted to a benefit of $361,000 in the current quarter compared
to an expense of $81,000 in the year ago quarter. The Company's effective tax
rate for the quarter differed from the statutory rate due to the effect of tax
exempt interest income.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash and short and long-term
investments in marketable securities of $31.6 million and working capital of
$30.1 million.
10
<PAGE> 11
The Company uses its working capital to finance ongoing operations, to fund the
development and introduction of new products and to acquire capital equipment.
During the quarter ended September 30, 1996, the Company's operating activities
used cash of $1.1 million, and the Company invested $131,000 in equipment and
leasehold improvements.
The Company expects that cash flows from operations and existing cash and
short-term investments will be adequate to meet the Company's cash requirements
for the next 12 months.
11
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
3.2 Bylaws (as amended September 9, 1996)
27 Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K on September 11,
1996, relating to the resignation of Sally G. Narodick as the Company's
Chairman and Chief Executive Officer.
12
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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.
Edmark Corporation
(Registrant)
Date
October 28, 1996 /s/Donna G. Stanger
------------------------------------
Donna G. Stanger
Vice President - Product Development
and Interim Chief Executive Officer
October 28, 1996 /s/Paul Bialek
------------------------------------
Paul N. Bialek
Vice President - Finance and
Administration and Chief Financial
Officer
(Principal Accounting and Financial
Officer)
<PAGE> 1
BYLAWS
OF
EDMARK CORPORATION
(AS AMENDED AND RESTATED SEPTEMBER 9, 1996)
ARTICLE I
Registered Office and Registered Agent
The registered office of the corporation shall be located in the State
of Washington at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with the registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State of
the State of Washington.
ARTICLE II
Shareholders' Meetings
Section 1. Annual Meetings. The annual meeting of the shareholders of
this corporation, for the purpose of election of directors and for such other
business as may come before it, shall be held in the month of November of each
year, at such time and place as may be fixed from time to time by the Board of
Directors. The failure to hold an annual meeting at the time stated in these
Bylaws does not affect the validity of any corporate action. If the election of
directors shall not be held during the month designated hereby for any annual
meeting for the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders of
this corporation may be called at any time by the holders of 10% of all shares
of the corporation entitled to vote on any issue proposed to be considered at
the meeting, or by the Chairman, or by the Board of Directors. Only business
within the purpose or purposes described in the meeting notice may be conducted
at a special meeting of shareholders. The Board of Directors may designate any
place as the place of any special meeting called by the Chairman or the Board of
Directors, and special meetings called at the request of shareholders shall be
held at such place as may be determined by the Board of Directors and placed in
the notice of such meetings.
Section 3. Notice of Meetings. Written notice of annual or special
meetings of shareholders stating the place, day, 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 by the Secretary, or persons authorized to call the
meeting, to each shareholder of record entitled to vote at the meeting. In the
case of an annual meeting, such notice shall be given not less than ten (10) nor
more than sixty (60) days prior to the date of the meeting, except that notice
of an annual meeting to act on an amendment to the Articles of Incorporation, a
plan of merger or share exchange, a proposed sale, lease, exchange or other
disposition of all or substantially all of the assets of the corporation other
than in the usual or
<PAGE> 2
regular course of business, or the dissolution of the corporation shall be given
no fewer than twenty (20) days nor more than sixty (60) days before the meeting
date. In the case of a special meeting, such notice shall be given not less than
fifty-five (55) nor more than sixty (60) days prior to the date of the meeting.
Section 4. Waiver of Notice. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting) and
will be waived by any shareholder by attendance of the shareholder in person or
by proxy, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting. Any shareholder
waiving notice of meeting shall be bound by the proceedings of the meeting in
all respects as if due notice thereof had been given.
Section 5. Quorum and Adjourned Meetings. Unless the Articles of
Incorporation or applicable law provide otherwise, a majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. Once a share is
represented at a meeting, other than to object to holding the meeting or
transacting business, it is deemed to be present for the remainder of the
meeting and any adjournment thereof unless a new record date is set or is
required to be set for the adjourned meeting. A majority of the shares
represented at a meeting, even if less than a quorum, may adjourn the meeting
from time to time without further notice. At a reconvened meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the original meeting. Business may continue to be
transacted at a duly organized meeting and at any adjournment of such meeting
(unless a new record date is or must be set for the adjourned meeting),
notwithstanding the withdrawal of enough shares from either meeting to leave
less than a quorum.
Section 6. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by the shareholder's
duly authorized attorney in fact. Such proxy shall be filed with the Secretary
of the corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
Section 7. Voting Record. After fixing a record date for a
shareholders' meeting, the corporation shall prepare an alphabetical list of the
names of all shareholders on the record date who are entitled to notice of the
shareholders' meeting. The list shall show the address of, and number of shares
held by, each shareholder. A shareholder, shareholder's agent, or a
shareholder's attorney may inspect the shareholder list, beginning ten (10) days
prior to the shareholders' meeting and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held during regular business hours and at the
shareholder's expense. The shareholder list shall be kept open for inspection
during such meeting or any adjournment.
Section 8. Voting of Shares. Except as otherwise provided by applicable
law, in the Articles of Incorporation or in these Bylaws, every shareholder of
record shall have the right at every shareholders' meeting to one vote for every
share standing in the shareholders' name on the books of the corporation.
Notwithstanding the foregoing, the shares of the corporation may not be voted if
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<PAGE> 3
they are owned, directly or indirectly, by another corporation, and the
corporation owns, directly or indirectly, a majority of shares of the other
corporation entitled to vote for directors of the other corporation. If a quorum
exists, action on a matter, other than election of directors, is approved by the
shareholders if the votes cast favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation or applicable law
require a greater number of affirmative votes.
Section 9. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the Board
of Directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than seventy (70) days and, in the case
of a meeting of shareholders, not less than ten (10) days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the day before the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date, which it must do
if the meeting is adjourned more than one hundred twenty (120) days after the
date fixed for the original meeting.
Section 10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of this corporation. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of shareholders (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any shareholder of this corporation (i) who is a shareholder of record
on the date of the giving of the notice provided for in this Section 10 and on
the record date for the determination of shareholders entitled to vote at the
annual meeting, and (ii) who timely complies with the notice procedures and form
of notice set forth in this Section 10.
To be timely, a shareholder's notice must be given to the Secretary of
this corporation and must be delivered to or mailed and received at the
principal executive offices of this corporation not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely must
be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
To be in proper form, a shareholder's notice must be in written form
and must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of shares of
capital stock of this corporation which are owned beneficially or of record by
the person, and (iv) any other information
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relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and (b) as to the shareholder giving the
notice (i) the name and record address of the shareholder, (ii) the class or
series and number of shares of capital stock of this corporation which are owned
beneficially or by record by the shareholder, (iii) a description of all
arrangements or understandings between the shareholder and each proposed nominee
and any other person or persons (including their names) pursuant to which the
nomination(s) are to be made by the shareholder, (iv) a representation that the
shareholder intends to appear in person or by proxy at the meeting to nominate
the person named in its notice, and (v) any other information relating to the
shareholder that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. The notice must be accompanied by a
written consent of each proposed nominee to be named as a nominee and to serve
as a director if elected.
No person shall be eligible for election as a director of this
corporation unless nominated in accordance with the procedures set forth in this
Section 10. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and the defective nomination shall
be disregarded.
Section 11. Business at Annual Meetings. No business may be transacted
at an annual meeting of shareholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
or (c) otherwise properly brought before the annual meeting by any shareholder
of this corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this Section 11 and on the record date for the
determination of shareholders of record on the date for the determination of
shareholders entitled to vote at the annual meeting, and (ii) who timely
complies with the notice procedures and form of notice set forth in this Section
11.
To be timely, a shareholder's notice must be given to the Secretary of
this corporation and must be delivered to or mailed and received at the
principal executive offices of this corporation not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after the anniversary date, or no annual meeting was held in the
immediately preceding year, notice by the shareholder in order to be timely must
be so received no later than the close of business on the tenth (10th) day
following the day on which the notice of the annual meeting date was mailed to
shareholders or other public disclosure of the annual meeting date was made,
whichever first occurs.
To be in proper form, a shareholder's notice must be in written form
and must set forth as to each matter the shareholder proposes to bring before
the annual meeting (i) a brief description of the
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business desired to be brought before the annual meeting and the reasons for
conducting the business at the annual meeting, (ii) the name and record address
of the shareholder, (iii) the class or series and number of shares of capital
stock of this corporation which are owned beneficially or of record by each
shareholder, (iv) a description of all arrangements or understandings between
the shareholder and any other person or persons (including their names) in
connection with the proposal of the business, and (v) a representation that the
shareholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 11, provided, however, that, once the
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of the
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and the business shall not be transacted.
Section 12. Acceptance of Votes. If the name signed on a vote, consent,
waiver or proxy appointment does not correspond to the name of a shareholder of
the corporation, the corporation may accept the vote, consent, waiver or proxy
appointment, and give effect to it as the act of the shareholder if: (i) the
shareholder is an entity and the name signed purports to be that of an officer,
partner or agent of the entity; (ii) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the shareholder;
(iii) the name signed purports to be that of a receiver or trustee in bankruptcy
of the shareholder; (iv) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder; or (v) two or more
persons are the shareholder as co-tenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all co-owners.
ARTICLE III
Directors
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the Board of Directors except as otherwise
provided by the laws under which this corporation is formed or in the Articles
of Incorporation.
Section 2. Number. The number of Directors of the corporation shall be
nine (9). The number of Directors can be increased or decreased from time to
time by amending this Section, provided that no decrease in the number of
Directors shall shorten the term of any incumbent director.
Section 3. Tenure and Qualifications. Each Director shall hold office
until the next annual meeting of shareholders, unless earlier removed. Despite
the expiration of a Director's term, the Director continues to serve until the
Director's successor shall have been elected and qualified or
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until there is a decrease in the number of Directors. Directors need not be
residents of the State of Washington or shareholders of the corporation.
Section 4. Election. The Directors shall be elected by the shareholders
at their annual meeting each year; and if, for any cause, the Directors shall
not have been elected at an annual meeting, they may be elected at a special
meeting of shareholders called for that purpose in the manner provided by these
Bylaws.
Section 5. Vacancies. In case of any vacancy in the Board of Directors,
including a vacancy resulting from an increase in the number of directors, the
vacancy may be filled by the Board of Directors (even if they do not constitute
a quorum) or by the shareholders. A Director elected to fill a vacancy shall be
elected for the unexpired term of such Director's predecessor in office. A
vacancy on the Board of Directors created by reason of an increase in the number
of Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
Section 6. Resignation. A Director may resign at any time by delivering
written notice to the Board of Directors, the Chairman or the Secretary of the
corporation. A resignation shall be effective when the notice is delivered
unless the notice specifies a later effective date.
Section 7. Removal of Directors. At a special meeting of shareholders
called expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of a
majority of shares then entitled to vote at an election of Directors.
Section 8. Meetings.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual shareholders' meeting at the same place as the
annual shareholders' meeting or at such other place and at such other time as
may be determined by the Directors. No notice of the annual meeting of the Board
of Directors shall be necessary.
(b) Regular meetings of the Board of Directors shall be held
at such place and on such day and hour as shall from time to time be fixed by
the Chairman or by the Board of Directors. No other notice of regular meetings
of the Board of Directors shall be necessary.
(c) Special meetings of the Board of Directors may be called
at any time and place upon the call of the Chairman, the Secretary, or any two
(2) or more Directors. Notice of the time and place of each special meeting
shall be given orally or in writing by the Secretary, or the persons calling the
meeting, at least two (2) days in advance of the time of the meeting. The
purpose of the meeting need not be given in the notice. Notice of any special
meeting may be waived in writing or by telegram (either before or after such
meeting) and will be waived by any Director by attendance thereat, unless the
Director attends for the express purpose of objecting to the meeting as
unlawfully called or convened.
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(d) At any meeting of the Board of Directors, any business may
be transacted, and the Board of Directors may exercise all of its powers.
Section 9. Chairman of the Board of Directors. In the absence of a
Chairman under Article V, Section 3(a) of the Bylaws, the Board of Directors
may, in its discretion, elect a Chairman of the Board of Directors; and, if a
Chairman of the Board of Directors has been elected, the Chairman of the Board
of Directors shall, when present, preside at all meetings of the Board of
Directors and shall have such other powers as the Board may prescribe.
Section 10. Quorum and Voting.
(a) A majority the Directors fixed by Section 2 of this
Article III shall constitute a quorum. If less than a quorum is present, a
majority of the Directors present may adjourn any meeting from time to time
until a quorum is obtained, and no further notice thereof need be given.
(b) If a quorum is present when a vote is taken, the
affirmative vote of a majority of the Directors present at the meeting is the
act of the Board of Directors.
Section 11. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and at each meeting of a committee of the Board of
Directors, and may be paid a fixed sum for attendance at such each meeting, a
stated salary as Director or both. No such payment shall preclude any Director
from serving the corporation in any other capacity and receiving compensation
therefor.
Section 12. Presumption of Assent. A Director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless:
(a) The Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding it or transacting business at
the meeting;
(b) The Director's dissent or abstention from the action taken
is entered in the minutes of the meeting; or
(d) The Director delivers written notice of the Director's
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation within a reasonable time after adjournment of
the meeting.
The right of dissent or abstention is not available to a Director who votes in
favor of the action taken.
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ARTICLE IV
Special Measures Applying to Both
Shareholder and Director Meetings
Section 1. Actions by Written Consent. Any corporate action required or
permitted by the Articles of Incorporation, Bylaws, or the laws under which the
corporation is formed, to be voted upon or approved at a duly called meeting of
the Directors, committee of Directors, or shareholders may be accomplished
without a meeting if one or more unanimous written consents of the respective
Directors or shareholders, setting forth the actions so taken, shall be signed,
either before or after the action taken, by all the Directors, committee members
or shareholders, as the case may be. Action taken by unanimous written consent
of the Directors or a committee of the Board of Directors is effective when the
last Director or committee member signs the consent, unless the consent
specifies a later effective date. Action taken by unanimous written consent of
the shareholders is effective when all consents have been delivered to the
corporation, unless the consent specifies a later effective date.
Section 2. Meetings by Conference Telephone. Members of the Board of
Directors, members of a committee of Directors, or shareholders may participate
in their respective meetings by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time; participation in a meeting by such
means shall constitute presence in person at such meeting.
Section 3. Written or Oral Notice. Oral notice may be communicated in
person, or by telephone, wire or wireless equipment, which does not transmit a
facsimile of the notice. Oral notice is effective when communicated. Written
notice may be transmitted by mail, private carrier, or personal delivery;
telegraph or teletype; or telephone, wire or wireless equipment which transmits
a facsimile of the notice. Written notice to a shareholder is effective when
mailed, if mailed with first class postage prepaid and correctly addressed to
the shareholder's address shown in the corporation's current record of
shareholders. In all other instances, written notice is effective on the
earliest of the following: (a) when dispatched to the person's address,
telephone number, or other number appearing on the records of the corporation by
telegraph, teletype or facsimile equipment; (b) when received; (c) five days
after deposit in the United States mail, as evidenced by the postmark, if mailed
with first class postage, prepaid and correctly addressed; or (d) on the date
shown on the return receipt, if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the addressee.
In addition, notice may be given in any manner not inconsistent with the
foregoing provisions and applicable law.
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ARTICLE V
Officers
Section 1. Officers Designated. The corporation shall have such offices
and officers as designated from time to time by the Board of Directors. Such
officers of the corporation may include a Chairman, President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary, and a Treasurer, each of whom shall be appointed by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be appointed by the Board of Directors. Any two or more offices may be held
by the same person.
Section 2. Election, Qualification and Term of Office. Each of the
officers shall be appointed by the Board of Directors. The officers shall be
appointed by the Board of Directors at each annual meeting of the Board of
Directors. Except as hereinafter provided, each of said officers shall hold
office from the date of his appointment until the next annual meeting of the
Board of Directors and until a successor shall have been duly appointed and
qualified.
Section 3. Powers and Duties.
(a) Chairman. The Chairman of the corporation shall have
general supervision and control over the business and affairs of the corporation
subject to the authority of the Board of Directors. The Chairman may sign, with
any other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
bylaws to some other officer or agent of the corporation or shall be required by
law to be otherwise signed or executed; and in general shall perform all duties
incident to such office and such other duties as may be prescribed by the Board
of Directors from time to time.
(b) The President. In the absence of the Chairman or in the
event of the Chairman's death, inability or refusal to act, the President shall
perform the duties of the Chairman and when so acting, shall have all of and be
subject to all the restrictions upon the Chairman. The President may sign, with
any other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation; and shall perform such
other duties as from time to time may be assigned by the Chairman or by the
Board of Directors.
(c) The Vice President. In the absence of the Chairman and the
President or in the event of the death, inability or refusal to act of both of
them, the Executive Vice President, if one is designated, and otherwise the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation, then in the order of their election shall perform
the duties of the President and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President. The Vice President shall
perform such other duties as from time to time may be assigned to such Vice
President by the President or by the Board of Directors.
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(d) Secretary. The Secretary shall: (1) keep the minutes of
the shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose and authenticate the records of the corporation; (2)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (3) be custodian of the corporate records and of
the seal of the corporation (if any) and affix the seal of the corporation to
all documents as may be required; (4) keep a register of the post office address
of each shareholder which shall be furnished to the Secretary by such
shareholder; (5) sign with the Chairman, the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (6) have general charge
of the stock transfer books of the corporation; and (7) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to the Secretary by the Chairman or by the Board of
Directors.
(e) The Treasurer. The Treasurer shall: (1) have charge and
custody of and be responsible for all funds and securities of the corporation;
(2) receive and give receipts for moneys due and payable to the corporation from
any source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article VI of these bylaws; and
(3) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to the Treasurer by the
Chairman or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of the Treasurer's
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
(f) Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries, when authorized by the Board of Directors, may sign with
the Chairman, the President or a Vice President certificates for shares of the
corporation or contracts, deeds or mortgages the issuance or execution of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sum and with such
surety or sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the Chairman or the Board of Directors.
Section 4. Removal. The Board of Directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights (if any) of the person so removed. Appointment of an
officer or agent shall not of itself create any contract rights.
Section 5. Vacancies. The Board of Directors shall fill any office
which becomes vacant with a successor who shall hold office for the unexpired
term and until a successor shall have been duly appointed and qualified.
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Section 6. Compensation. The salaries and other compensation of all
officers of the corporation shall be fixed by the Board of Directors, or in such
other manner as the Board of Directors may determine.
ARTICLE VI
Committees
Section 1. Appointment. The Board of Directors by resolution adopted by
a majority of all Directors then in office, may designate two or more of its
members to constitute one or more committees of Directors. The creation,
delegation of authority to, or action by a committee does not alone constitute
compliance by a Director with the standards of conduct required under applicable
law.
Section 2. Authority. Each committee of the Board of Directors shall
have and may exercise all of the authority of the Board of Directors except to
the extent, if any, that such authority shall be limited by the resolution
appointing the committee and except also that the committee shall not have the
authority to: (1) authorize or approve distributions, except according to a
general formula or method prescribed by the Board of Directors; (2) approve or
recommend to shareholders actions or proposals required by applicable law to be
approved by shareholders; (3) fill vacancies on the Board of Directors or any
committee thereof; (4) amend all or any portion of the Articles of
Incorporation; (5) adopt, amend or repeal these Bylaws; (6) approve a plan of
merger not requiring shareholder approval; or (7) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares,
unless explicitly authorized to do so by the Board of Directors, within limits
specifically prescribed by the Board of Directors.
Section 3. Tenure and Qualifications. Each member of a committee shall
hold office until the next regular annual meeting of the Board of Directors
following the member's designation,
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and until the member's successor is designated as a member of the committee and
is elected and qualified.
Section 4. Meetings. Regular meetings of any committee may be held
without notice at such times and places as the committee may fix from time to
time by resolution. Special meetings of the any committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral. Any member of a
committee may waive notice of any meeting. The attendance at or participation in
any committee meeting by a member of the committee waives any required notice to
the committee meeting unless the member of the committee, at the beginning of
the meeting or promptly upon the members' arrival, objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to any action taken at the meeting. The notice of a meeting of a
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
the affirmative vote of a majority of the members present at a meeting at which
a quorum is present shall constitute the act of the committee.
Section 6. Vacancies. Any vacancy in a committee may be filled by a
resolution adopted by a majority of all Directors then in office.
Section 7. Resignations and Removal. Any member of a committee may be
removed at any time with or without cause by the Board of Directors. Any member
of a committee may resign from the committee at any time by giving written
notice to the Board of Directors, the Chairman or the Secretary of the
corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 8. Procedure. Each committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws.
ARTICLE VII
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
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Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VIII
Certificates for Shares and Their Transfer
Section 1. Issuance, Form and Execution of Certificates. No shares of
the corporation shall be issued unless authorized by the Board of Directors.
Such authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, the value of any noncash
consideration, and a statement that the Board of Directors has determined that
such consideration is adequate. Certificates for shares of the corporation shall
be in such form as is consistent with the provisions of the applicable law and
shall state: (1) The name of the corporation and that the corporation is
organized under the laws of this state; (2) The name of the person to whom
issued; and (3) The number and class of shares and the designation of the
series, if any, which such certificate represents. They shall be signed by two
officers of the corporation, and the seal of the corporation may be affixed
thereto. The signatures of such officers upon a Certificate for shares of the
corporation may be facsimiles if the Certificate is manually signed on behalf of
a transfer agent, or registered by a registrar, other than the corporation
itself or one of its employees. Certificates may be issued for fractional
shares.
Section 2. Transfers. Transfer of shares of the corporation shall be
made only on the corporation's records of shareholders, by the recordholder of
the certificate, or the holder's legal representative or attorney in fact who
shall furnish proper evidence of authority to transfer, and on surrender for
cancellation of the Certificate for such shares. The person who is recorded in
the shareholder records of the corporation as the owner of shares shall be
deemed by the corporation to be the owner of such shares for all purposes.
Section 3. Loss or Destruction of Certificates. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be issued without
requiring any bond, when in the judgment of the Board of Directors it is proper
to do so.
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ARTICLE IX
Books and Records
Section 1. Books of Accounts, Minutes and Share Register. The
corporation shall keep as permanent records minutes of all meetings of its
shareholders and Board of Directors, a record of all actions taken by the
shareholders or Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors exercising the authority
of the Board of Directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records. The corporation or its agent shall
maintain a record of its shareholders, in a form that permits preparation of a
list of the names and addresses of all shareholders, in alphabetical order by
class of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal office:
the Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings, and records of
all actions taken by shareholders without a meeting, for the past three years;
its financial statements for the past three years, including balance sheets
showing in reasonable detail the financial condition of the corporation as of
the close of each fiscal year, and an income statement showing the results of
its operations during each fiscal year prepared on the basis of generally
accepted accounting principles or, if not, prepared on a basis explained
therein; all written communications to shareholders generally within the past
three years; a list of the names and business addresses of its current directors
and officers; and its most recent annual report delivered to the Secretary of
State of Washington.
Section 2. Copies of Resolutions. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when certified
by the Chairman, President or Secretary.
ARTICLE X
Fiscal Year
The fiscal year of the corporation shall begin on July 1 and end on
June 30 of each year.
ARTICLE XI
Dividends
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
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ARTICLE XII
Indemnification of Directors, Officers and Others
Section 1. Right to Indemnification. Each person (including a person's
personal representative) who was or is made a party or is threatened to be made
a party to or is otherwise involved (including, without limitation, as a
witness) in any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or by or in the right of
the corporation, or otherwise (hereinafter a "proceeding"), by reason of the
fact that he or she (or a person of whom he or she is a personal representative)
is or was a director, officer, trustee, employee or agent of the corporation or
any predecessor or is or was serving at the request of the corporation or any
predecessor as a director, officer, partner, trustee, employee, agent or in any
other relationship or capacity whatsoever, of any other foreign or domestic
corporation, partnership, joint venture, employee benefit plan or trust or other
trust, enterprise or other private or governmental entity, board, commission,
body or other unit whatsoever (hereinafter an "indemnitee"), whether the basis
of such proceeding is alleged action or inaction in an official capacity as a
director, officer, partner, trustee, employee, agent, or in any other
relationship or capacity whatsoever, or otherwise, shall be indemnified and held
harmless by the corporation to the fullest extent not prohibited by the
Washington Business Corporation Act, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment does not prohibit the corporation from providing broader
indemnification rights than prior to the amendment), against all expenses,
liabilities, and losses (including but not limited to attorneys' fees,
judgments, claims, fines, ERISA and other excise and other taxes and penalties,
and other adverse effects and amounts paid in settlement), reasonably incurred
or suffered by the indemnitee; provided, however, that no such indemnity shall
indemnify any person from or on account of acts or omissions of such person
finally adjudged to be intentional misconduct or a knowing violation of law, or
from or on account of conduct of a director finally adjudged to be in violation
of RCW 23B.08.310, or from or on account of any transaction with respect to
which it was finally adjudged that such person personally received a benefit in
money, property, or services to which the person was not legally entitled; and
further provided, however, that, except as provided in Section 2 of this Article
with respect to suits relating to rights to indemnification, the corporation
shall indemnify any indemnitee in connection with a proceeding (or part thereof)
initiated by the indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation.
The right to indemnification granted in this Article is a contract
right and includes the right to be paid by the corporation the expenses incurred
in connection with any proceeding in advance of its final disposition
(hereinafter an "advance of expenses"); provided, however, that an advance of
expenses received by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee unless required by the Board of Directors) shall be made only
upon (i) receipt by the corporation of a written undertaking (hereinafter an
"undertaking") by or on behalf of such indemnitee, to repay advances of expenses
if and to the extent it shall ultimately be determined by order of a court
having jurisdiction (which determination shall become final upon expiration of
all rights to appeal), hereinafter a "final adjudication", that the indemnitee
is not entitled to be indemnified for such expenses under this
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Article, and (ii) receipt by the corporation of written affirmation by the
indemnitee of his or her good faith belief that he or she has met the standard
of conduct necessary for indemnification by the corporation under this Article
as authorized by the Washington Business Corporation Act.
Section 2. Right of Indemnitee to Bring Suit. If any claim for
indemnification under Section 1 of this Article is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, except in the case of a claim for an advance of expenses, in which
case the applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. If the indemnitee is successful in whole or in part in any such suit,
or in any suit in which the corporation seeks to recover an advance of expenses,
the corporation shall also pay to the indemnitee all the indemnitee's expenses
in connection with such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Article upon the corporation's receipt of
indemnitee's written claim (and in any suits relating to rights to
indemnification where the required undertaking and affirmation have been
received by the corporation), and thereafter the corporation shall have the
burden of proof to overcome that presumption. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
shareholders) to have made a determination prior to the commencement of such
suit that the indemnitee is entitled to indemnification, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or shareholders) that the indemnitee is not entitled to
indemnification, shall be a defense to the suit or create a presumption that the
indemnitee is not so entitled. It shall be a defense to a claim for an amount of
indemnification under this Article (other than a claim for advances of expenses
prior to final disposition of a proceeding where the required undertaking and
affirmation have been received by the corporation) that the claimant has not met
the standards of conduct applicable (if any) under the Washington Business
Corporation Act to entitle the claimant to the amount claimed, but the
corporation shall have the burden of proving such defense. If requested by the
indemnitee, determination of the right to indemnity and amount of indemnity
shall be made by final adjudication (as defined above) and such final
adjudication shall supersede any determination made in accordance with RCW
23B.08.550.
Section 3. Non-Exclusivity of Rights. The rights to indemnification
(including, but not limited to, payment, reimbursement and advances of expenses)
granted in this Article shall not be exclusive of any other powers or
obligations of the corporation or of any other rights which any person may have
or hereafter acquire under any statute, the common law, the corporation's
articles of incorporation or bylaws, agreement, vote of shareholders or
disinterested directors, or otherwise. Notwithstanding any amendment to or
repeal of this Article, any indemnitee shall be entitled to indemnification in
accordance with the provisions hereof with respect to any acts or omissions of
such indemnitee occurring prior to such amendment or repeal.
Section 4. Insurance, Contracts and Funding. The corporation may
maintain insurance, at its expense, to protect itself and any person (including
a person's personal representative) who is or was a director, officer, employee
or agent of the corporation or any predecessor or who is or was a director,
officer, partner, trustee, employee, agent, or in any other relationship or
capacity whatsoever, of any other foreign or domestic corporation, partnership,
joint venture,
16
<PAGE> 17
employee benefit plan or trust or other trust, enterprise or other private or
governmental entity, agency, board, commission, body or other unit whatsoever,
against any expense, liability or loss, whether or not the power to indemnify
such person against such expense, liability or loss is now or hereafter granted
to the corporation under the Washington Business Corporation Act. The
corporation may grant indemnity, and may enter into contracts granting
indemnity, to any such person, whether or not in furtherance of the provisions
of this Article, and may create trust funds, grant security interests and use
other means (including, without limitation, letters of credit) to secure and
ensure the payment of indemnification amounts.
Section 5. Separability of Provisions. If any provision or provisions
of this Article shall be held to be invalid, illegal or unenforceable for any
reason whatsoever (i) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, all portions of any
paragraphs of this Article containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of this Article (including, without
limitation, all portions of any paragraph of this Article containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 6. Partial Indemnification. If a claimant is entitled to
indemnification by the corporation for some or a portion of expenses,
liabilities or losses, but not for the total amount thereof, the corporation
shall nevertheless indemnify the claimant for the portion of such expenses,
liabilities and losses to which the claimant is entitled.
Section 7. Successors and Assigns. All obligations of the corporation
to indemnify any director or officer: (i) shall be binding upon all successors
and assigns of the corporation (including any transferee of all or substantially
all of its assets and any successor by merger or otherwise by operation of law),
(ii) shall be binding on and inure to the benefit of the spouse, heirs, personal
representatives and estate of the director or officer, and (iii) shall continue
as to any indemnitee who has ceased to be a director, officer, partner, trustee,
employee or agent (or other relationship or capacity). The corporation shall not
effect any sale of substantially all of its assets, merger, consolidation or
other reorganization unless the surviving entity agrees in writing to assume all
such obligations of the corporation.
ARTICLE XIII
Corporate Seal
The Board of Directors may provide for a corporate seal which shall
have inscribed thereon the name of the corporation, the year and state of
incorporation and the words "corporate seal."
17
<PAGE> 18
ARTICLE XIV
Amendment of Bylaws
These Bylaws may be amended, altered, or repealed and new bylaws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
18
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