<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number: 0-15895
September 30, 1999
- ------------------
DIGITAL MICROWAVE CORPORATION
-----------------------------
(Exact name of registrant specified in its charter)
DELAWARE 77-0016028
- ---------------------------------------- ---------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
170 Rose Orchard Way
SAN JOSE, CA 95134
- ---------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-0777
----------------
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
-------- --------
The number of outstanding shares of the Registrant's common stock, par value
$.01 per share, was 64,543,343 on November 9, 1999.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURE 23
</TABLE>
Page 2 of 23
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 17,212 $ 21,518
Short-term investments 13,795 5,745
Accounts receivable, net 69,137 60,253
Inventories 45,097 50,610
Deferred tax asset 2,848 3,009
Other current assets 8,682 12,827
------------------ --------------
TOTAL CURRENT ASSETS 156,771 153,962
PROPERTY AND EQUIPMENT, NET 41,306 43,025
OTHER ASSETS 4,472 5,177
------------------ --------------
TOTAL ASSETS $ 202,549 $ 202,164
------------------ --------------
------------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,058 $ 725
Current maturities of capital lease obligations 477 862
Accounts payable 30,987 25,116
Income taxes payable 1,251 1,399
Accrued liabilities 30,262 40,613
------------------ --------------
TOTAL CURRENT LIABILITIES 64,035 68,715
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 1,571 1,896
Capital lease obligations, net of current maturities 309 340
------------------ --------------
TOTAL LIABILITIES 65,915 70,951
------------------ --------------
STOCKHOLDERS' EQUITY:
Common stock and paid-in capital 256,427 251,135
Accumulated deficit (114,001) (115,424)
Accumulated other comprehensive loss (5,792) (4,498)
------------------ --------------
TOTAL STOCKHOLDERS' EQUITY 136,634 131,213
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,549 $ 202,164
------------------ --------------
------------------ --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 3 of 23
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1999 1998 1999 1998
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 68,527 $ 55,285 $ 134,480 $ 118,496
Cost of sales 47,911 45,476 95,747 94,978
-------------- --------------- --------------- ----------------
GROSS PROFIT 20,616 9,809 38,733 23,518
-------------- --------------- --------------- ----------------
OPERATING EXPENSES
Research and development 6,336 6,303 12,104 12,886
Selling, general and administrative 12,233 14,998 23,746 31,270
Merger and restructuring charges - - - 7,213
-------------- --------------- --------------- ----------------
TOTAL OPERATING EXPENSES 18,569 21,301 35,850 51,369
-------------- --------------- --------------- ----------------
OPERATING INCOME (LOSS) 2,047 (11,492) 2,883 (27,851)
OTHER INCOME (EXPENSE):
Interest expense (220) (5) (465) (36)
Other income (expense), net (248) 453 (639) 1,389
-------------- --------------- --------------- ----------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 1,579 (11,044) 1,779 (26,498)
Provision for income taxes 316 69 356 97
-------------- --------------- --------------- ----------------
NET INCOME (LOSS) $ 1,263 $ (11,113) $ 1,423 $ (26,595)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
BASIC EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.18) $ 0.02 $ (0.43)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.18) $ 0.02 $ (0.43)
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
63,924 61,492 63,424 61,421
Impact of diluted stock options and warrants
4,650 - 4,891 -
-------------- --------------- --------------- ----------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
68,574 61,492 68,315 61,421
-------------- --------------- --------------- ----------------
-------------- --------------- --------------- ----------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 4 of 23
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
---------------------------------------
1999 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,423 $ (26,595)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Adjustment to conform year-end of pooled company - 1,804
Depreciation and amortization 8,889 8,997
Provision for uncollectable accounts 433 3,847
Provision for inventory reserves 1,128 3,932
Provision for warranty reserves 3,585 3,967
Changes in assets and liabilities
Decrease (increase) in accounts receivable (9,798) 24,109
Decrease (increase) in inventories 4,020 (14,536)
Decrease in other assets 4,841 3,171
Increase (decrease) in accounts payable 6,029 (11,237)
Decrease in income tax payable (148) (562)
Decrease in other accrued liabilities (13,878) (12,595)
------------- ------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 6,524 (15,698)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (9,895) (8,658)
Proceeds from available-for-sale securities 1,845 36,397
Proceeds from the sale of fixed assets and other assets - 1,767
Purchase of property and equipment (7,043) (17,681)
------------- ------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (15,093) 11,825
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (415) (895)
Proceeds from sales of Common Stock 5,239 1,007
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,824 112
------------- ------------
Effect of exchange rate changes in cash (561) (264)
------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,306) (4,025)
Cash and cash equivalents at beginning of period 21,518 27,585
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,212 $ 23,560
------------- ------------
------------- ------------
SUPPLEMENTAL DATA
Interest paid $ 412 $ 285
Income taxes paid $ 137 $ 428
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 5 of 23
<PAGE>
DIGITAL MICROWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Digital Microwave Corporation and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated. Prior-year
reported results have been restated to reflect the October 1998 merger
with Innova Corporation ("Innova").
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting
only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the results of operations for the
interim periods covered and of the financial condition of the Company at
the date of the interim balance sheet. The results for interim periods
are not necessarily indicative of the results for the entire year. The
condensed consolidated financial statements should be read in connection
with the Digital Microwave Corporation financial statements included in
the Company's annual report and Form 10-K for the fiscal year ended March
31, 1999.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market where cost includes material, labor and manufacturing overhead.
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------------- --------------------
(Unaudited)
<S> <C> <C>
Raw materials $ 22,563 $ 25,616
Work in process 11,474 9,537
Finished goods 11,060 15,457
------------------------- --------------------
$ 45,097 $ 50,610
------------------------- --------------------
------------------------- --------------------
</TABLE>
OTHER ASSETS
Included in other assets are goodwill and other intangibles which are
being amortized on a straight line basis over their useful lives
ranging from 5 to 10 years, as well as minority investments accounted
for using the cost method of accounting.
Page 6 of 23
<PAGE>
RESTRUCTURING COSTS
Merger and restructuring charges of $29.9 million were recorded in
Fiscal 1999, of which $7.2 million was recorded in the first quarter of
Fiscal 1999 and consisted of $5.8 million related to the discontinuance
of several internal information technology systems projects and $1.4
million for severance and related costs associated with a reduction in
the Company's workforce. Total Fiscal 1999 charges consisted of $2.7
million for investment banker, legal, and accounting fees related to
the Innova merger consummated in October 1998, $4.2 million for
severance costs, $4.1 million for facility termination costs, a
write-off of $5.8 million related to the discontinuance of several
projects related to the implementation of software purchased for
internal use, and a write-off of goodwill and certain assets related to
the Company's subsidiary, Granger, Inc., totaling $13.1 million. The
assets of Granger, Inc. were sold in March 1999. Approximately $12.2
million of the $29.9 million in merger and restructuring charges will
be a cash outflow, of which $9.8 million has been paid as of September
30, 1999. The remaining amounts are expected to be paid before the end
of Fiscal 2001, and consist of $0.5 million for severance costs, $1.5
million for facility termination costs, and $0.4 million for purchased
commitments of software.
CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries located in the
United Kingdom and Latin America is the U.S. dollar. Accordingly, all
of the monetary assets and liabilities of these subsidiaries are
remeasured into U.S. dollars at the current exchange rate as of the
applicable balance sheet date, and all non-monetary assets and
liabilities are remeasured at historical rates. Sales and expenses are
remeasured at the average exchange rate prevailing during the period.
Gains and losses resulting from the remeasurement of the subsidiaries'
financial statements are included in the Consolidated Statements of
Operations. The Company's other international subsidiaries use their
local currency as their functional currency. Assets and liabilities of
these subsidiaries are translated at the exchange rates in effect at
the balance sheet date, and income and expense accounts are translated
at the average exchange rates during the year. The resulting
translation adjustments are recorded directly to a separate component
of stockholders' equity.
FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts to hedge
some of its firm committed backlog and certain assets and liabilities
denominated in foreign currencies. At September 30, 1999, the Company
had forward foreign exchange contracts to exchange various foreign
currencies for U.S. dollars in the gross amount of $35.5 million.
Market value gains and losses on forward foreign exchange contracts are
recognized as offsets to the exchange gains or losses on the hedged
transactions.
Page 7 of 23
<PAGE>
NET INCOME (LOSS) PER SHARE
The Financial Accounting Standards Board (the "FASB") issued Statement
on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share." Under SFAS 128, basic earnings per share are computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per share are computed
by dividing net income by the weighted average number of common shares
and potentially dilutive securities outstanding during the period. Net
loss per share is computed using only the weighted average number of
common shares outstanding during the period, as the inclusion of
potentially dilutive securities would be anti-dilutive.
MERGERS AND ACQUISITIONS
In October 1998, stockholders approved the issuance of Common Stock of
the Company pursuant to an agreement to merge with Innova Corporation
("Innova"), a Washington corporation, which designs, manufactures,
markets, and supports digital microwave radio links for the worldwide
telecommunications market. Under the terms of the agreement, the
Company exchanged 1.05 shares of its Common Stock for each outstanding
share of Innova stock, stock options, and warrants. The Company issued
approximately 14.7 million shares to Innova shareholders upon
consummation of the merger. The combination qualified as a tax-free
reorganization accounted for as a pooling-of-interests transaction.
Accordingly, the historical financial statements of the Company have
been restated to reflect the results of Innova for all periods
presented.
The following table shows the reconciliation of the historical results
of the Company to the results presented in the accompanying Statements
of Operations (in thousands) for:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue:
Digital Microwave $ 49,611 $102,614
Innova 5,674 15,882
------------------ ------------------
Total $ 55,285 $118,496
------------------ ------------------
------------------ ------------------
Net loss:
Digital Microwave $ (7,085) $(21,047)
Innova (4,028) (5,548)
------------------ ------------------
Total $(11,113) $(26,595)
------------------ ------------------
------------------ ------------------
</TABLE>
LITIGATION AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in
the normal course of its business. In the opinion of management, these
proceedings will not have a material adverse effect on the financial
position and results of operations of the Company.
Page 8 of 23
<PAGE>
CONCENTRATION OF CREDIT RISK
Trade receivables concentrated with certain customers primarily in the
telecommunications industry and in certain geographic locations
potentially subject the Company to concentration of credit risk. In
addition to sales in Western Europe and North America, the Company
actively markets and sells products in Asia, Eastern Europe, South
America, the Middle East and Africa. The Company performs on-going
credit evaluations of its customers' financial conditions and generally
requires no collateral, although sales to Asia, Eastern Europe, South
America, the Middle East and Africa are primarily paid through letters
of credit. During Fiscal 1999, the Company wrote off two customer
accounts which totaled $4.3 million. No significant customer accounts
have been written off in Fiscal 2000.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement on Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set
of general-purpose financial statements. The following table reconciles
comprehensive income under the provisions of SFAS 130 (in thousands)
for:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ------------------------
1999 1998 1999 1998
------- --------- --------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $1,263 $(11,113) $ 1,423 $(26,595)
Other comprehensive
income (loss) net of tax:
Unrealized currency loss (765) (1,117) (1,022) (3,293)
Unrealized holding gain (loss)
on short-term investments (263) 28 (272) 28
------- --------- --------- -----------
Comprehensive income (loss) $ 235 $(12,202) $ 129 $ (29,860)
------- --------- --------- -----------
------- --------- --------- -----------
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,"
which is effective for fiscal years beginning after December 15, 1998.
This SOP requires capitalization of certain costs incurred in the
development of internal-use software, including external direct
material and service costs, employee payroll and payroll-related costs,
and interest. The Company has adopted SOP 98-1 for the fiscal year
ending March 31, 2000. The adoption did not have a material effect on
the Company's financial statements.
In June 1998, the FASB issued Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which establishes standards for the reporting and display
of comprehensive income and its components in general purpose financial
statements. SFAS 133 is effective for companies with fiscal
Page 9 of 23
<PAGE>
years beginning after June 15, 2000. SFAS 133 requires the Company
to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings, or recognized in other comprehensive
income until the hedged item is recognized in earnings. The Company
believes that the adoption of this new pronouncement will not have a
material effect on the Company's financial statements.
OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized into two operating segments: Products and
Services. The Chief Executive Officer has been identified as the Chief
Operating Decision-Maker as defined by SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." Resources are
allocated to each of these groups using information on their revenues
and operating profits before interest and taxes.
The products operating segment includes the SPECTRUM II, XP4, DXR,
Altium and other digital microwave systems for digital transmission
markets and designs, develops, and manufactures these products in
Seattle, Washington; San Jose, California; and, Wellington, New
Zealand. The Services operating segment includes, but is not limited
to, installation, repair, network design, path surveys, integration,
and other services.
The following table sets forth revenues and operating profit (loss) by
operating segments (in thousands) for:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Products:
Revenues $ 65,524 $ 48,609 $ 128,164 $ 105,803
Operating income (loss) 2,684 (11,555) 3,480 (27,070)
Services:
Revenues 3,003 6,676 6,316 12,693
Operating income (loss) (637) 63 (597) (781)
Total:
Revenues $ 68,527 $ 55,285 $ 134,480 $ 118,496
Operating income (loss) 2,047 (11,492) 2,883 (27,851)
</TABLE>
Page 10 of 23
<PAGE>
The following table sets forth revenues from unaffiliated customers by
product (in thousands) for:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SPECTRUM II $ 30,783 $ 25,563 $ 60,302 $ 56,352
XP4 12,074 5,673 25,148 15,881
DXR 7,408 9,430 18,416 14,935
Altium 11,019 440 16,261 960
Other Products 4,240 7,503 8,037 17,675
----------- ----------- ------------ ------------
Total Products 65,524 48,609 128,164 105,803
Total Services 3,003 6,676 6,316 12,693
----------- ----------- ------------ ------------
Total Revenue $ 68,527 $ 55,285 $ 134,480 $ 118,496
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The following table sets forth revenues from unaffiliated customers by
geographic region (in thousands) for:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $ 14,566 $ 7,459 $ 26,420 $ 17,000
Mexico 7,176 4,119 10,470 5,613
Other Americas 6,063 12,979 10,336 23,083
Europe 16,201 20,506 34,940 47,251
Africa 4,069 3,848 11,332 5,403
China 10,248 2,374 21,683 4,947
Other Asia/Pacific 10,204 4,000 19,299 15,199
----------- ---------- ----------- -----------
Total Revenue $ 68,527 $ 55,285 $ 134,480 $ 118,496
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
Long-lived assets by country and consisting of net property and
equipment was as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
United States $ 27,717 $ 28,043
United Kingdom 9,828 11,621
Other foreign countries 3,761 3,361
------------------ --------------
Total property and equipment, net $ 41,306 $ 43,025
------------------ --------------
------------------ --------------
</TABLE>
Page 11 of 23
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's Condensed Consolidated Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ------------------
1999 1998 1999 1998
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.9 82.3 71.2 80.2
-------- ---------- ------- --------
Gross profit 30.1 17.7 28.8 19.8
Research & development 9.2 11.4 9.0 10.9
Selling, general & administrative 17.9 27.1 17.7 26.3
Restructuring costs - - - 6.1
-------- ---------- ------- --------
Operating income (loss) 3.0 (20.8) 2.1 (23.5)
Other income (expense), net (0.7) 0.8 (0.8) 1.1
-------- ---------- ------- --------
Income (loss) before provision
for income taxes 2.3 (20.0) 1.3 (22.4)
Provision for income taxes 0.5 0.1 0.2 -
-------- ---------- ------- --------
Net income (loss) 1.8% (20.1)% 1.1% (22.4)%
-------- ---------- ------- --------
-------- ---------- ------- --------
</TABLE>
NET SALES
Net sales for the second quarter of Fiscal 2000 were $68.5 million, compared to
$55.3 million reported in the same quarter of Fiscal 1999. The increase in net
sales was primarily due to increased sales of the Spectrum II, XP4 and the
recently introduced Altium-TM- product lines. Sales in the Asia/Pacific region
increased to $20.5 million in the second quarter of Fiscal 2000 compared to $6.4
million in the same quarter of Fiscal 1999. Sales to China, included in the
Asia/Pacific region, were $10.2 million in the second quarter of Fiscal 2000 and
$2.4 million in the comparable quarter of the prior year. Sales increased in the
Americas to $27.8 million in the second quarter of Fiscal 2000 compared to $24.6
million in the second quarter of Fiscal 1999. Sales to U.S. customers, included
in the Americas region, were $14.6 million in the second quarter of Fiscal 2000
compared to $7.5 million in the second quarter of Fiscal 1999. However, the
Company experienced sales declines in Europe, as sales there were $16.2 million
in the second quarter of Fiscal 2000 compared to $20.5 million in the second
quarter of Fiscal 1999.
Net sales for the first half of Fiscal 2000 were $134.5 million, compared to
$118.5 million reported in the first half of Fiscal 1999. The increase in net
sales was primarily due to increased sales of the Spectrum II, XP4, DXR and the
recently introduced Altium-TM- product lines. Sales in the Asia/Pacific region
increased over 100% to $41.0 million in the first half of Fiscal 2000 compared
to $20.1 million in the same period of Fiscal 1999. Sales to China, included in
the
Page 12 of 23
<PAGE>
Asia/Pacific region, were $21.7 million in the first half of Fiscal 2000 and
$4.9 million in the first half of the prior year. The Company also saw a
substantial increase in sales in Africa to $11.3 million in the first half of
Fiscal 2000 compared to $5.4 million in the first half of Fiscal 1999. Sales
increased in the Americas to $47.2 million in the first half of Fiscal 2000
compared to $45.7 million in the first half of Fiscal 1999. Sales to U.S.
customers, included in the Americas region, were $26.4 million in the first half
of Fiscal 2000 compared to $17.0 million in the first half of Fiscal 1999.
However, the Company experienced sales declines in Europe as sales there were
$34.9 million in the first half of Fiscal 2000 compared to $47.3 million in the
first half of Fiscal 1999 as a few large customer contracts were completed last
year.
During the second quarter of Fiscal 2000, the Company received $71.2 million in
new orders shippable over the next twelve months, compared to $57.7 million in
the second quarter of Fiscal 1999, an increase of 23%. During the first half of
Fiscal 2000, the Company received $139.0 million in new orders shippable over
the next twelve months, compared to $112.0 million in the first half of Fiscal
1999, an increase of 24%. The backlog at September 30, 1999 was $68.4 million,
compared to $63.9 million at March 31, 1999.
The Company includes in its backlog purchase orders with respect to which a
delivery schedule has been specified for product shipment within one year.
Orders in the Company's current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without significant
penalty. Accordingly, although useful for scheduling production, backlog as of
any particular date may not be a reliable measure of sales for any future
period.
GROSS PROFIT
Gross profit as a percentage of net sales for the second quarter of Fiscal 2000
was 30.1% compared to 17.7% in the same quarter of Fiscal 1999. The increase in
gross profit was primarily the result of improved manufacturing capacity
utilization and cost reductions resulting from reductions in facilities and
personnel in the second half of Fiscal 1999. See page 7, "Notes to Condensed
Consolidated Financial Statements - Restructuring Costs."
Gross profit as a percentage of net sales for the first half of Fiscal 2000 was
28.8% compared to 19.8% in the first half of Fiscal 1999. The increase in gross
profit was primarily the result of improved manufacturing capacity utilization
and cost reductions resulting from reductions in facilities and personnel in the
second half of Fiscal 1999. See page 7, "Notes to Condensed Consolidated
Financial Statements - Restructuring Costs."
RESEARCH AND DEVELOPMENT
In both the second quarter of Fiscal 2000 and in the same period in Fiscal 1999,
research and development expenses were $6.3 million. As a percentage of net
sales, research and development expenses decreased to 9.2% in the second quarter
of Fiscal 2000 compared to 11.4% in the second quarter of Fiscal 1999 due to an
increase in net sales.
Page 13 of 23
<PAGE>
In the first half of Fiscal 2000, research and development expenses decreased by
$0.8 million to $12.1 million from $12.9 million in the same period in Fiscal
1999. As a percentage of net sales, research and development expenses were 9.0%
in the first half of Fiscal 2000 compared to 10.9% in the first half of Fiscal
1999. This decrease was due primarily to workforce reductions in the first and
third quarters of Fiscal 1999. See page 7, "Notes to Condensed Consolidated
Financial Statements - Restructuring Costs."
Research and development expenses in the first half of Fiscal 2000 were
primarily for further development of the Altium product line. The Company
intends to continue its new product rollouts in order to maintain and enhance
its competitive position.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the second quarter of Fiscal 2000, selling, general and administrative
expenses decreased to $12.2 million from $15.0 million in the second quarter of
Fiscal 1999. As a percentage of net sales, selling, general and administrative
expenses were 17.9% in the second quarter of Fiscal 2000 compared to 27.1% in
the comparable quarter of Fiscal 1999.
In the first half of Fiscal 2000, selling, general and administrative expenses
decreased to $23.7 million from $31.3 million in the first half of Fiscal 1999.
As a percentage of net sales, selling, general and administrative expenses were
17.7% in the first half of Fiscal 2000 compared to 26.3% in the comparable
period of Fiscal 1999.
The decrease in selling, general and administrative expenses in absolute dollars
was attributable to workforce reductions and other cost initiatives taken in the
first and third quarters of Fiscal 1999. See page 7, " Notes to Condensed
Consolidated Financial Statements - Restructuring Costs."
MERGER AND RESTRUCTURING EXPENSES
The restructuring costs of $7.2 million in the first half of Fiscal 1999
consisted of a write off of $5.8 million related to the discontinuance of
several internal information technology ("IT") systems projects and $1.4 million
for severance and related costs associated with a reduction in the Company's
workforce. See page 7, " Notes to Condensed Consolidated Financial Statements -
Restructuring Costs."
OTHER INCOME (EXPENSE)
The increase in interest expense in the second quarter of Fiscal 2000 of $0.2
million was primarily attributable to higher debt balances as compared to the
same quarter of the prior year. Other income (expense), net changed to $0.2
million expense in the second quarter of Fiscal 2000 from $0.5 million income in
the second quarter of Fiscal 1999 primarily due to the cost of foreign exchange
contracts as well as foreign exchange gains and losses.
The increase in interest expense in the first half of Fiscal 2000 of $0.5
million was primarily attributable to higher debt balances as compared to the
same period of the prior year. Other income (expense), net changed to $0.6
million expense in the first half of Fiscal 2000 from $1.4 million income in the
first half of Fiscal 1999 primarily due to the cost of foreign exchange
contracts as well as foreign exchange gains and losses.
Page 14 of 23
<PAGE>
PROVISION FOR INCOME TAXES
In the first half of Fiscal 2000, the Company recorded a provision for income
taxes at less than the statutory rate primarily due to the anticipated
utilization of net operating loss carry forwards in Fiscal 2000. The Company did
not record a tax benefit in the first half of Fiscal 1999, as it could not be
certain of profitability in Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the first half of Fiscal 2000 was
$6.5 million, compared to net cash used for operating activities of $15.7
million in the first half of Fiscal 1999. The improvement in cash provided by
operations was primarily the result of a substantial net loss for the first half
of Fiscal 1999 compared to net income for the first half of Fiscal 2000. In
addition, inventories decreased $4.0 million in the first half of Fiscal 2000
compared to an increase of $14.5 million in the same period of Fiscal 1999 as a
result of a decrease in purchases and improved sales volume.
Accounts receivable increased $9.8 million in the first half of Fiscal 2000 due
to an increase in sales volume and the timing of shipments as 60% of the
Company's Fiscal 2000 second quarter shipments occurred in the last month of the
period compared to 42% last month shipments in Fiscal 1999 second quarter.
Purchases of property and equipment decreased to $7.0 million in the first half
of Fiscal 2000 from $17.7 million in the first half of Fiscal 1999. The Fiscal
1999 activity was mostly attributable to test equipment purchases by the
Company's Seattle manufacturing location and payments on the Company's new
service and repair facility in the United Kingdom which occurred in the first
half of Fiscal 1999. Additionally, the Company received $5.2 million from the
exercise of employee stock options and warrants in the first half of Fiscal 2000
compared to $1.0 million in the first half of Fiscal 1999.
At September 30, 1999, the Company's principal sources of liquidity consisted of
$31.0 million in cash and cash equivalents and short-term investments and a
$40.0 million asset-based borrowing facility with a U.S. lender. As of September
30, 1999, the Company had borrowed $2.6 million under the agreement and had
available $20.0 million for future borrowings. This credit facility does not
require the maintenance of financial covenants. The credit facility is scheduled
to expire on November 30, 1999. The Company has received an extension to
December 31, 1999 in order to review the terms and conditions of the renewal.
On October 1, 1999 the Securities and Exchange Commission declared the Company's
Registration Statement on Form S-3 effective. Under the Registration Statement,
the Company may sell up to $100 million in debt securities, common stock, debt
warrants and common stock warrants. However, there can be no assurance that the
Company will be able to sell these securities on commercially reasonable terms
or at all.
The Company believes that it has the financial resources needed to meet its
business requirements for the foreseeable future.
Page 15 of 23
<PAGE>
YEAR 2000 READINESS
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex, as virtually
every company's computer operation will be affected in some way. Many of the
Company's computer programs, which process its operational and financial
transactions, were designed and developed without considering the impact of the
upcoming change in century. If not corrected, the Company's computer programs
and products could fail or create erroneous results by or at the year 2000.
The Company has taken steps to ensure that its products and computer programs
will continue to operate on and after January 1, 2000. The Company formed a
project team consisting of staff from Manufacturing, Customer Service, Finance,
Human Resources, Sales, Marketing, Legal, Engineering, and Information
Technology (IT) departments, led by a project manager. A five-phase solution
process has been established consisting of (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation. The Company has completed
this five-phase process with respect to most of its Year 2000 issues. The
Company's Year 2000 project team identified its manufacturing IT system as its
highest priority and has implemented Year 2000 upgrades to its manufacturing
systems. The Company's network operating systems also are Year 2000-ready. The
Company's personal computers have been evaluated and upgrades were installed to
correct noncompliance. Some older personal computers were replaced or taken out
of service.
The Company has completed an assessment of all of its products. Most of its
hardware products are not affected by the Year 2000 issue because no internal
clock exists in these products. Year 2000 readiness testing has been completed
for newer products, including the Altium product line and network software
products. Some older network software products are not Year 2000-ready and the
Company has developed an upgrade plan for customers who are using this software.
There can be no assurance that customers will properly upgrade their software
and we cannot predict the resulting impact on customers' networks if they are
not upgraded.
The Company mailed letters to its primary suppliers and subcontractors to
determine whether they are developing plans to address processing transactions
in the Year 2000 and to monitor their progress toward Year 2000 capability. All
critical vendors contacted have responded, and the Year 2000 team has visited
the critical vendors to ensure that processes are actually in place as
represented.
The Company has spent approximately $0.8 million investigating and remedying
issues related to Year 2000 readiness involving internal operations, including
purchases of software test tools, software upgrades, and upgrading a security
system related to Year 2000 readiness. In addition, the Company estimates that
$0.4 million of internal personnel costs have been incurred to date supporting
the Company's Year 2000 readiness plan.
The Company has developed a contingency plan to operate in the event that any
critical systems are noncompliant on January 1, 2000. This contingency plan
includes, but is not limited to: 1)
Page 16 of 23
<PAGE>
transitioning to alternate suppliers, 2) responding to customers faced with
Year 2000 issues, 3) operating in a manual mode, i.e., without computer
systems, 3) using generators to maintain communications, and 4) identifying
alternative data processing service providers.
Based on the steps being taken to address this issue and the progress to date,
the Company's management believes that the Year 2000 readiness expenses will not
have a material adverse effect on the Company's earnings. However, there can be
no assurance that Year 2000 problems will not occur with respect to the
Company's computer or other systems. Furthermore, the Year 2000 problem may
impact other entities with which the Company transacts business, and the Company
cannot predict the effect of the Year 2000 problem on such entities or the
resulting effect on the Company. As a result, if preventative and/or corrective
actions by the Company or those the Company does business with are not made in a
timely manner, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition, and results of operations.
EUROPEAN MONETARY UNION
In January 1999, a new currency called the "euro" was introduced in certain
Economic and Monetary Union ("EMU") countries. During 2002, all EMU countries
are expected to be operating with the euro as their single currency. Uncertainty
exists as to the effect the euro currency will have on the marketplace.
Additionally, all of the rules and regulations have not yet been defined and
finalized by the European Commission with regard to the euro currency. However,
the Company has assessed the effect the euro formation will have on its internal
systems and the sale of its products. The Company's European sales and operating
transactions are based primarily in U.S. dollars or U.K. pounds sterling,
neither of which are subject to the euro conversion. While the Company does have
some sales denominated in the European Currency Unit, this currency is
successfully being converted in the market to the new European Monetary Unit at
parity. In addition, the Company upgraded its internal computer systems to
convert the European currency to the euro. The cost of upgrading the Company's
systems in connection with the euro conversion was not material and no material
adverse effect on the Company's business, financial condition, and results of
operations is expected due to the upgrade.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
It is the Company's policy not to enter into derivative financial instruments
except for hedging of foreign currency exposures. The Company hedges certain
portions of its exposure to foreign currency fluctuations through the use of
forward foreign exchange contracts. The Company enters into forward foreign
exchange contracts for purposes other than trading; however, the Company does
not engage in any foreign currency speculation. Forward foreign exchange
contracts represent agreements to buy or sell a specified amount of foreign
currency at a specified price in the future. These contracts generally have
maturities that do not exceed one month. At September 30, 1999, the Company had
forward foreign exchange contracts to exchange various foreign currencies for
U.S. dollars in the aggregate amount of $35.5 million, primarily in New Zealand
dollars, British pounds, and European Monetary Units. Gains and losses
associated with currency rate changes on forward foreign exchange contracts are
recorded currently in income as they offset corresponding gains and losses on
the foreign currency-denominated assets and liabilities being hedged. Therefore,
the carrying value of forward foreign
Page 17 of 23
<PAGE>
exchange contracts approximates their fair value. The Company believes that
the credit risk with respect to its forward foreign exchange contracts is
minimal because the Company enters into contracts with major financial
institutions. Market risk with respect to forward foreign exchange contracts
is offset by the corresponding exposure related to the underlying assets and
liabilities.
FOREIGN CURRENCY RATE RISK
Although nearly all of the Company's sales and expenses are denominated in U.S.
dollars, the Company has experienced some foreign exchange gains and losses to
date, and expects to incur additional gains and losses in Fiscal 2000. The
Company did engage in foreign currency hedging activities during the quarter
ended September 30, 1999, as explained above, and intends to continue doing so
as needed.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The statements in this Form 10-Q concerning the Company's future products,
expenses, revenues, gross margins, liquidity and cash needs, as well as the
Company's plans and strategies, contain forward-looking statements concerning
the Company's future operations and financial results within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations and the Company
assumes no obligation to update this information. Numerous factors, such as
economic and competitive conditions, timing and volume of incoming orders,
shipment volumes, product margins, and foreign exchange rates, could cause
actual results to differ materially from those described in these statements,
and prospective investors and stockholders should carefully consider the
factors set forth in the Company's Registration Statement on Form S-3,
effective October 1, 1999, and those set forth below in evaluating these
forward-looking statements.
Sales of the Company's products are concentrated in a small number of customers.
For the first half of Fiscal 2000 ended September 30, 1999, the top three
customers accounted for 28% of the net sales. As of September 30, 1999, three of
the Company's customers accounted for 27% of the backlog. The worldwide
telecommunications industry is dominated by a small number of large
corporations, and the Company expects that a significant portion of its future
product sales will continue to be concentrated in a limited number of customers.
The loss of any existing customer, a significant reduction in the level of sales
to any existing customer, or the failure of the Company to gain additional
customers could harm the Company's business, financial condition and results of
operations. In addition, a substantial portion of shipments may occur near the
end of each quarter. Accordingly, the Company's results are difficult to predict
and delays in product delivery or closing of a sale can cause revenues and net
income to fluctuate significantly from anticipated levels and from quarter to
quarter.
Wireless infrastructure suppliers are experiencing, and will likely continue to
experience, intense price pressure which has resulted, and is expected to
continue to result, in downward pricing pressure on the Company's products. As a
result, the Company has experienced, and expects to continue to experience,
declining average sales prices for its products. The Company's ability to
maintain its gross profit margins is dependent upon its ability to continue to
introduce new products and product enhancements. Any inability of the Company to
respond to increased price competition would harm the Company's business,
financial condition and results of operations.
Page 18 of 23
<PAGE>
The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company considers its
primary competitors to be L. M. Ericsson, Alcatel, Siemens AG, P-COM, Inc. and
the Microwave Communications Division of Harris Corporation. In addition, other
existing competitors presently include SIAE, Sagem, Lucent, NEC, Nokia, ATI, a
subsidiary of World Access and Northern Telecom. Many of these companies have
more extensive engineering, manufacturing, and marketing capabilities and
significantly greater financial, technical, and personnel resources than the
Company. The Company believes that its ability to compete successfully will
depend on a number of factors, both within and outside its control, including
price, quality, availability, customer service and support, breadth of product
line, product performance and features, rapid time-to-market delivery
capabilities, reliability, timing of new product introductions by the Company,
its customers and its competitors, and the ability of its customers to obtain
financing.
The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future. As a result, the
Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in foreign currency
exchange rates, imposition of tariffs and other barriers and restrictions, the
burdens of complying with a variety of foreign laws, and general economic and
geopolitical conditions, including inflation and trade relationships. In
addition, recent worldwide economic events, particularly in Latin America and
Asia, including depreciation of currencies, failures of financial institutions,
stock market declines, and reduction in planned capital investment at key
enterprises, may cause the Company's international revenues to decrease. There
can be no assurance that currency fluctuations, changes in the rate of inflation
or any of the factors mentioned above will not harm the Company's business,
financial condition and results of operations.
The Company's manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, the Company
depends in part upon subcontractors to assemble major components and subsystems
used in its products in a timely and satisfactory manner. While the Company
enters into long-term or volume purchase agreements with a few of its suppliers,
no assurance can be given that materials, components, and subsystems will be
available in the quantities required by the Company, if at all. The inability of
the Company to develop alternative sources of supply quickly and on a
cost-effective basis could materially impair the Company's ability to
manufacture and deliver its products in a timely manner which could harm the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will not experience material supply problems or
component or subsystem delays in the future.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary businesses and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of management's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into its operations, or expand into
new markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected. The Company's failure to manage
its growth effectively could harm the Company's business, financial condition
and results of operations.
Page 19 of 23
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description of the Company's market risks, see page 17, "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quantitative and Qualitative Disclosures About Market Risk."
Page 20 of 23
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held an Annual Meeting of Stockholders on August 10, 1999.
(b) At the Annual Meeting of Stockholders, the following directors were elected:
<TABLE>
<CAPTION>
Votes
--------------------------
For Withheld
---------- --------
<S> <C> <C>
Charles D. Kissner 53,730,588 231,551
Richard C. Alberding 53,720,000 242,139
Paul S. Bachow 53,735,350 226,789
John W. Combs 53,738,594 223,545
James D. Meindl 53,720,994 241,145
V. Frank Mendicino 53,734,777 227,362
Howard Oringer 53,737,894 224,245
</TABLE>
(c) At the Annual Meeting of Stockholders, the following additional matters were
voted upon;
1. A proposal to ratify and approve the company's 1999 stock
incentive plan.
<TABLE>
<S> <C>
Affirmative votes: 47,017,819
Negative votes: 6,776,770
Abstain: 167,550
Non-votes: 0
</TABLE>
2. A proposal to ratify the selection of Arthur Andersen LLP as
independent public accountants for the fiscal year ending
March 31, 2000.
<TABLE>
<S> <C>
Affirmative votes: 53,754,560
Negative votes: 105,662
Abstain: 101,917
Non-votes: 0
</TABLE>
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
For a list of exhibits to this Form 10-Q, see the exhibit index located
on page 20.
(b) Reports on Form 8-K
None
Page 21 of 23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -----------------------------------------------------
<S> <C>
3.1 Amended and Restated Bylaws, dated as of August 10, 1999.
27.1 Financial Data Schedule for the quarter ended September 30, 1999.
27.2 Restated Financial Data Schedule for the quarter ended September 30, 1998.
</TABLE>
Page 22 of 23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
Date: November 12, 1999 By /s/ Carl A. Thomsen
----------------- --------------------------------
Carl A. Thomsen
Senior Vice President,
Chief Financial Officer and Secretary
Page 23 of 23
<PAGE>
AMENDED AND RESTATED
BYLAWS OF
DIGITAL MICROWAVE CORPORATION
(Amended and Restated as of August 10, 1999)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of directors shall be held in the City of San Jose, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other 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 the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on
the third Thursday in July, if not a legal holiday and, if a legal holiday, then
on the next succeeding business day following, at the same hour and place, or at
such other date and time as shall be designated from time to time by the Board
of Directors and stated in the
<PAGE>
notice of the meeting, at which they shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder 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 (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also 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 5. Special meetings of stockholders shall be called by
the president or secretary at the request in writing of a majority of the Board
of Directors or upon written application of one or more stockholders who hold at
least forty percent (40%) of the capital stock entitled to vote at such meeting.
Such request of the Board of Directors or written application of the
stockholders shall state the purpose or purposes of the proposed special
meeting. The place, date and time of any special meeting shall be determined by
the Board of Directors. Such determination shall include the record date for
determining the stockholders having the right to notice of and to vote at such
meeting.
2
<PAGE>
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
Section 7. Only such business shall be conducted at a special
meeting as shall have been stated in the written notice of the meeting as the
purpose or purposes for the meeting.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. In all matters other than the election of
directors, the affirmative vote of a majority of shares present in person or
represented by proxy at any meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the question is one upon which by
express provision of any statute or of the
3
<PAGE>
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, and subject to the provisions of Article II, Section 12 of these
Bylaws, any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 12. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting pursuant to Article II, Section 11 of these Bylaws, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board of
4
<PAGE>
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within such ten (10)
day period, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the state
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of stockholders'
meetings are recorded, to the attention of the secretary of the corporation.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
Section 13. At any annual meeting of the stockholders, only
such business shall be conducted as shall be properly before the meeting. To be
properly before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be
5
<PAGE>
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal place of business of the corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy (70) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made.(1) A stockholder's written notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address as they appear on the
corporation's books of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by such
stockholder, and (d) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting unless properly brought before such meeting in
accordance with the procedures set forth in this Section 13. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 13 and if it shall be so determined, the chairman of
the meeting shall so declare this to the
- --------
(1) It shall be necessary for the corporation to determine the date of each
annual meeting at least 70 days in advance thereof and make a public
disclosure of such date and of the provisions of Article II, Section 13 of
these Bylaws.
6
<PAGE>
meeting and such business not properly brought before the meeting shall not be
transacted.
Section 14. Only persons who are nominated in accordance with
the procedures set forth in this Section 14 shall be eligible for election as
directors of the corporation by the stockholders. Nominations of persons for
election to the Board of Directors may be made at a meeting of stockholders by
or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 14. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the secretary.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal place of business of the corporation not less than
sixty (60) nor more than ninety (90) days prior to the meeting; provided,
however, that in the event that less than seventy (70) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not less than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the corporation which are beneficially owned by such person and (iv) any other
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 and Exchange Act of
1934, as
7
<PAGE>
amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books of such stockholder, (ii) the
class and number of shares of the corporation which are beneficially owned by
such stockholder, and (iii) any material relationship of the stockholder to the
person the stockholder proposes to nominate. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the secretary that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 14. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the provisions of
this Section 14 and if it shall be so determined, the chairman shall so declare
this to the meeting and the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the
whole board shall be seven (7). The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his or her successor is
elected and qualified. Directors need not be stockholders, but shall not be
older than 70 years of age on the date of their election or appointment to be
eligible to serve as a director.
8
<PAGE>
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having a right to vote as a single class may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
unless sooner removed. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected
9
<PAGE>
directors in order legally to constitute the meeting, provided a quorum shall be
present. In the event of the failure of the stockholders to fix the time or
place of such first meeting of the newly elected Board of Directors, or in the
event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 7. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the president, any
vice-president, the secretary or any two (2) directors on four (4) days' notice
to each director by mail or two (2) days' notice to each director either
personally or by telegram.
Section 8. At all meetings of the Board of Directors,
one-third (1/3) of the authorized number of directors, or two (2), whichever is
greater, shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the certificate of incorporation or by
Article III, Section 9 of these Bylaws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum shall be present.
10
<PAGE>
Section 9. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or committee thereof,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee
thereof.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, members of the Board of Directors or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee thereof, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, 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.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of
11
<PAGE>
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it, but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation, and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 13. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 14. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any director or the entire Board of Directors may
be removed, with or
12
<PAGE>
without cause, by the holders of a majority of shares entitled to vote at an
election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of statutes or of
the certificate of incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a president, one or
more vice-presidents, a secretary and a chief financial officer. The Board of
Directors may elect from among its members a Vice Chairman of the Board and may
also choose one or more assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these Bylaws otherwise provide.
13
<PAGE>
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose the officers of the
corporation.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are duly elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the corporation shall be filled by the Board of Directors.
Section 6. The Chairman of the Board shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present and shall have and may exercise such powers as are, from time to time,
assigned by the Board of Directors and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the
Vice Chairman, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present. The Vice Chairman shall
have and may exercise such powers as are, from time to time, assigned by the
Board of Directors and as may be provided by law.
Section 8. The president shall be the general manager and
chief executive officer of the corporation, and in the absence of the Chairman
and Vice Chairman of the
14
<PAGE>
Board of Directors, shall preside at all meetings of the stockholders and the
Board of Directors. The president shall have general and active management of
the business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of
his inability or refusal to act, the vice president, if any, (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, 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 presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 11. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The secretary shall give or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors or president, under whose supervision he shall be. The
secretary shall have custody of the corporate seal of the corporation, and the
15
<PAGE>
secretary or an assistant secretary shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there 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 or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 13. The chief financial officer may also be designated
by the alternate title of "treasurer." The chief financial officer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors.
Section 14. The chief financial officer shall disburse the
funds of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the president and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 15. If required by the Board of Directors, the chief
financial officer shall give the corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for
16
<PAGE>
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. 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 chief financial officer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the chief financial officer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
STOCK
Section 1. 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 or Vice Chairman of the Board of Directors, or the president or a
vice president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by the shareholder in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set
17
<PAGE>
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 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 powers,
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 2. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. 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, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When 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 advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may
18
<PAGE>
be made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. 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, assignation 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 books.
Section 5. 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 (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) 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 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares 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.
19
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. 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 directors from time to time, in their 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 directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
20
<PAGE>
Section 6. The corporation shall indemnify to the full extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director of the
corporation or any predecessor of the corporation, or served any other
enterprise as a director or officer at the request of the corporation or any
predecessor of the corporation.
Section 7. Expenses incurred by a director of the corporation
in defending a civil or criminal action, suit or proceeding by reason of the
fact that he is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another enterprise or
corporation) shall 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 such director to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized by relevant sections of the General Corporation Law of Delaware.
Section 8. Article VII, Sections 6 and 7 shall be deemed to be
a contract between the corporation and each director who serves in such capacity
at any time while this Bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
Section 9. The Board of Directors in its discretion shall have
power on behalf of the corporation to indemnify any person, other than a
director, made a party to
21
<PAGE>
any action, suit or proceeding by reason of the fact that he, his testator or
intestate is or was an officer or employee of the corporation.
Section 10. The foregoing rights of indemnification shall not
be deemed exclusive of any other rights to which any director or officer may be
entitled apart from the provisions of Article VII, Sections 6, 7, 8, 9 and this
Section 10.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed or
new Bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
Section 2. Notwithstanding any other provision in these
Bylaws, Sections 5, 12, 13, and 14 of Article II of these Bylaws and this
Section 2 shall not be amended, modified or repealed, directly or indirectly
except by (i) the affirmative vote of two-thirds (2/3) or more of the Continuing
Directors ("Continuing Director" shall mean any person then serving as a
director of this corporation (i) who was a member of the Board of Directors of
this corporation on October 24, 1991, or (ii) who becomes a director after
October 24, 1991 and whose election, or nomination for election by this
corporation's stockholders, was approved by a majority of the directors who at
that time
22
<PAGE>
are Continuing Directors, either by a specific vote or by approval of the proxy
statement issued by this corporation on behalf of the Board of Directors in
which such person is named as nominee for director) and the approval of the
stockholders otherwise required by applicable law or these Bylaws for such
amendment; or (ii) the affirmative vote of the holders of a majority of the
capital stock entitled to vote.
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q
OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,212
<SECURITIES> 13,795
<RECEIVABLES> 72,621
<ALLOWANCES> 3,484
<INVENTORY> 45,097
<CURRENT-ASSETS> 156,771
<PP&E> 103,982
<DEPRECIATION> 62,676
<TOTAL-ASSETS> 202,549
<CURRENT-LIABILITIES> 64,035
<BONDS> 1,571
0
0
<COMMON> 643
<OTHER-SE> 135,991
<TOTAL-LIABILITY-AND-EQUITY> 202,549
<SALES> 134,480
<TOTAL-REVENUES> 134,480
<CGS> 95,747
<TOTAL-COSTS> 95,747
<OTHER-EXPENSES> 35,850
<LOSS-PROVISION> 433
<INTEREST-EXPENSE> 465
<INCOME-PRETAX> 1,779
<INCOME-TAX> 356
<INCOME-CONTINUING> 1,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,423
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q
OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,560
<SECURITIES> 6,592
<RECEIVABLES> 61,796
<ALLOWANCES> 5,399
<INVENTORY> 81,703
<CURRENT-ASSETS> 13,894
<PP&E> 102,019
<DEPRECIATION> 50,598
<TOTAL-ASSETS> 249,421
<CURRENT-LIABILITIES> 45,374
<BONDS> 0
0
0
<COMMON> 617
<OTHER-SE> 199,218
<TOTAL-LIABILITY-AND-EQUITY> 249,421
<SALES> 118,496
<TOTAL-REVENUES> 118,496
<CGS> 94,978
<TOTAL-COSTS> 94,978
<OTHER-EXPENSES> 51,369
<LOSS-PROVISION> 3,847
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> (26,498)
<INCOME-TAX> 97
<INCOME-CONTINUING> (26,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,595)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
