<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File Number 0-19806
CYBERONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 76-0236465
- ------------------------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
16511 Space Center Boulevard, Ste. 600
Houston, Texas 77058
- ------------------------------------------------------ -------------------------
(address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (281) 228-7200
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 4, 2000
Common Stock - $0.01 par value 18,577,510
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CYBERONICS, INC.
INDEX
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<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
March 31, 2000 (unaudited) and June 30, 1999............................. 3
Consolidated Statements of Operations (unaudited)
three months and nine months ended March 31, 2000 and 1999............... 4
Consolidated Statements of Cash Flows (unaudited)
nine months ended March 31, 2000 and 1999................................ 5
Notes to Consolidated Financial Statements (unaudited)....................... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 8
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds............................................ 18
Item 6 Exhibits and Reports on Form 8-K..................................................... 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1...FINANCIAL STATEMENTS
CYBERONICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 3,714,622 $ 1,544,042
Securities held to maturity........................................... 17,672,541 19,222,590
Accounts receivable, net.............................................. 8,963,154 5,450,003
Inventories........................................................... 7,003,457 5,195,114
Other current assets.................................................. 967,307 898,038
---------------- ---------------
Total current assets............................................. 38,321,081 32,309,787
Securities held to maturity............................................... 1,201,206 4,091,491
Property and equipment, net............................................... 5,535,151 3,272,960
Other assets, net......................................................... 176,845 108,915
---------------- ---------------
$ 45,234,283 $ 39,783,153
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................... $ 2,319,303 $ 1,704,095
Accrued liabilities................................................... 3,389,231 4,630,613
---------------- ---------------
Total current liabilities........................................ 5,708,534 6,334,708
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized; no
shares issued or outstanding..................................... -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
18,566,078 and 17,562,000 shares issued and outstanding at
March 31, 2000 and June 30, 1999, respectively................... 185,661 175,620
Additional paid-in capital............................................ 116,299,820 109,280,567
Accumulated other comprehensive income................................ (93,571) (128,476)
Accumulated deficit................................................... (76,866,161) (75,879,266)
---------------- ---------------
Total stockholders' equity....................................... 39,525,749 33,448,445
---------------- ---------------
$ 45,234,283 $ 39,783,153
================ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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CYBERONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................................... $ 14,034,508 $ 8,054,457 $ 33,815,183 $ 19,993,135
Cost of sales........................................... 3,272,654 2,120,648 8,199,527 5,168,937
------------ ------------- ------------- -------------
Gross profit............................................ 10,761,854 5,933,809 25,615,656 14,824,198
Operating expenses:
Selling, general and administrative.................. 9,329,651 7,541,097 23,347,721 22,450,311
Research & development............................... 1,757,409 1,854,231 5,042,776 5,594,518
------------ ------------- ------------- -------------
Total operating expenses........................... 11,087,060 9,395,328 28,390,497 28,044,829
------------ ------------- ------------- -------------
Loss from operations.................................... (325,206) (3,461,519) (2,774,841) (13,220,631)
Interest income, net.................................... 358,971 157,384 969,237 1,206,137
Other income (expense).................................. (20,136) 80,692 (62,441) 237,755
------------ ------------- ------------- -------------
Net earnings (loss) before cumulative effect of
a change in accounting principle........................ $ 13,629 $ (3,223,443) $ (1,868,045) $ (11,776,739)
Cumulative effect on prior years (to June 30, 1999)
of changing to a different method of depreciation....... -- -- 881,150 --
------------ ------------- -------------- --------------
Net earnings (loss).................................... $ 13,629 $ (3,223,443) $ (986,895) $ (11,776,739)
============ ============= ============== ==============
Earnings (loss) per share, basic and diluted:
Earnings (loss) before accounting change............... $ -- $ (0.18) $ (0.11) $ (0.68)
Cumulative effect of accounting change................. -- -- 0.05 --
------------ ------------- -------------- --------------
Net earnings (loss) ................................... $ -- $ (0.18) $ (0.06) $ (0.68)
============ ============= ============== ==============
Average shares outstanding:
Basic.................................................. 18,222,951 17,425,185 17,859,043 17,367,951
Diluted................................................ 20,606,771 17,425,185 17,859,043 17,367,951
Comprehensive earnings (loss):
Net earnings (loss).................................... $ 13,629 $ (3,223,443) $ (986,895) $ (11,776,739)
Foreign currency translation adjustment................ (2,853) 88,371 34,905 217,162
------------ ------------- -------------- --------------
Comprehensive earnings (loss).......................... $ 10,776 $ (3,135,072) $ (951,990) $ (11,559,577)
============ ============= ============== ==============
Pro Forma amounts assuming retroactive application of
accounting change:
Net earnings (loss).................................... $ 13,629 $ (3,084,327) $ (1,868,045) $ (11,422,367)
Net earnings (loss) per share - basic and diluted...... $ -- $ (0.18) $ (0.11) $ (0.66)
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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CYBERONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
FOR THE NINE MONTHS ENDED
MARCH 31
-----------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................................. $ (986,895) $ (11,776,739)
Non-cash items included in net loss:
Depreciation............................................................ 987,950 1,027,119
Change in accounting principle.......................................... (881,150) --
Change in operating assets and liabilities:
Accounts receivable..................................................... (3,513,151) 1,056,058
Inventories............................................................. (1,808,343) (2,216,321)
Other current assets.................................................... (69,269) 245,306
Accounts payable and accrued liabilities................................ (626,174) (3,337,274)
Other .................................................................. (67,930) 86,502
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (6,964,962) (14,915,349)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................................... (2,368,991) (1,503,420)
Purchases of investments.................................................. (41,030,731) (35,571,781)
Maturities of investments................................................. 45,471,065 49,644,409
------------ -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,071,343 12,569,208
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock.................................... 7,029,294 954,681
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,029,294 954,681
Effect of exchange rate changes on cash and cash equivalents................. 34,905 (217,162)
------------- -------------
Net increase(decrease) in cash and cash equivalents................... 2,170,580 (1,608,622)
Cash and cash equivalents, at beginning of period............................ 1,544,042 1,695,385
------------- -------------
Cash and cash equivalents, at end of period.................................. $ 3,714,622 $ 86,763
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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CYBERONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the full year
ending June 30, 2000. The financial information presented herein should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended June 30,
1999.
NOTE 2 - INVESTMENT SECURITIES:
At March 31, 2000 and June 30, 1999, our entire investment portfolio
consisted of securities held to maturity that are reported at amortized cost.
Securities held to maturity are primarily corporate bonds, commercial paper and
United States (US) treasury obligations with various maturity dates and have a
fair market value of approximately $18,705,000 and a gross unrealized holding
loss of approximately $169,000 at March 31, 2000.
NOTE 3 - INVENTORIES:
Inventories consist of the following:
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<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Raw materials and components......................... $ 2,241,763 $ 2,837,599
Work-in-process ..................................... 1,544,796 794,410
Finished goods ...................................... 3,216,898 1,563,105
-------------- ---------------
$ 7,003,457 $ 5,195,114
============== ===============
</TABLE>
NOTE 4 - OTHER CURRENT ASSETS:
Other current assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Prepaid assets....................................... $ 959,536 $ 835,467
Interest receivable ................................. 7,771 62,571
-------------- -------------
$ 967,307 $ 898,038
============== =============
</TABLE>
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NOTE 5 - ACCRUED LIABILITIES:
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 JUNE 30, 1999
------------------ ---------------
(Unaudited)
<S> <C> <C>
Payroll and other compensation....................... $ 1,223,485 $ 2,086,849
Clinical costs....................................... 952,107 1,161,291
Royalties............................................ 538,506 398,800
Warranties........................................... 375,000 375,000
Professional services................................ 120,082 129,600
Business insurance................................... 48,956 --
Sales returns and allowances......................... 36,348 205,400
Marketing activities................................. - 50,250
Other................................................ 94,747 223,423
------------------ -------------
$ 3,389,231 $ 4,630,613
================== =============
</TABLE>
NOTE 6 - CHANGE IN ACCOUNTING PRINCIPLE:
Effective July 1, 1999, we changed our method of computing depreciation
on domestic fixed assets from the double declining method to the straight-line
method. This change was implemented to better match revenues and expenses taking
into account the nature of these assets and our business. The new depreciation
method was applied retroactively to all domestic assets acquired in prior years.
The cumulative prior years' effect of the changes was $881,150 (net of income
tax of $0) and is included in income for the nine months ended March 31, 2000.
The effect of the change for the three months and nine months ended March 31,
2000 was to decrease the operating loss by $258,920 ($.01 per share) and
$372,506 ($.02 per share), respectively. The pro forma amounts, shown on the
income statement, reflect the effect of retroactive application on depreciation
that would have been made in the three months and the nine months ended March
31, 1999 had the new method been in effect.
NOTE 7 - RECLASSIFICATION:
Certain amounts in the balance sheet as of June 30, 1999 have been
reclassified to conform with those at March 31, 2000.
NOTE 8 - EARNINGS PER SHARE:
SFAS No.128, "Earnings Per Share" requires dual presentation of
earnings per share (EPS); basic EPS and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income or loss applicable to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock and would then share in net income of the company.
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The following table sets forth the computation of basic and diluted net earnings
(loss) per share of common stock before the cumulative effect of an accounting
change:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) before accounting change.......... $ 13,629 $(3,223,443) $ (1,868,045) $ (11,776,739)
Denominator:
Basic weighted average shares outstanding........... 18,222,951 17,425,185 17,859,043 17,367,951
Effect of dilutive stock options.................... 2,383,820 -- -- --
Diluted weighted average shares outstanding......... 20,606,771 17,425,185 17,859,043 17,367,951
Basic and diluted earnings (loss) per share......... $ 0.00 $ (0.18) $ (0.11) $ (0.68)
</TABLE>
Options outstanding at March 31, 2000 to purchase 156,496 shares have been
excluded from the calculation of diluted EPS as they are anti-dilutive.
NOTE 9 - NEW ACCOUNTING PRONOUCEMENT:
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
(SAB 101) which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 is effective by the
second fiscal quarter of fiscal years beginning after December 15, 1999 and
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation. Cyberonics'
management believes that its revenue recognition policy is in accordance with
SAB 101 and does not believe that adoption of this SAB will have a material
impact on Cyberonics' financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
our results, please refer to the financial statement line item discussions set
forth in Management's Discussion and Analysis of Financial Condition and Results
of Operations and to the section entitled "Factors That May Affect Future
Operating Results." Readers are also encouraged to refer to our Annual Report on
Form 10-K for the year ended June 30, 1999 for a further discussion of our
business and the risks and opportunities attendant thereto.
SUMMARY
We design, develop, manufacture and market the NeuroCybernetic
Prosthesis, or NCP(R) System, an implantable medical device for the treatment of
epilepsy and other debilitating
8
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neurological disorders. On July 16, 1997, we received approval from the United
States Food and Drug Administration, also referred to as the FDA, to market the
NCP System in the United States as an adjunctive therapy for reducing the
frequency of seizures in patients over twelve years of age with partial onset
seizures that are refractory or resistant to antiepileptic drugs. We have also
received regulatory approval to sell the NCP System in Canada, Europe and
certain countries in the Far East with the broader indication of refractory
epilepsy and without discrimination to patient age. From inception through July
1997, our primary focus was on obtaining FDA approval for the NCP System.
Although our revenues have grown substantially since the NCP System was launched
in the US in 1997, we have incurred substantial expenses, primarily for research
and development activities (including product and process development and
clinical trials and related regulatory activities), sales and marketing
activities and manufacturing start-up. For the period from inception through
March 31, 2000 we have incurred a cumulative net deficit of approximately $77
million.
We were granted regulatory approval in 1994 to market and sell the NCP
System in the member countries of the European Union and also have permission to
sell in certain other international markets. However, we have devoted limited
resources to marketing and sales activities internationally and international
sales of the NCP System have been limited to date.
We believe that significant market acceptance of the NCP System for the
treatment of epilepsy or other indications will require that the treatment be
eligible for reimbursement from government and private health care payors both
within and outside the United States. We have gained coverage recommendations
from Health Care Finance Administration or HCFA, Blue Cross and Blue Shield,
CHAMPUS/Tricare, Kaiser, a number of State Medicaid agencies and numerous other
payors. We are in the process of seeking additional coverage recommendations and
appropriate payment levels from these and other third party payors in the United
States and in a limited number of key international markets.
We expect to incur substantial costs related to sales and marketing
activities, clinical trials and regulatory activities, product and process
development and infrastructure development. We anticipate significant clinical
expenditures associated with clinical studies to evaluate the safety and
efficacy of VNS in the treatment of chronic depression and obesity. We expect
there will be a delay between the increased levels of spending and any resulting
increase in revenues. Although we are reporting profitable results for the
quarter ended March 31, 2000, we cannot assure you that our results of
operations will remain profitable in future periods. Furthermore, our results of
operations may fluctuate significantly from quarter to quarter and will depend
upon numerous factors, many of which are outside our control. Such factors
include, but are not limited to, the extent to which the NCP System gains market
acceptance, any approvals for reimbursement by third-party payors, the rate and
size of expenditures in sales and marketing and clinical trials and regulatory
activities, availability of key components, materials and contract services
which may be dependent on our ability to forecast sales, the ability to achieve
acceptable manufacturing yields and costs and the extent and timing of the
development of corporate infrastructure.
9
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RESULTS OF OPERATIONS
Net Sales. Net sales for the three months ended March 31, 2000 totaled
$14,035,000 compared to $8,054,000 for the three months ended March 31, 1999,
representing an overall increase of $5.9 million, or 74.2%. Net sales for the
nine months ended March 31, 2000 totaled $33,815,000 compared to $19,993,000 for
the nine months ended March 31, 1999 representing an overall increase of
$13,822,000, or 69.1%. Net sales for the three months ended March 31, 2000
consisted of $12.7 million from the United States and $1.3 million from
international markets. Net sales for the quarter ended March 31, 1999 consisted
of $7.2 million from the United States and $900,000 from international markets.
Future increases in net sales will depend upon development of increased market
acceptance for the NCP System and upon obtaining or expanding reimbursement
approval in key markets.
Gross Profit. Gross margin, as a percent of net sales, was 76.7% for
the quarter ended March 31, 2000 compared to 73.7% in the same prior year
period. The gross margin percentage for the nine months ended March 31, 2000 was
75.8% compared to 74.1% for the same period a year ago. The increase over the
prior year is attributable to the launch of the Model 101 NCP System, which
contributed to a net increase in average system prices of 16% and 9% for the
three months and nine months ended March 31, 2000, respectively, with a
corresponding increase in average system costs of only 3% and 2% for the three
and nine months ended March 31, 2000, respectively, as compared to the same
periods a year ago. Cost of sales consist primarily of direct labor, direct
materials and components, allocated manufacturing overhead, third-party
contractor costs and certain manufacturing period expenses. In addition, we are
required to pay royalties at a rate of approximately 4% of net sales. Gross
margin percentages can be expected to fluctuate in future periods based upon the
mix between domestic and international sales, direct and distributor sales, the
NCP System's Model 100 and Model 101 product mix and selling prices,
manufacturing yields, period expenses and levels of production volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $9.3 million, or 66.5% of net sales, for the
three months ended March 31, 2000 compared to $7.5 million, or 93.6% of net
sales, for the three months ended March 31, 1999. Selling, general and
administrative expenses totaled $23.3 million, or 69.0% of net sales, for the
nine months ended March 31, 2000 compared to $22.5 million, or 112.3% of net
sales, for the same period a year ago. The increase in absolute dollars for the
three months ended March 31, 2000, as compared to the same period last year, was
primarily related to additional costs associated with the hiring and employment
of additional personnel and expanded sales and marketing program events,
partially offset by reductions in costs for professional and consulting services
which were brought in-house or otherwise reduced during the current period. The
increase in absolute dollars for the nine months ended March 31, 2000 as
compared to the same period last year included additional costs related to the
hiring and employment of additional personnel partially offset by reductions to
professional and consulting expenses and reductions in national sales and
marketing expenses. The decrease of selling, general and administrative expenses
as a percentage of net sales is primarily the result of the increase in net
sales in the quarter ended March 31, 2000 as compared to the same prior year
period.
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We expect to add administrative and sales and marketing personnel in
anticipation of higher levels of business activity in the last three months of
fiscal year 2000. Accordingly, we expect our future selling, general and
administrative expenses in absolute amount to increase beyond the amounts
incurred during the three months ended March 31, 2000.
Research and Development Expenses. Research and development expenses
are comprised of both expenses related to our product and process development
efforts and expenses associated with conducting clinical trials and certain
related regulatory activities. Research and development expenses totaled $1.8
million, or 12.5% of net sales, for the three months ended March 31, 2000
compared to $1.9 million, or 23.0% of net sales, in the prior year period.
Research and development expenses were $5.0 million, or 14.9% of net sales, and
$5.6 million or 28.0% of net sales, for the nine months ended March 31, 2000 and
March 31, 1999, respectively. The decrease in absolute dollars for the three
months and the nine months ended March 31, 2000 was primarily due to reductions
in clinical study costs. The large decrease of such expenses as a percentage of
net sales is primarily the result of the increase in sales for the three months
and the nine months ended March 31, 2000 as compared to the same prior year
periods. We intend to conduct extensive clinical trials of the NCP System for
additional indications both within and outside the field of epilepsy including
chronic depression and morbid obesity. Accordingly, we expect research and
development expenses in dollars to increase significantly beyond the amounts
incurred during the three months ended March 31, 2000.
Interest Income. Interest income totaled $359,000 and $157,000 for the
three months ended March 31, 2000 and March 31, 1999, respectively, and $969,000
and $1,206,000 for the nine months ended March 31, 2000 and March 31, 1999
respectively. The increase for the three months ended March 31, 2000 over the
same period a year ago is the result of valuation and management fee adjustments
made in the prior period. The decrease in the nine months ended March 31, 2000
from the nine months ended March 31, 1999 is a result of declining cash and
investment balances on hand. We expect interest income to gradually decline in
future periods as we utilize our resources to fund future working capital
requirements.
Other Income (Expense), Net. Other income (expense) net totaled
($20,000) and $81,000 during the three months ended March 31, 2000 and 1999,
respectively. For the nine months ended March 31, 2000 and March 31, 1999, other
income (expense) net totaled ($62,000) and $238,000, respectively. For each of
these periods, other income consisted primarily of net gains and losses
resulting from foreign currency fluctuations. We expect other income to
fluctuate in future periods depending upon the mix between international and
domestic business activities, business exposures to foreign currencies and upon
fluctuations in currency exchange rates.
Income Taxes. Due to our net operating loss history, to date we have
established a valuation allowance to fully offset deferred tax assets, including
those related to tax carryforwards, resulting in no income tax expense or
benefit for financial reporting purposes. Current federal income tax regulations
with respect to changes in ownership could limit the utilization of the
operating loss carryforwards.
11
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
public and private placements of our securities. We had no short or long-term
borrowings outstanding at March 31, 2000, and had no credit facilities available
at that time.
We expect to incur substantial additional costs related to sales and
marketing activities, clinical trials and regulatory activities, product and
process development and infrastructure development. The amount and timing of
anticipated expenditures will depend upon numerous factors both within and
outside our control, including the nature and timing of marketing and sales
activities, the development of corporate infrastructure and the nature and
timing of additional clinical trials for additional indications, both within and
outside the field of epilepsy. Moreover, our ability to generate income from
operations will be dependent upon maintaining and broadening reimbursement
approval from government and third-party payors as well as receiving market
acceptance for the NCP System.
During the nine months ended March 31, 2000, net cash used in operating
activities was approximately $7.0 million. Accounts receivable increased to $9.0
million at March 31, 2000, from $5.5 million at June 30, 1999. Inventories
increased to $7.0 million at March 31, 2000 from $5.2 million at June 30, 1999.
We also reduced current liabilities to $5.7 million at December 31, 1999 from
$6.3 million at June 30, 1999.
Our liquidity will continue to be reduced as amounts are expended for
sales and marketing activities, continuing clinical trials and related
regulatory affairs, product and process development and infrastructure
development. Although we have no firm commitments, we expect to make capital
expenditures of approximately $1.1 million during the remainder of fiscal 2000,
primarily to support manufacturing operations and to enhance general
infrastructure and facilities.
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We believe that our current resources will be sufficient to fund our
operations through June 30, 2001, although there can be no assurance of this as
this estimate is based on a number of assumptions, which may not hold true. The
availability of financing either before or after that time will depend upon a
number of important factors, including the strength of the United States capital
markets and economy in general and the health care and medical device segments
in particular, the status of our sales activities and the status of our clinical
and regulatory activities. We may not be able to raise additional capital when
needed on terms favorable to us.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products were
coded using two digits rather than four to define the applicable year. As a
result these computer systems and software products have time-sensitive software
that recognize a date using "00" as the year 1900 rather than the year 2000.
This characteristic was thought to threaten the functionality of the world's
technology, particularly with the start of year 2000. To date, we have not
experienced any adverse consequences from Year 2000 issues.
FACTORS AFFECTING FUTURE OPERATING RESULTS
In addition to the factors described above in this section, the
following additional factors could affect our future results.
We rely on only one product for our revenues and if sales of this
product are not achieved, our operating results will be severely harmed. We have
only one product, the NCP System, which has been approved by the FDA only for a
single indication: as an adjunctive therapy in reducing the frequency of
seizures in adults and adolescents over twelve years of age with partial onset
seizures that are refractory to antiepileptic drugs. We do not expect to have
any other product or approved indication for the NCP System in the United States
for the next three years. Although sales of our NCP System have been increasing,
we cannot assure you that sales will continue to increase at the same rate or at
all. We are currently requesting approval for the use of the NCP System for the
treatment of major depression in patients with unipolar and bipolar depressive
disorder. We do not yet have approvals necessary to commercialize the NCP System
for the treatment of depression. We cannot assure you that any approvals for the
treatment of depression with the NCP System will be granted, nor can we assure
you that even if the approval is granted, we will be successful in
commercializing the NCP System for the treatment of depression or any other
indications. Our inability to commercialize successfully the NCP System will
severely harm our business.
We may not achieve market acceptance of the use of our NCP System to
treat epilepsy, which could cause our sales to decrease. Continued market
acceptance of our NCP System will depend on our ability to convince the medical
community of the clinical efficacy and safety of vagus nerve stimulation and the
NCP System. While the NCP System has been used in approximately 7,600 patients
through March 31, 2000, many physicians are still unfamiliar with this form of
therapy. We believe that existing antiepileptic drugs and surgery are the only
other approved and currently
13
<PAGE> 14
available therapies competitive with the NCP System in the treatment of
epileptic seizures. These therapies may be more attractive to patients or their
physicians than the NCP System in terms of efficacy, cost or reimbursement
availability. We cannot assure you that the NCP System will achieve market
acceptance for the treatment of epilepsy or for any other indication. Failure of
the NCP System to gain market acceptance would severely harm our business,
financial condition and results of operations.
Our quarterly operating results may fluctuate in the future, which may
cause our stock price to decline. Our results of operations may fluctuate
significantly from quarter to quarter and may be below the expectations of
security analysts. If so, the market price of our shares may decline. Our
quarterly revenues, expenses and operating results may vary significantly from
quarter to quarter for several reasons including the extent to which our NCP
System gains market acceptance, the timing of obtaining marketing approvals for
our NCP System for other indications, the timing of any approvals for
reimbursement by third-party payors, the rate and size of expenditures incurred
as we expand our clinical, manufacturing, sales and marketing corporate
infrastructure development efforts and the availability of key components,
materials and contract services, which may depend on our ability to forecast
sales.
Our current and future expense estimates are based, in large part, on
estimates of future sales, which are difficult to predict. We may be unable to,
or may elect not to, adjust spending quickly enough to offset any unexpected
sales shortfall. If our expenses were not accompanied by increased sales, our
results of operations and financial condition for any particular quarter would
be harmed.
We may be unable to obtain adequate third-party reimbursement on our
product. Our ability to commercialize the NCP System successfully depends in
part on whether third-party payors, including private health care insurers,
managed care plans, the United States government's Medicare and Medicaid
programs and others, agree both to cover the NCP System and associated
procedures and services and to reimburse at adequate levels for the costs of the
NCP System and the related services we have in the United States or
internationally. If we fail to achieve or expand favorable coverage decisions
for the NCP System in a timely manner, patients and their physicians could be
deterred from using the NCP System which could reduce our sales and severely
harm our business.
We may not be successful in our marketing and sales efforts, which
could severely harm our business. We continue to expand our marketing and sales
force for the United States market, and we cannot assure you that this expanded
direct marketing and sales force will succeed in promoting the NCP System to
patients, health care providers or third-party payors on a broad basis. In
addition, due to limited market awareness of the NCP System, we believe that the
sales process could be lengthy, requiring us to continue to educate patients,
health care providers and third-party payors regarding the clinical benefits and
cost-effectiveness of the NCP System. In certain international territories, we
rely, and intend to continue to rely, upon independent distributors. We may not
be able to recruit and retain skilled marketing and sales personnel or foreign
distributors to support our marketing and sales efforts. Our failure to
successfully market and sell our NCP System would severely impair our sales and
our business.
14
<PAGE> 15
We have limited manufacturing experience and may not be able to ramp up
our manufacturing to meet anticipated product demand. Our manufacturing
activities to date have consisted primarily of manufacturing limited quantities
of the NCP System for clinical investigations, for less than three years of
commercial sales activities in the United States and for commercial sales
activities in international markets. We do not have experience manufacturing the
NCP System in the volumes that will be necessary to achieve significant
commercial sales. We may encounter difficulties in scaling up production of the
NCP System, in procuring the necessary supply of materials, components and
contract services, or in hiring and training additional manufacturing personnel
to support domestic and international demand. In addition, our manufacturing
facilities must continue to comply with the FDA's QSR and with ISO 9001 and 9002
standards, which impose certain procedural and documentation requirements with
respect to device design, development, manufacturing and quality assurance
activities. If we are unable to achieve commercial-scale production capability
on a timely basis with acceptable quality and manufacturing yield and costs, to
sustain such capacity, or to maintain FDA and other governmental approvals, our
ability to deliver products on a timely basis could be impaired which could
severely harm our business.
If our sole suppliers and manufacturers are unable to meet our demand
for materials, components, and contract services, we may be forced to qualify
new vendors or change our product design which would impair our ability to
deliver products to our customers on a timely basis. We rely upon sole source
suppliers for certain of the key components, materials and contract services
used in manufacturing the NCP System. We periodically experience discontinuation
or unavailability of components, materials and contract services which may
require us to qualify alternative sources or, if no such alternative sources are
identified, change our product design. We believe that pursuing and qualifying
alternative sources and/or redesigning specific components of the NCP System,
when necessary, could consume significant resources. In addition, such changes
generally require regulatory submissions and approvals. Any extended delays in
or an inability to secure alternative sources for these or other components,
materials, and contract services could result in product supply and
manufacturing interruptions, which could significantly harm our business.
Our products may be found to have significant defects that could harm
the human body and result in product recalls. The NCP System includes a complex
electronic device and lead designed to be implanted in the human body. Component
failures, manufacturing or shipping errors or design defects could result in an
unsafe condition in patients. The occurrence of such problems or other adverse
reactions could result in a recall of our products, possibly requiring removal
and potentially reimplantation of the NCP System or a component of the NCP
System. For example, in 1991, a failure of an NCP System caused permanent
paralysis of one patient's left vocal cord. In addition, several patients
experienced bipolar lead failures which, although not harmful to the patient
reduced the efficacy of the treatment and required lead replacement. In the
future, we may experience similar or other product problems or may be required
to recall products. Any product recall could severely harm our business,
financial condition and results of operations.
We may not be able to protect our technology from unauthorized use,
which could diminish the value of our products and impair our ability to
compete. Our success depends upon our ability to obtain and maintain patent and
other intellectual property protection for the NCP System and its
15
<PAGE> 16
improvements, and for vagus nerve stimulation therapy. To that end, we have
acquired licenses under certain patents and have patented and intend to continue
to seek patents on our own inventions used in our products and treatment
methods. The process of seeking patent protection can be expensive and time
consuming and we cannot assure you that patents will issue from our currently
pending or future applications or that, if patents are issued, they will be of
sufficient scope or strength to provide meaningful protection of our technology,
or any commercial advantage to us. Further, the protection offered by the
licensed international patents is not as strong as that offered by the licensed
United States patents due to differences in patent laws. In particular, the
European Patent Convention prohibits patents covering methods for treatment of
the human body by surgery or therapy.
We may have to engage in litigation to protect our proprietary rights,
or defend against infringement claims by third parties, causing us to suffer
significant expenses or prevent us from selling our products. There has been
substantial litigation regarding patent and other intellectual property rights
in the medical device industry. Litigation, which could result in substantial
cost to and diversion of effort by us, may be necessary to enforce patents
issued or licensed to us, to protect trade secrets or know-how owned by us or to
defend ourselves against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Adverse
determinations in litigation could subject us to significant liabilities to
third parties, could require us to seek licenses from third parties and could
prevent us from manufacturing, selling or using the NCP System, any of which
could severely harm our business.
Intense competition and rapid technological changes could reduce our
ability to market our products and achieve sales. We believe that existing and
future antiepileptic drugs will continue to be the primary competition for our
NCP System. We may also face competition from other medical device companies
that have the technology, experience and capital resources to develop
alternative devices for the treatment of epilepsy. Many of our competitors have
substantially greater financial, manufacturing, marketing and technical
resources than we do and have obtained third-party reimbursement approvals for
their therapies.
In addition, the health care industry is characterized by extensive
research efforts and rapid technological progress. Our competitors may develop
technologies and obtain regulatory approval for products that are more effective
in treating epilepsy than our current or future products. In addition,
advancements in surgical techniques may make surgery a more attractive therapy
for epilepsy. The development by others of new treatment methods with novel
antiepileptic drugs, medical devices or surgical techniques for epilepsy could
render the NCP System non-competitive or obsolete. We may not be able to compete
successfully against current and future competitors, including new products and
technology, which could severely harm our business, financial condition or
results of operations.
If we fail to effectively manage our growth, our ability to maintain
our costs or capture new business could suffer. In connection with the
commercialization of the NCP System in the United States, we have significantly
expanded the scope of our operations, in particular in manufacturing and in
marketing and sales. Such activities have placed, and may continue to place, a
significant
16
<PAGE> 17
strain on our resources and operations. Our ability to effectively manage such
growth will depend upon our ability to attract, hire and retain highly qualified
employees and management personnel. We compete for such personnel with other
companies, academic institutions, government entities and other organizations
and we may not be successful in hiring or retaining qualified personnel. Our
success will also depend upon the ability of our officers and key employees to
continue to implement and improve our operational, management information and
financial control systems. If we fail to manage our growth effectively, our
business would suffer.
We are subject to claims of product liability and we may not have the
resources or insurance to cover the cost for losses under these claims. As an
implantable medical device, the manufacture and sale of the NCP System entails
the risk of product liability claims. Our product liability coverage may not be
adequate to cover any of these claims. Product liability insurance is expensive
and in the future may not be available on acceptable terms, if at all. A
successful claim brought against us in excess of our insurance coverage could
significantly harm our business and financial condition.
If we do not continue to comply with changing government regulations,
we could lose our ability to market and sell our product. The pre-clinical and
clinical testing, manufacturing, labeling, sale, distribution and promotion of
the NCP System are subject to extensive and rigorous regulation in the United
States by federal agencies, primarily the FDA, and by comparable state agencies.
In the future, it will be necessary for us to obtain additional government
approvals for other applications of the NCP System and for modified or
future-generation products. Commercial distribution in certain foreign countries
is also subject to obtaining regulatory approvals from the appropriate
authorities in such countries. The process of obtaining FDA and other required
regulatory approvals is lengthy, expensive and uncertain. Moreover, regulatory
approvals may include regulatory restrictions on the indicated uses for which a
product may be marketed. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspension or withdrawal
of approvals, confiscations or recalls of products, operating restrictions and
criminal prosecution. Furthermore, changes in existing regulations or adoption
of new regulations could prevent us from obtaining, or affect the timing of,
future regulatory approvals. We may not be able to obtain additional future
regulatory approvals on a timely basis or at all. Delays in receipt of or
failure to receive such future approvals, suspension or withdrawal of previously
received approvals, or recalls of the NCP System could severely harm our ability
to market and sell our current and future products and improvements.
Our international operations are subject to risks not generally
associated with commercialization efforts in the United States. We have recently
begun to focus our marketing and sales activities in international markets. We
may not be successful in increasing our international market sales or in
obtaining reimbursement or any regulatory approvals required in foreign
countries. The anticipated international nature of our business is also expected
to subject us and our representatives, agents and distributors to laws and
regulations of the foreign jurisdictions in which we operate or where the NCP
System is sold. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and new
laws or regulations may impair our ability to market and sell our products in
those jurisdictions.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company adopted Amended and Restated Bylaws effective April 14,
2000 that include modifications that will have an effect on the rights of
holders of common stock and any other classes of capital stock that may be
issued. Modifications to the Bylaws include:
- providing that only the Board of Directors can call a meeting of
stockholders;
- modifying certain provisions relating to disclosure required for
stockholder proposals;
- adding a provision requiring the approval of a majority of
outstanding shares of capital stock entitled to vote for stockholder
proposals;
- permitting the Board to increase or decrease the size of the Board
by resolution rather than amendment to the Bylaws; and
- deleting the provision permitting a 10% stockholder to require an
election to fill vacancies on the Board.
A copy of the Amended and Restated Bylaws is filed with this Form 10-Q and
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Amended and Restated Bylaws dated as of April 14, 2000
27.2 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2000.
18
<PAGE> 19
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.
CYBERONICS, INC.
Registrant
BY: /s/ PAMELA B. WESTBROOK
-----------------------
Pamela B. Westbrook
Vice President, Finance and Administration
and Chief Financial Officer (principal
financial and accounting officer)
Dated: May 12, 2000
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.2 Amended and Restated Bylaws dated as of April 14, 2000
27.2 Financial Data Schedule.
<PAGE> 1
AMENDED AND RESTATED
BYLAWS
OF
CYBERONICS, INC.
(a Delaware corporation)
April 14, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I CORPORATE OFFICES.......................................................................................1
1.1 REGISTERED OFFICE...............................................................................1
1.2 OTHER OFFICES...................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...............................................................................1
2.1 PLACE OF MEETINGS...............................................................................1
2.2 ANNUAL MEETING..................................................................................1
2.3 SPECIAL MEETING.................................................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEE FOR DIRECTOR
AND OTHER STOCKHOLDER PROPOSALS........................................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE....................................................5
2.7 QUORUM..........................................................................................5
2.8 ADJOURNED MEETING; NOTICE.......................................................................6
2.9 VOTING; APPROVAL OF STOCKHOLDER PROPOSALS.......................................................6
2.10 WAIVER OF NOTICE................................................................................6
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING.............................................................................7
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS........................................................................7
2.13 PROXIES.........................................................................................7
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...........................................................8
ARTICLE III DIRECTORS.............................................................................................8
3.1 POWERS..........................................................................................8
3.2 NUMBER OF DIRECTORS.............................................................................8
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.........................................8
3.4 RESIGNATION AND VACANCIES.......................................................................9
3.5 PLACE OF MEETING; MEETINGS BY TELEPHONE.........................................................9
3.6 FIRST MEETINGS.................................................................................10
3.7 REGULAR MEETINGS...............................................................................10
3.8 SPECIAL MEETINGS; NOTICE.......................................................................10
3.9 QUORUM.........................................................................................10
3.10 WAIVER OF NOTICE...............................................................................11
3.11 ADJOURNED MEETINGS; NOTICE.....................................................................11
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..............................................11
3.13 FEES AND COMPENSATION OF DIRECTORS.............................................................11
3.14 APPROVAL OF LOANS TO OFFICER...................................................................11
3.15 REMOVAL OF DIRECTORS...........................................................................12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV COMMITTEES............................................................................................12
4.1 COMMITTEES OF DIRECTORS........................................................................12
4.2 COMMITTEE MINUTES..............................................................................13
4.3 MEETINGS AND ACTION OF COMMITTEES..............................................................13
ARTICLE V OFFICERS...............................................................................................13
5.1 OFFICERS.......................................................................................13
5.2 ELECTION OF OFFICERS...........................................................................13
5.3 SUBORDINATE OFFICERS...........................................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................................................14
5.5 VACANCIES IN OFFICES...........................................................................14
5.6 CHAIRMAN OF THE BOARD..........................................................................14
5.7 PRESIDENT......................................................................................14
5.8 VICE PRESIDENT.................................................................................14
5.9 SECRETARY......................................................................................15
5.10 TREASURER......................................................................................15
5.11 ASSISTANT SECRETARY............................................................................16
5.12 ASSISTANT TREASURER............................................................................16
5.13 AUTHORITY AND DUTIES OF OFFICERS...............................................................16
ARTICLE VI INDEMNITY.............................................................................................16
6.1 INDEMNIFICATION 0F DIRECTORS AND OFFICERS......................................................16
6.2 INDEMNIFICATION OF OTHERS......................................................................17
6.3 INSURANCE......................................................................................17
ARTICLE VII RECORDS AND REPORTS..................................................................................17
7.1 MAINTENANCE AND INSPECTION OF RECORDS..........................................................17
7.2 INSPECTION BY DIRECTORS........................................................................18
7.3 ANNUAL STATEMENT OF STOCKHOLDERS...............................................................18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................................................18
ARTICLE VIII GENERAL MATTERS.....................................................................................19
8.1 CHECKS.........................................................................................19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...............................................19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.........................................................19
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................................................20
8.5 LOST CERTIFICATES..............................................................................20
8.6 CONSTRUCTION; DEFINITIONS......................................................................20
8.7 DIVIDENDS......................................................................................20
8.8 FISCAL YEAR....................................................................................21
8.9 SEAL...........................................................................................21
8.10 TRANSFER OF STOCK..............................................................................21
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
8.11 STOCK TRANSFER AGREEMENTS......................................................................21
8.12 REGISTERED STOCKHOLDERS........................................................................21
ARTICLE IX AMENDMENTS............................................................................................22
ARTICLE X DISSOLUTION............................................................................................22
ARTICLE XI CUSTODIAN.............................................................................................23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES....................................................23
11.2 DUTIES OF CUSTODIAN............................................................................23
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
of
CYBERONICS, INC.
(a Delaware Corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust company.
1.2 OTHER OFFICES.
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of stockholders shall be held each year within 180
days of the end of the prior fiscal year, on a date and at a time designated by
the board of directors or as otherwise determined by the board of directors.
<PAGE> 6
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any time by, and
only by, the board of directors, or by such person or persons as may be
authorized by the corporation's certificate of incorporation.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
All notices on meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws 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. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEE FOR DIRECTOR AND OTHER
STOCKHOLDER PROPOSALS.
(a) The matters to be considered and brought before any annual or
special meeting of stockholders of the corporation shall be limited to only such
matters, including the nomination and election of directors, as shall be brought
properly before such meeting in compliance with the procedures set forth in this
Section 2.5.
(b) For any matter to be properly brought before any annual meeting of
stockholders, the matter must be:
(i) specified in the notice of annual meeting given by or
at the direction of the board of directors,
(ii) otherwise brought before the annual meeting by or at
the direction of the board of directors or
(iii) brought before the annual meeting in the manner
specified in this Section 2.5(b) and Sections 2.5(c)
and (d), as applicable:
(x) by a stockholder that holds of
record stock of the corporation
entitled to vote at the annual
meeting on such matter (including
any election of a director) or
(y) by a person (a "Nominee Holder")
that holds such stock through a
nominee or "street name" holder of
record of such stock and can
demonstrate to the corporation such
indirect ownership of, and such
Nominee Holder's entitlement to
vote, such stock on such matter.
-2-
<PAGE> 7
In addition to any other requirements under applicable law, the certificate of
incorporation and these bylaws, persons nominated by stockholders for election
as directors of the corporation and any other proposals by stockholders shall be
properly brought before an annual meeting of stockholders only if notice of any
such matter to be presented by a stockholder at such meeting (a "Stockholder
Notice") shall be delivered to the Secretary at the principal executive office
of the corporation not less than ninety (90) nor than one hundred and twenty
(120) days prior to the first anniversary date of the annual meeting for the
preceding year (or, in the case of the annual meeting of stockholders to be held
in 2000, not less than ninety nor more than one hundred and twenty days prior to
January 28, 2001; provided, however, that if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before and
ends thirty days after such anniversary date (or January 28, 2001, in the case
of the annual meeting of stockholders to be held in 2001) (an annual meeting
date outside such period being referred to herein as an "Other Meeting Date"),
such Stockholder Notice shall be given in the manner provided herein by the
later of (i) the close of business on the date ninety days prior to such Other
Meeting Date or (ii) the close of business on the tenth day following the date
on which such Other Meeting Date is first publicly announced or disclosed. As
used in these bylaws, shares "beneficially owned" shall mean all shares which
such person is deemed to beneficially own pursuant to Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934 (the "Exchange Act").
(c) Any stockholder desiring to nominate any person or persons (as the
case may be) for election as a director or directors of the corporation at an
annual meeting of stockholders shall deliver, as part of such Stockholder
Notice, a statement in writing setting forth:
(1) the name and address of the person or persons to be
nominated,
(2) the number and class of all shares of each class of
stock of the corporation owned of record and
beneficially by each such nominee, as reported to
such stockholder by such nominee,
(3) the information regarding each such nominee required
by paragraphs (a), (d), (e) and (f) of Item 401 of
Regulation S-K adopted by the U.S. Securities and
Exchange Commission,
(4) the signed consent by each such nominee to serve as a
director of the corporation if elected,
(5) such stockholder's name and address,
(6) the number and class of all shares of each class of
stock of the corporation owned of record and
beneficially by such stockholder, and
(7) in the case of a Nominee Holder, evidence
establishing such Nominee Holder's indirect ownership
of stock and entitlement to vote such stock for the
election of directors at the annual meeting.
If a stockholder is entitled to vote only for a specific class or category of
directors at a meeting (annual or special), such stockholder's right to nominate
one or more individuals for election as a director at the meeting shall be
limited to such class or category of directors.
-3-
<PAGE> 8
Notwithstanding any provision of this Section 2.5 to the contrary, in
the event that the number of directors to be elected to the board of directors
of the corporation at the next annual meeting of stockholders is increased by
virtue of an increase in the size of the board of directors and either all of
the nominees for director at the next annual meeting of stockholders or the size
of the increased board of directors is not publicly announced or disclosed by
the corporation at least one hundred days prior to the first anniversary of the
preceding year's annual meeting (or, in the case of the annual meeting of
stockholders to be held in 2001, at least one hundred days prior to January 28,
2001), a Stockholder Notice shall also be considered timely hereunder, but only
with respect to nominees to stand for election at the next annual meeting as the
result of any new positions created by such increase, if it shall be delivered
to the Secretary at the principal executive office of the corporation not later
than the close of business on the tenth day following the first day on which all
such nominees or the size of the increased board of directors shall have been
publicly announced or disclosed.
(d) Any stockholder who gives a Stockholder Notice of any matter (other
than a nomination for director) proposed to be brought before an annual meeting
of stockholders shall deliver, as part of such Stockholder Notice:
(1) the text of the proposal to be presented,
(2) a brief written statement of the reasons why such
stockholder favors the proposal,
(3) such stockholder's name and address,
(4) the number and class of all shares of each class of
stock of the corporation owned of record and
beneficially by such stockholder,
(5) any material interest of such stockholder in the
matter proposed (other than as a stockholder), if
applicable, and
(6) in the case of a Nominee Holder, evidence
establishing such Nominee Holder's indirect ownership
of stock and entitlement to vote such stock on the
matter proposed at the annual meeting.
(e) Except as provided in the final paragraph and sentence of Section
2.5(c) above, no matter shall be properly brought before a special meeting of
stockholders unless such matter shall have been brought before the meeting
pursuant to the corporation's notice of such meeting. In the event the
corporation calls for a special meeting of stockholders for the purpose of
electing one or more directors to the board of directors, any stockholder
entitled to vote for the election of such director(s) at such meeting may
nominate a person or persons (as the case may be) for election to such
position(s) as are specified in the corporation's notice of such meeting, but
only if the Stockholder Notice required by Sections 2.5(b), (c) and (d) hereof
shall be delivered to the Secretary at the principal executive office of the
corporation not later than the close of business on the tenth day following the
first day on which the date of the special meeting and either the names of all
nominees proposed by the board of directors to be elected at such meeting or the
number of directors to be elected shall have been publicly announced or
disclosed.
-4-
<PAGE> 9
(f) For purpose of this Section 2.5, a matter shall be deemed to have
been "publicly announced or disclosed" if such matter is disclosed in a press
release reported by the Dow Jones News Service, the Associated Press or a
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission.
(g) In no event shall the adjournment of an annual meeting or a special
meeting, or any announcement thereof, commence a new period for the giving of
notice as provided in this Section 2.5. This Section 2.5 shall not apply to (i)
any stockholder proposal made pursuant to Rule 14a-8 under the Exchange Act or
(ii) any nomination of a director in an election in which only the holders of
one or more series of preferred stock of the corporation issued pursuant to
Article IV of the certificate of incorporation are entitled to vote (unless
otherwise provided in the terms of such stock).
(h) The chairman of any meeting of stockholders, in addition to making
any other determinations that may be appropriate to the conduct of the meeting,
shall have the power and duty to determine whether notice of nominees and other
matters proposed to be brought before a meeting has been duly given in the
manner provided in this Section 2.5 and, if not so given, shall direct and
declare at the meeting that such nominees and other matters shall not be
considered.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM.
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 is not present or represented at any
meeting of the stockholders, then 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 is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stack having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
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2.8 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless
these bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. 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.
2.9 VOTING; APPROVAL OF STOCKHOLDER PROPOSALS.
(a) Except as provided in the certificate of incorporation, each
stockholder shall be entitled to one vote for each share of capital stock held
by such stockholder. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
(b) Except as otherwise required by law, any matter (other than a
nomination for director) that has been properly brought before an annual or
special meeting of stockholders of the corporation by a stockholder (including a
Nominee Holder) in compliance with the procedures set forth in Section 2.5 shall
require for approval thereof the affirmative vote of the holders of not less
than a majority of all outstanding shares of common stock of the corporation and
all other outstanding shares of stock of the corporation entitled to vote on
such matter, which such outstanding shares of common stock and other stock
considered for this purpose as a single class. Any vote of stockholders required
by this Section 2.9(b) shall be in addition to any other vote of stockholders of
the corporation that may be required by law, the certificate of incorporation or
these bylaws, by any agreement with a national securities exchange or otherwise.
2.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
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2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .
The stockholders of the corporation may not take action by written
consent without at meeting but must take any such actions at a duly called
annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
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 stack 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.
If the board of directors does not so fix a record date:
(1) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(2) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a near record date for
the adjourned meeting.
2.13 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholders name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholders attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.
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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.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS.
The authorized number of directors shall be seven (7). This
number may be increased or decreased by resolution of the board of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
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3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or,
resignations shall become effective, and each director so chosen shall, hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(3) vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(4) Wherever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
(5) If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.
3.5 PLACE OF MEETING; MEETINGS BY TELEPHONE.
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware as the board
of directors may designate from time to time, or as may be designated in the
notice calling the meeting.
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, 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.
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3.6 FIRST MEETINGS.
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 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.
3.7 REGULAR MEETINGS.
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.
3.8 SPECIAL MEETINGS; NOTICE.
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) or more of the directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least two (2) days before the
time of the holding of the meeting. If the notice is delivered personally, by
telephone or by e-mail, telecopy or telegram, it shall be delivered personally
or by telephone or to the telegraph company at least twenty-four (24) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM.
At all meetings of the board of directors, a majority of the authorized
number of directors 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 or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
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3.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETINGS; NOTICE.
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
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 or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 APPROVAL OF LOANS TO OFFICER.
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty of other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deity, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.15 REMOVAL OF DIRECTORS.
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Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such directors term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
atone 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 or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of 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 that may require it; but no
such committee shall have the power of authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any ether class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adept an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
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Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall, be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
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5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD.
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT.
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers
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of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors,
these bylaws, the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct; a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER.
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY.
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The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or 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 or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER.
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION 0F DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner permitted by the
General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
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The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such. Whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney of other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
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The officer who has charge of the stock ledger of a 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 or 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.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the court
may deem just and proper.
7.3 ANNUAL STATEMENT OF STOCKHOLDERS.
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this. corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
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<PAGE> 23
8.1 CHECKS.
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be genera, or confined to specific instances
unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of a corporation shall be represented by certificate,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares 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 vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has 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.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
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<PAGE> 24
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class of series of stocks provided, however, 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 that 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, the designations,
the preferences, and the 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.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless this latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it an
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern that construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural. number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such
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<PAGE> 25
reserve. such purposes shall include but not be limited to equalizing dividends,
repairing or maintaining any property of the corporation, and meeting
contingencies.
8.8 FISCAL YEAR.
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL.
The Corporation shall have power to have a corporate seal, which shall
be adopted and which may be altered by the board of directors, and the
corporation may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, 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 in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The corporation shall have power to enter into and perform any
agreement with any number of shareholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
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<PAGE> 26
The bylaws of the corporation may be adopted, amended or repealed only
in the manner set forth in the under the General Corporation Law of Delaware or
the corporation's certificate of incorporation.
Notwithstanding any other provision of these bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of the capital stock required by law or by
these bylaws, the affirmative vote of at least two-thirds (2/3) of the combined
voting power of all of the then outstanding shares of the corporation entitled
to vote shall be required to alter, amend or repeal Article II or this Article
IX of these bylaws, or any provision thereof, or to add or amend any other bylaw
in order to change or nullify the effect of such provisions, unless such
amendment shall be approved by a majority of the directors of the corporation
not affiliated or associated with any person or entity holding (or which has
announced an intent to obtain) 20% or more of the voting power of the
corporation's outstanding capital stock.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at, any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of this General corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 7.03 of the General Corporation
Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution;
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<PAGE> 27
in addition, there shall be attached to the consent a certification by the
secretary or some other officer of the corporation setting forth the names and
residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.
The court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(6) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(7) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained arid the
stockholders are unable to terminate this division; or
(8) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN.
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
court of chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
-23-
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