<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
---------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file No.: 0-18813
----------------------------
THQ INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3541686
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5016 North Parkway Calabasas, Suite 100, Calabasas, CA 91302
(Address of Principal Executive Offices)
818-591-1310
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.01 par value: 7,276,176 shares (as of August 12, 1998). This
number does not reflect the 50% stock dividend payable on or about August 24,
1998 to stockholders of record on August 20, 1998.
1
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THQ INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations -
for the Three Months and Six Months Ended
June 30, 1998 and 1997 4
Consolidated Statement of Shareholders' Equity
for the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 5
Consolidated Statements of Cash Flows -
for the Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
</TABLE>
2
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements.
THQ INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,226,000 $ 11,724,000
Marketable securities 1,081,000 --
Accounts receivable - net 14,658,000 30,856,000
Inventory 2,599,000 1,425,000
Prepaid and deferred royalties 5,627,000 3,645,000
Software development costs 9,125,000 6,044,000
Deferred income taxes 1,666,000 1,666,000
Prepaid income taxes 95,000 --
Prepaid expenses and other current assets 780,000 478,000
------------ ------------
Total current assets 55,857,000 55,838,000
Property and equipment - net 1,361,000 1,163,000
Deferred royalties - net of current portion -- 500,000
Software development cost - net of current portion -- 1,300,000
Other long-term assets 2,670,000 652,000
------------ ------------
TOTAL ASSETS $ 59,888,000 $ 59,453,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,497,000 $ 10,952,000
Accrued royalties 10,212,000 9,949,000
Income taxes payable -- 3,475,000
------------ ------------
Total current liabilities 16,709,000 24,376,000
Accrued royalties - net of current portion -- 1,550,000
Commitments and Contingencies
Shareholders' equity:
Common stock, par value $.01, 35,000,000 shares authorized; 10,868,438 shares
and 10,163,848 shares issued and outstanding as of June 30, 1998 and,
December 31, 1997,
respectively 109,000 4,000
Additional paid-in capital 54,851,000 47,559,000
Cumulative foreign currency translation adjustment 192,000 81,000
Accumulated deficit (11,973,000) (14,117,000)
------------ ------------
Total shareholders' equity 43,179,000 33,527,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 59,888,000 $ 59,453,000
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 29,325,000 $ 12,265,000 $ 77,778,000 $ 24,104,000
Costs and expenses:
Cost of sales 13,611,000 6,503,000 33,974,000 13,745,000
Royalties 4,922,000 2,090,000 16,053,000 3,783,000
Product development 1,521,000 321,000 2,250,000 545,000
Selling 3,775,000 1,297,000 7,688,000 2,353,000
General and administrative 1,840,000 1,096,000 4,794,000 2,026,000
In-process research and development 7,232,000 -- 7,232,000 --
------------ ------------ ------------ ------------
Total costs and expenses 32,901,000 11,307,000 71,991,000 22,452,000
------------ ------------ ------------ ------------
Income (loss) from operations (3,576,000) 958,000 5,787,000 1,652,000
Interest income, net 310,000 102,000 468,000 132,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (3,266,000) 1,060,000 6,255,000 1,784,000
Provision for income taxes 1,083,000 66,000 4,111,000 70,000
------------ ------------ ------------ ------------
Net income (loss) $ (4,349,000) $ 994,000 $ 2,144,000 $ 1,714,000
============ ============ ============ ============
Net income (loss) per share - basic $ (0.41) $ 0.10 $ 0.20 $ 0.19
============ ============ ============ ============
Net income (loss) per share - diluted $ (0.41) $ 0.09 $ 0.19 $ 0.18
============ ============ ============ ============
Shares used in per share calculation - basic 10,701,000 9,727,000 10,458,000 9,018,000
============ ============ ============ ============
Shares used in per share calculation - diluted 10,701,000 10,500,000 11,516,000 9,784,000
============ ============ ============ ============
Add back in-process research and
development $ 7,232,000 $ -- $ 7,232,000 $ --
------------ ------------ ------------ ------------
Net income before in-process research
and development $ 2,883,000 $ 994,000 $ 9,376,000 $ 1,714,000
============ ============ ============ ============
Net income per share before in-process
research and development $ 0.25 $ 0.09 $ 0.81 $ 0.18
============ ============ ============ ============
Shares used in per share calculation 11,699,000 10,500,000 11,516,000 9,784,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1997 and
the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Cumulative
Foreign Retained
Additional Currency Earnings
Preferred Common Common Paid-in Translation (Accumulated
Stock Stock Amount Capital Adjustment Deficit) Total
------- ---------- ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 -- 7,109,824 $ 4,000 $ 34,558,000 $ (52,000) $(23,462,000) $11,048,000
Exercise of warrants and options -- 466,524 -- 1,293,000 -- -- 1,293,000
Issuance of Common stock -- 2,587,500 -- 11,708,000 -- -- 11,708,000
Net income -- -- -- -- -- 9,345,000 9,345,000
Foreign currency translation adjustment -- -- -- -- 133,000 -- 133,000
------- ---------- ---------- ------------ --------- ------------ -----------
Balance at December 31, 1997 -- 10,163,848 4,000 47,559,000 81,000 (14,117,000) 33,527,000
Exercise of warrants and options -- 349,407 2,000 1,176,000 -- -- 1,178,000
Issuance of Common Stock -- 355,183 2,000 6,217,000 -- -- 6,219,000
Revaluation of Common stock -- -- 101,000 (101,000) -- -- --
Net income -- -- -- -- -- 2,144,000 2,144,000
Foreign currency translation adjustment -- -- -- -- 111,000 -- 111,000
------- ---------- ---------- ------------ --------- ------------ -----------
Balance at June 30, 1998 (unaudited) -- 10,868,438 $ 109,000 $ 54,851,000 $ 192,000 $(11,973,000) $43,179,000
======= ========== ========== ============ ========= ============ ===========
</TABLE>
See notes to consolidated financial statements
5
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THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,144,000 $ 1,714,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 491,000 227,000
Provision for doubtful accounts, discounts and returns 9,855,000 2,021,000
In-process research and development 7,232,000 --
Changes in operating assets and liabilities, net of effects
from purchase of GameFx, Inc.:
Accounts receivable 11,941,000 7,199,000
Inventory (1,171,000) 195,000
Prepaid and deferred royalties and
software development costs 1,117,000 (748,000)
Prepaid expenses and other current assets (302,000) (43,000)
Prepaid taxes (162,000) --
Accounts payable and accrued expenses (4,509,000) 12,000
Accrued royalties (5,626,000) (2,052,000)
Accrued returns and allowances (5,565,000) (2,055,000)
Accrued taxes (3,408,000) --
------------ ------------
Net cash provided by operating activities 12,037,000 6,470,000
Cash flows used in investing activities:
Marketable securities (1,081,000) --
Investment in joint venture (2,010,000) --
Payment for purchase of GameFx, Inc. (1,315,000) --
Acquisition of equipment (395,000) (440,000)
------------ ------------
Net cash used in investing activities (4,801,000) (440,000)
Cash flows from financing activities:
Repayment of advance from bank -- (5,355,000)
Net proceeds from issuance of common stock -- 11,657,000
Proceeds from exercise of options and warrants 1,178,000 149,000
------------ ------------
Net cash provided by financing activities 1,178,000 6,451,000
Effect of exchange rate changes on cash 88,000 (49,000)
------------ ------------
Net increase in cash 8,502,000 12,432,000
Cash and cash equivalents - beginning of period 11,724,000 2,734,000
------------ ------------
Cash and cash equivalents - end of period $ 20,226,000 $ 15,166,000
============ ============
</TABLE>
See notes to consolidated financial statements.
(continued)
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<PAGE> 7
<TABLE>
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $1,829,000 $ 4,000
========== ==========
Cash paid during the period for interest $ 10,000 $ 42,000
========== ==========
</TABLE>
Non-cash Transactions:
On May 1, 1998 the Company issued 355,183 shares of Common Stock as a part of
the purchase price for GameFx, Inc., increasing purchased in-process research
and development and additional paid in capital by $6,217,000.
See notes to consolidated financial statements.
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THQ INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information. The financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. While the Company
believes that the disclosures made are adequate to make the information
presented not misleading, it is recommended that these financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
In the opinion of management, such unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth herein. The results for
the three and six months ended June 30, 1998 are not necessarily indicative of
the results to be expected for the full year or for any interim period.
Reclassifications. Certain items in the 1997 financial statements have
been reclassified to conform to the 1998 presentation.
Basic and Diluted Earnings Per Share. Basic EPS is based upon the
weighted-average number of common shares for the period. Statement of Financial
Accounting Standards ("SFAS") 128 also requires dual presentation of basic and
diluted EPS for companies with "complex capital structures". EPS for the current
and prior periods has been presented in conformity with the provisions of SFAS
128. The following table is a reconciliation of the weighted-average shares used
in the computation of basic and diluted EPS for the years presented herein:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) used to compute basic
and diluted earnings per share $ (4,349,000) $ 944,000 $ 2,144,000 $ 1,714,000
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding - basic 10,701,000 9,727,000 10,458,000 9,018,000
Dilutive effect of stock options and warrants -- 773,000 1,058,000 766,000
------------ ------------ ------------ ------------
Number of shares used to compute earnings
per share - diluted 10,701,000 10,500,000 11,516,000 9,784,000
============ ============ ============ ============
</TABLE>
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Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Marketable Securities. The investment in marketable securities is
stated at the lower of cost or market. Market value is determined at the balance
sheet date.
Recently Issued Accounting Pronouncements. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Adopting SFAS No. 130 during the
period ended June 30, 1998 did not have an effect on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information". SFAS No. 131 established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosure about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. Adopting of SFAS No. 131 during the period ended June 30,
1998 did not have an effect on the Company's financial statements.
In October of 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2 "Software Revenue Recognition" ("SOP 97-2"). This statement provides
guidance on applying generally accepted accounting principles in recognizing
revenues on software transactions. This Statement supercedes Statement of
Position 91-1 "Software Revenue Recognition." This Statement is effective for
transactions entered into in fiscal years beginning after December 15, 1997.
Earlier application is encouraged as of the beginning of the fiscal year or
interim period for which financial statements or information have not been
issued. Retroactive application of the provisions of this statement is
prohibited. In March 1998 SOP 98-4 deferred the effective date of a provision of
SOP 97-2. The Company has evaluated its revenue recognition policies of the
adaptation of SOP 97-2; and believes that such adoption will not have any
impact.
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In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pension and Other Postretirement Benefits". SFAS No. 132 supersedes the
disclosure requirements in FASB Statements No. 87 "Employers' Accounting for
Pensions", No. 88 "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plan and Termination Benefits", and No. 106 "Employers'
Accounting for Postretirement Benefit Other Than Pensions." This statement
addresses disclosure only. SFAS 132 is effective for financial statements for
periods beginning after December 31, 1997. Adopting of SFAS 132 during the
period ended June 30, 1998 did not have an effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedge Activities". SFAS No. 133 establishes the accounting and
reporting standard for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either asset or liability in the
statement of financial position and measure those instruments at fair value SFAS
133 is effective for financial statements for periods beginning after June 15,
1999. The Company does not expect the impact of SFAS No. 133 to be material in
relation to its financial statements.
2. ACQUISITIONS
On May 1, 1998, the Company acquired all of the outstanding shares of
an applied technology company, GameFx, Inc., a Delaware corporation ("GameFx"),
pursuant to a merger of GameFx with and into a newly formed, wholly owned
subsidiary of the Company. The consideration paid by the Company consisted of
(i) the issuance of approximately 355,200 shares of Common Stock, (ii) the
assumption of stock options issued by GameFx to its employees that, if and when
exercised, permit the holders thereof to acquire approximately 14,850 shares,
(iii) approximately $800,000 in cash, and (iv) the assumption of the liabilities
of GameFx incurred in the ordinary course of its business. The total acquisition
cost was approximately $7.5 million and was accounted for as a purchase. The
purchase price was allocated to certain intangible assets acquired and to
purchased in-process research and development ("R & D"). Purchased R & D
includes the value of products in the development stage and not considered to
have reached technological feasibility. In accordance with applicable accounting
rules, purchased in-process R & D is required to be expensed. Accordingly, $7.2
million of the acquisition cost was expensed in the second quarter of 1998.
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3. ACCOUNTS RECEIVABLE
Accounts receivable are due primarily from domestic and foreign
retailers and distributors, including mass merchants and specialty stores.
Accounts receivable at June 30, 1998 and December 31, 1997 are composed of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Accounts receivable-- domestic $ 23,079,000 $ 33,787,000
Other accounts receivable-- foreign 4,011,000 5,075,000
Other receivables 6,000 133,000
Allowance for foreign doubtful accounts (41,000) (10,000)
Allowance for foreign discounts and returns (1,001,000) (362,000)
Allowance for domestic doubtful accounts,
discounts and returns (11,396,000) (7,767,000)
------------ ------------
Accounts receivable-- net $ 14,658,000 $ 30,856,000
============ ============
</TABLE>
4. REINCORPORATION
On January 6, 1998, T.HQ, Inc., a New York corporation ("THQ New
York"), was merged with and into its wholly owned subsidiary, THQ Inc., a
Delaware corporation ("THQ Delaware"), for the purpose of changing the Company's
state of incorporation from New York to Delaware (the "Reincorporation").
Pursuant to the Reincorporation each share of THQ New York's common stock, par
value $.0001 per share, outstanding prior to the Reincorporation was converted
into one share of common stock, $0.01 par value per share, of THQ Delaware.
5. OTHER LONG-TERM INVESTMENTS
In June 1998, the Company announced that, in partnership with JAKKS
Pacific Inc. ("JAKKS Pacific") (a manufacturer and marketer of toys), it had
signed an exclusive ten-year license agreement with Titan Sports Inc. ("Titan")
to publish World Wrestling Federation electronic games on all platforms. The
games will be designed, developed, manufactured and marketed by a joint venture
of the Company and JAKKS Pacific. The Company will oversee product development
and sales, and the Company and JAKKS Pacific will co-manage the marketing of the
games. The Company expects that the first game produced under this license will
be released near the end of 1999. This investment is accounted for under the
equity method of accounting for investment. The Company has a 50% ownership
interest in this joint venture. This investment of $2,010,000 is predominately
initial funding. No activity had commenced in this joint venture as of June 30,
1998.
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6. SUBSEQUENT EVENTS
On July 23, 1998, the Company announced a three-for-two stock split to
be effected in the form of a 50% stock dividend payable on or about August 24,
1998 to stockholders of record on August 20, 1998. The accompanying consolidated
financial statements have been adjusted to give effect to this stock dividend.
----------------------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, publishes and distributes interactive
entertainment software ("Software") for the major hardware Platforms
("Platforms") sold by Nintendo and Sony (the "Manufacturers") and for use on
personal computers ("PCs"). The following table sets forth, for the periods
indicated, the percentage of the Company's revenues derived from sales of Titles
for the Platforms indicated:
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Platform
Nintendo (excluding Game Boy) 59% 8% 48% 29%
Nintendo Game Boy 16% 35% 9% 32%
Sony 25% 54% 43% 37%
Sega -- 2% -- 2%
PC -- 1% -- --
</TABLE>
The Company's business cycle generally commences with the securing of a
license to publish one or more Software titles ("Titles") based upon
entertainment projects (such as movies, television programs and arcade games),
sports and entertainment personalities, or popular sports trends or concepts
("Properties"). Such licenses typically require an advance payment to the
licensor and a guarantee of minimum future royalties. See "-- Recovery of
Prepaid Royalties, Guarantees and Capitalized Development Costs." After
obtaining the license, the Company commences Software development for the Title.
Upon completion of development and approval of the Title by the Manufacturer,
the Company orders products and generally causes a letter of credit to be opened
in favor of the Manufacturer or obtains a line of credit from the Manufacturer.
Products are shipped at the Company's expense to a public warehouse in
California for domestic distribution or in the United Kingdom for foreign
distribution. Foreign sales to distributors in countries other than the United
Kingdom are shipped at the customer's expense directly to the customer's
location.
The Company has unfilled sales orders the amount of which fluctuates
from time to time, commonly referred to as "backlog." However, substantially all
of the Company's product orders are fulfilled shortly after they are received.
Accordingly, the Company does not believe that the amount of its unfilled sales
orders as of the end of a period is a meaningful indicator of sales in future
periods.
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Revenue Fluctuations and Seasonality. The Company has experienced and
may continue to experience significant quarterly fluctuations in net sales and
operating results due to a variety of factors, including the timing of releases
of new Titles by the Company, the popularity of both new Titles and Titles
released in prior periods, fluctuations in the mix of Titles with varying profit
margins, the timing of customer orders, the timing of shipments by the
Manufacturers, fluctuations in the size and rate of growth of consumer demand
for Software for various Platforms, the timing of the introduction of new
Platforms and the accuracy of retailer's forecasts of consumer demand. The
Company's expenses are based, in part, on its expectations of future revenues
and, as a result, operating results would be disproportionately and adversely
affected by a decrease in sales or a failure by the Company to meet its sales
expectations. In addition, the Software market is highly seasonal, with sales
typically significantly higher during the fourth quarter (due primarily to the
increased demand for interactive games during the year-end holiday buying
season). There can be no assurance that the Company can maintain consistent
profitability on a quarterly or annual basis.
Profit margins may vary over time as a result of a variety of other
factors. Profit margins for cartridge products can vary based on the cost of the
memory chip used for a particular title. As Software has grown more complex, the
trend in the Software industry has been to utilize chips with greater capacity
and thus greater cost. CD-ROMs have significantly lower per unit manufacturing
costs than cartridge-based products. However, these savings may be offset by
typically higher development costs for Titles published on CD-ROMs; such higher
costs result from the creation of increased and enhanced content to take
advantage of the greater storage capacity available on CD-ROMs.
Recovery of Prepaid Royalties, Guarantees and Capitalized Development
Costs. The Company typically enters into agreements with licensors of Properties
and developers of Titles that require advance payments of royalties and/or
guaranteed minimum royalty payments. There can be no assurance that the sales of
Products for which such royalties are paid will be sufficient to cover the
amount of these required royalty payments. The Company capitalizes its advances
to developers as prepaid royalties and capitalizes internal Software development
costs for each PC Title incurred after the establishment of technological
feasibility of the Title. (The Company has not incurred material internal
development costs for console Titles). Amortization of these payments and costs
is determined on a Title-by-Title basis based on the greater of (i) the ratio of
current gross revenues for a Title to the sum of its current and anticipated
gross revenues, or (ii) the straight-line method over the estimated remaining
economic life of the Title. The Company analyzes such capitalized costs
quarterly and writes off associated prepaid and deferred royalties and Software
development costs when, based on the Company's estimate, future revenues will
not be sufficient to recover such amounts. As of June 30, 1998, the Company had
prepaid royalties and capitalized development costs of $14.8 million. If the
Company were required to write off prepaid royalties or capitalized development
costs in excess of the amounts reserved therefor, the Company's results of
operations could be materially and adversely affected.
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<PAGE> 15
Discounts, Allowances and Returns; Inventory Management. Although the
Company's arrangements with its customers generally do not give such customers
the right to return products to the Company (other than defective products) or
to cancel firm orders, the Company often negotiates accommodations to retailers
(and, less often, to distributors) when demand for specific Titles falls below
expectations for the purpose of maintaining its relationships with its
customers. Such accommodations consist of acquiescing to the customer's request
that not all booked orders be filled or that not all shipped orders be accepted,
negotiated price discounts, credits against future orders and, less often, the
return of products to the Company. It is the Company's practice to accept all
returns of defective or damaged products.
At the time of product shipment, the Company establishes provisions
against the gross revenues generated by such shipment based on estimates of
future returns of, and other customer accommodations and doubtful accounts that
may be granted with respect to, such products, based on the Company's historical
experience, retailer inventories of the Titles and other factors. For the year
ended December 31, 1997 and the six months ended June 30, 1998, provisions of
$10.5 million and $9.8 million, respectively, were taken against gross sales
made during such periods, and as of June 30, 1998, the Company's aggregate
reserve against accounts receivable for returns, customer accommodations and
doubtful accounts was $12.4 million.
The identification by the Company of slow-moving or obsolete inventory,
whether as a result of requests from customers for accommodations or otherwise,
would require the Company to establish reserves against such inventory or to
write-down the value of such inventory to its estimated net realizable value.
Revenues and Expenses of Joint Venture. In June 1998, the Company
announced that, in partnership with JAKKS Pacific, it had signed an exclusive
agreement with Titan to publish WWF electronic games on all Platforms. The games
will be designed, developed, manufactured and marketed by a joint venture of the
Company and JAKKS Pacific. The Company and JAKKS Pacific will share equally any
profits generated by this joint venture after recoupment of advances paid by the
Company and JAKKS Pacific to Titan. The Company currently anticipates that the
revenues generated by the games published by the joint venture will not be
reflected in the Company's consolidated net sales and the expenses of the joint
venture will not be included in the Company's consolidated operating expenses.
Instead, the Company expects to recognize its proportionate share of the joint
venture's net income or (under certain circumstances) net loss on a current
basis. See Note 5 of Notes to Consolidated Financial Statements.
YEAR 2000 DISCLOSURE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information. The Company has reviewed all significant
15
<PAGE> 16
internal applications and believes that no material modifications are necessary
to ensure Year 2000 Compliance.
In addition, the Company is in the process of communicating with others with
whom it does significant business (including its major retail accounts and
certain providers of Product distribution information services), to determine
their Year 2000 Compliance readiness and the extent to which the Company is
vulnerable to any third party Year 2000 Compliance. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or to
its results of operations. These costs and the date on which the Company plans
to complete the Year 2000 Compliance modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
16
<PAGE> 17
RESULTS OF OPERATIONS
Net Sales
The following table sets forth, for the periods indicated, the
components of the Company's net sales and its consolidated operating data as a
percentage of net sales:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ -----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Domestic sales 76.7% 86.3% 83.2% 73.2%
Foreign sales 23.3 13.7 16.8 26.8
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 46.4% 53.0% 43.7% 57.0%
Royalties 16.8 17.0 20.6 15.6
Product development 5.2 2.6 2.9 2.3
Selling 12.9 10.7 9.9 9.8
General and administrative 6.3 8.9 6.2 8.4
In-process research and
development 24.6 -- 9.3 --
------ ------ ------ ------
Total costs and expenses 112.2% 92.2% 92.6% 93.1%
------ ------ ------ ------
Income (loss) from operations (12.2)% 7.8% 7.4% 6.9%
Interest income, net 1.1 0.8 0.6 0.5
------ ------ ------ ------
Income (loss) before income taxes (11.1) 8.6 8.0 7.4
------ ------ ------ ------
Net income (loss) (14.8)% 8.1% 2.8% 7.1%
====== ====== ====== ======
</TABLE>
Title Releases
The following table sets forth, for the three months and six months
ended June 30, 1998 and 1997, the Titles released during such periods for the
Platforms indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
PC CD-Rom __ 1 1 1
Nintendo 64 1 __ 1 __
PlayStation 1 3 4 4
SNES __ __ 1 5
Genesis __ __ __ 2
Game Boy 1 4 1 5
---- ---- ---- ----
Total 3 8 8 17
==== ==== ==== ====
</TABLE>
17
<PAGE> 18
COMPARISON OF THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998, TO THE THREE
MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
The Company's net sales increased 139% to $29,325,000 in the three
months ended June 30, 1998, from $12,265,000 in the same period of 1997, as a
result of significantly higher unit sales per title shipped and increased demand
for previously released Titles. For the three months ended June 30, 1998, net
sales of Quest 64, (the Company's second Nintendo 64 title), WCW vs. NWO for the
Nintendo 64, WCW Nitro for the Sony PlayStation, World Cup 98 for the Game Boy,
and The Granstream Saga for the Sony PlayStation were $13,547,000 (46.2% of the
net sales), $3,742,000 (12.8% of net sales) $3,096,000 (10.6% of net sales),
$2,627,000 (9.0% of net sales), and $2,132,000 (7.3% of net sales),
respectively. In the second quarter of 1997, net sales of the Company's WCW Vs
the World and K-1 Arena Fighters for the Sony PlayStation and the Company's
Disney Game Boy re-releases (Aladdin, Duck Tales, The Jungle Book, and The Lion
King) were $4,185,000 (34.1% of net sales), $1,627,000 (13.3% of net sales), and
$2,157,000 (17.6% of net sales), respectively. Due to the higher sales volume of
32-bit and 64-bit Titles (which generally have more favorable gross margins) in
the current period, the Company experienced gross margins of 53.6% versus 47.0%
in the comparable period of 1997.
The Company's net sales increased 223% to $77,778,000 in the six months
ended June 30, 1998, from $24,104,000 in the same period of 1997, as a result of
a significant increase in unit volumes for newly released Titles and continued
demand for previously released Titles. Cost of sales for the six months ended
June 30, 1998 decreased as a percentage of net sales to 43.7% from 57.0% in the
same period of 1997, for the reason described above.
Foreign net sales increased in dollar terms to $6,840,000 from
$1,685,000 and as a percentage of net sales to 23.3% from 13.7% in the three
months ended June 30, 1998 and 1997, respectively. This increase in foreign net
sales can be attributed to the release of World Cup 98, WCW Nitro and Vs in
foreign markets in 1998. Foreign net sales grew to $13,082,000 in the six months
ended June 30, 1998, from $6,461,000 in the same period of 1997, but decreased
as a percentage of net sales to 16.8% from 26.8%, because the Company's Quest 64
and The Granstream Saga Titles were shipped only in the United States.
Royalty expense remained relatively constant as a percentage of net
sales at 16.8% for the three months ended June 30, 1998 compared to 17.0% for
1997. It is anticipated that royalty rates will range between 19% and 22%
throughout the rest of 1998. Royalties increased as a percentage of net sales
for the six months ended June 30, 1998 to 20.6%, from 15.6% for the same period
of 1997, as royalty rates increased on development contracts for 32-bit and
64-bit Titles.
Product development expense for the three and six months ended June 30,
1998 increased $1,200,000 and $1,705,000, respectively, compared to the same
periods in 1997. This was due in part to the increased costs associated with the
development of 32-bit and 64-bit
18
<PAGE> 19
Titles, increased infrastructure expenditures, and the addition of the GameFx
studio on May 1, 1998.
For the three months and six months ended June 30, 1998, selling
expenses increased by $2,478,000 and $5,335,000, respectively, compared to the
same periods of 1997, as a result of increased marketing efforts for new Titles,
an increase in retail cooperative advertising and a television ad campaign to
promote the launch of its Quest 64 title. The increase in selling expenses over
prior periods is also due in part to increased infrastructure and personnel
costs (both domestically and internationally) incurred as a result of the
Company's growth.
General and administrative expenses for the three months and six months
ended June 30, 1998, increased in dollar terms by $744,000 and $2,768,000,
respectively, but decreased as a percentage of net sales over the comparable
periods of 1997. These increases were due in part to increased infrastructure
and personnel costs (both domestically and internationally) in 1998.
The in-process research and development charge of $7,232,000, incurred
during the second quarter of 1998 represents purchased costs relating to the
acquisition of GameFx Inc., an applied technology company focused on the
development of interactive entertainment software utilizing proprietary 3D
acceleration technology. See Note 2 of Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $8,502,000 from
$11,724,000 at December 31, 1997 to $20,226,000 at June 30, 1998. Cash provided
by operating activities for the six months ended June 30, 1997 and 1998 was
$6,470,000 and $12,035,000, respectively.
The Company's principal uses of cash are product purchases, guaranteed
payments to licensors, advance payments to developers and the costs of internal
Software development. In order to purchase products from the Manufacturers, the
Company typically opens letters of credit in their favor or obtains a line of
credit from the Manufacturer. As of June 30, 1998, the Company had obligations
with respect to future guaranteed minimum royalties of $10,212,000, all of which
are payable within the subsequent twelve months.
Accounts receivable decreased from December 31, 1997 to June 30, 1998,
as a result of the timing of sales and collections during the period. Prepaid
and deferred royalties and Software development costs increased from December
31, 1997 as a result of the Company entering into several new contracts for both
Properties and new product development. See "-- Recovery of Prepaid Royalties,
Guarantees and Capitalized Development Costs." Since the Company records as a
liability the entire guarantee of a contract at its inception, accrued royalties
also increased significantly from December 31, 1997. Accounts payable and
accrued expenses decreased significantly from December 31, 1997 as a result of
the timing of large product receipts in the last part of 1997 and the timing of
payments on accounts payable.
19
<PAGE> 20
The amount of the Company's accounts receivable is subject to
significant seasonal variations due to the seasonality of sales, and is
typically highest at the end of the year. As a result, the Company's working
capital requirements are greatest during its third and fourth quarters. The
Company believes that cash on hand and funds provided by operations will be
adequate to meet the Company's anticipated requirements for operating expenses,
product purchases, guaranteed payments to licensors and Software development
through 1998. The Company has not made, and does not anticipate making, material
additional capital expenditures in 1998.
Revolving Credit Facility. The Company has entered into an agreement with
Imperial Bank that established its revolving credit facility ("Revolving Credit
Facility"). The current term of the Revolving Credit Facility expires August 31,
1998, and the Company has been advised in writing by Imperial Bank that, subject
to the approval of the bank's board of directors, the Revolving Credit Facility
will be extended through June 30, 1999.
The Revolving Credit Facility permits the Company to maintain outstanding
borrowings of up to $23 million between October 1 and January 31 and up to $12
million at other times, subject to the requirement that borrowings be zero for
at least 30 consecutive days each year. Amounts borrowed under the Revolving
Credit Facility are secured by substantially all of the assets of the Company,
but the Company's availability under the Revolving Credit Facility is not based
on the value of any of such assets. Amounts outstanding under the Revolving
Credit Facility bear interest at Imperial Bank's prime rate. As of the date
hereof, the Company had no outstanding borrowings under the Revolving Credit
Facility and as of July 23, 1998, had obligations in respect of outstanding
letters of credit issued by Imperial Bank of $5.7 million.
The Revolving Credit Facility contains financial covenants, including
maintenance of (i) a minimum tangible net worth of not less than $23 million,
(ii) net current assets of not less than $7 million, (iii) a current ratio of
not less than 1.5, (iv) a ratio of total liabilities (excluding subordinated
indebtedness) to tangible net worth of not more than 1.0, and (v) profitability
in each fiscal year. The Revolving Credit Facility also contains customary
non-financial covenants generally operative only at such times as the Company
has any outstanding borrowings, including, among others, restrictions on the
incurrence of debt, encumbrances on or sales of assets, mergers and
acquisitions, dividends, annual capital expenditures and annual lease
obligations.
-------------------------------------------
20
<PAGE> 21
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 15, 1998.
The following matters were voted upon:
1. Six directors were elected:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
Brian J. Farrell 6,892,244 0 190,985
Lawrence Burstein 6,892,629 0 190,600
L. Michael Haller 6,892,629 0 190,600
Bruce Jagid 6,784,743 0 298,486
Jeffrey C. Lapin 6,892,629 0 190,600
James L. Whims 6,892,629 0 190,600
</TABLE>
2. A proposal to adopt an amendment to the Company's 1997
Stock Option Plan to increase the number of shares of the
Company's common stock available for issuance under such
plan from 650,000 shares to 1,100,000 shares was approved by
a vote of 2,534,060 for, 1,774,543 against, and 39,256
withheld.
On July 23, 1998, the Company announced a three-for-two stock split to
be effected in the form of a 50% stock dividend payable on or about August 24,
1998 to stockholders of record on August 20, 1998. The vote information listed
above has not been adjusted to give effect to this stock dividend.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------ -----
<S> <C>
2 Agreement of Merger dated as of April 17, 1998 among THQ Inc.,
GameFx Acquisition Company and GameFx, Inc. (filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated May 1, 1998 and
incorporated herein by reference)
3.1 Certificate of Incorporation (filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-3 (File No. 333-32221) and
incorporated herein by reference)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
3.2 Amendment to Certificate of Incorporation (filed as Exhibit 3.2 to
the Company's Registration Statement on Form S-3 (File No.
333-32221) and incorporated herein by reference)
3.3 Amended and Restated Bylaws
10 Amended and Restated 1997 Stock Option Plan
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Current Report on Form 8-K dated May 1, 1998
reporting under Items 2 and 7.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1998 THQ INC.
By: /s/ Brian J. Farrell
------------------------------
Brian J. Farrell
President and Chief
Executive Officer
THQ INC.
By: /s/ Fred Gysi
------------------------------
Fred Gysi
Vice President Finance
and Administration
Principal Accounting Officer
23
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
THQ INC.
Amended and Restated as of June 15, 1998
ARTICLE I
Stockholders Meetings
Section 1.1. Annual Meetings. (a) An annual meeting of stockholders
shall be held for the election of directors at such date, time and place as may
be fixed by resolution of the Board of Directors from time to time. Subject to
paragraph (b) of this Section 1.1, any other proper business may be transacted
at an annual meeting.
(b) Only such business shall be conducted at an annual meeting of
stockholders as shall have been properly brought before the meeting. For
business to be properly brought before the meeting, it must be: (i) authorized
by the Board of Directors and specified in the notice, or a supplemental notice,
of the meeting, (ii) otherwise brought before the meeting by or at the direction
of the Board of Directors or the chairman of the meeting, or (iii) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given written notice thereof to the Secretary, delivered or mailed to and
received at the principal executive offices of the Corporation (x) not less than
60 days nor more than 90 days prior to the meeting, or (y) if less than 70 days'
notice of the meeting or prior public disclosure of the date of the meeting is
given or made to stockholders, not later than the close of business on the tenth
day following the day on which the notice of the meeting was mailed or, if
earlier, the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each item of business the
stockholder proposes to bring before the meeting (1) a brief description of such
item and the reasons for conducting such business at the meeting, (2) the name
and address, as they appear on the Corporation's records, of the stockholder
proposing such business, (3) the class and number of shares of stock of the
Corporation which are beneficially owned by the stockholder (for purposes of the
regulations under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended), and (4) any material interest of the stockholder in such business. No
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the meeting at which
any business is proposed by a stockholder shall, if the facts warrant, determine
and declare to the meeting that such business was not properly brought before
the meeting in accordance with the provisions of this paragraph (b), and, in
such event, the business not properly before the meeting shall not be
transacted.
Section 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Chairman of the Board,
if any, the President, the Board of Directors or by a committee of the Board of
Directors authorized to call such meetings, and by the President or the
Secretary at the written request of the holder(s) of at least ten percent
<PAGE> 2
10% of the Common Stock then outstanding and entitled to vote thereat. The
business transacted at a special meeting of stockholders shall be limited to the
purpose or purposes for which such meeting is called, except as otherwise
determined by the Board of Directors or the chairman of the meeting.
Section 1.3. Notice of Meetings. (a) A written notice of each annual
or special meeting of stockholders shall be given stating the place, date and
time of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Notice of a special meeting shall also
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle stockholders to receive payment for their shares
pursuant to the DGCL, the notice of such meeting shall include a statement of
that purpose and to that effect. Unless otherwise provided by law, the
Certificate of Incorporation or these Bylaws, such notice of meeting shall be
given not less than ten nor more than 50 days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at such stockholder's address as it appears on the
records of the Corporation.
(b) Notice of any meeting need not be given to any person who may
become a stockholder of record after the mailing of such notice and prior to the
meeting, or to any stockholder who attends such meeting, in person or by proxy,
or to any stockholder who, in person or by proxy, submits a signed waiver of
notice either before or after such meeting. Notice of any adjourned meeting of
stockholders need not be given, unless otherwise required by stature.
Section 1.4. Adjournments. Any annual or special meeting of
stockholders may be adjourned from time to time to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
date, time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting any business may be transacted
which might have been transacted at the original meeting. If the adjournment is
for more than 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 adjourned meeting in
accordance with Section 1.3.
Section 1.5. Quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the presence in person or by proxy
of the holders of stock having a majority of the votes which could be cast by
the holders of all outstanding stock entitled to vote at the meeting shall
constitute a quorum at each meeting of stockholders. In the absence of a quorum,
the stockholders so present may, by the affirmative vote of the holders of stock
having a majority of the votes which could be cast by all such holders, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
By-laws until a quorum is present. If a quorum is present when a meeting is
convened, the subsequent withdrawal of stockholders, even though less than a
quorum remains, shall not affect the ability of the remaining stockholders
lawfully to transact business. At any adjourned meeting at which a quorum is
present, any
2
<PAGE> 3
business may be transacted which might have been transacted at their meeting as
originally called if a quorum had been present.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if there is none or in
his or her absence, by the President, or in his or her absence, by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7. Voting. (a) Except as otherwise provided by the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power on the matter in question.
(b) Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so required by
Section 1.9 of these Bylaws or so determined by the holders of stock having a
majority of the votes which could be cast by the holders of all outstanding
stock entitled to vote which are present in person or by proxy at such meeting.
Unless otherwise provided in the Certificate of Incorporation, directors shall
be elected by a plurality of the votes cast in the election of directors. Each
other question shall, unless otherwise provided by law, the Certificate of
Incorporation or these Bylaws, be decided by the vote of the holders of stock
having a majority of the votes which could be cast by the holders of all stock
entitled to vote on such question which are present in person or by proxy at the
meeting.
(c) Stock of the Corporation standing in the name of another
corporation and entitled to vote may be voted by such officer, agent or proxy as
the By-Laws or other internal regulations of such other corporation may
prescribe or, in the absence of such provision, as the board of directors or
comparable body of such other corporation may determine.
(d) Stock of the Corporation standing in the name of a deceased
person, a minor, an incompetent or a debtor in a case under Title 11, United
States Code, and entitled to vote may be voted by an administrator, executor,
guardian, conservator, debtor-in-possession or trustee, as the case may be,
either in person or by proxy, without transfer of such shares into the name of
the official or other person so voting.
(e) A stockholder whose voting stock of the Corporation is pledged
shall be entitled to vote such stock unless on the transfer records of the
Corporation the pledgor has expressly empowered the pledgee to vote such shares,
in which case only the pledgee, or such pledgee's proxy, may represent such
shares and vote thereon.
(f) If voting stock is held of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting
3
<PAGE> 4
the same shares, unless the Secretary is given written notice to the contrary
and is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect: (i) if only one votes, such act binds
all; (ii) if more than one vote, the act of the majority so voting binds all;
and (iii) if more than one votes, but the vote is evenly split on any particular
matter each faction may vote such stock proportionally, or any person voting the
shares, or a beneficiary, if any, may apply to the Court of Chancery of the
State of Delaware or such other court as may have jurisdiction to appoint an
additional person to act with the persons so voting the stock, which shall then
be voted as determined by a majority of such persons and the person appointed by
the Court. If the instrument so filed shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
shall be a majority or even split in interest.
(g) Stock of the Corporation belonging to the Corporation, or to
another corporation a majority of the shares entitled to vote in the election of
directors of which are held by the Corporation, shall not be voted at any
meeting of stockholders and shall not be counted in the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in this Section 1.7 shall limit the right of the Corporation to vote
shares of stock of the Corporation held by it in a fiduciary capacity.
Section 1.8. Proxies. (a) Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy filed with the Secretary before or at the time of the
meeting. No such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy which is not irrevocable by attending
the meeting and voting in person or by filing with the Secretary an instrument
in writing revoking the proxy or another duly executed proxy bearing a later
date.
(b) A stockholder may authorize another person or persons to act
for such stockholder as proxy (i) by executing a writing authorizing such person
or persons to act as such, which execution may be accomplished by such
stockholder or such stockholder's authorized officer, director, partner,
employee or agent (or, if the stock is held in a trust or estate, by a trustee,
executor or administrator thereof) signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means, including, but
not limited to, facsimile signature, or (ii) by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
(a "Transmission") to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
Transmission; provided that any such Transmission must either set forth or be
submitted with information from which it can be determined that such
Transmission was authorized by such stockholder.
(c) Any inspector or inspectors appointed pursuant to Section 1.9
of these By-Laws shall examine Transmissions to determine if they are valid. If
no inspector or inspectors
4
<PAGE> 5
are so appointed, the Secretary or such other person or persons as shall be
appointed from time to time by the Board of Directors shall examine
Transmissions to determine if they are valid. If it is determined a Transmission
is valid, the person or persons making that determination shall specify the
information upon which such person or persons relied. Any copy, facsimile
telecommunication or other reliable reproduction of such a writing or
Transmission may be substituted or used in lieu of the original writing or
Transmission for any and all purposes for which the original writing or
Transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or Transmission.
Section 1.9. Voting Procedures and Inspectors of Elections. (a) So
long as the Corporation has a class of voting stock that is (i) listed on a
national securities exchange, (ii) authorized for quotation on an interdealer
quotation system of a registered national securities association or (iii) held
of record by more than 2,000 stockholders, the Board of Directors shall, in
advance of any meeting of stockholders, appoint one or more inspectors
(individually an "Inspector," and collectively the "Inspectors") to act at such
meeting and make a written report thereof. The Board of Directors may designate
one or more persons as alternate Inspectors to replace any Inspector who shall
fail to act. If no Inspector or alternate is able to act at such meeting, the
chairman of the meeting shall appoint one or more other persons to act as
Inspectors. Each Inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
Inspector with strict impartiality and according to the best of his or her
ability.
(b) The Inspectors shall (i) ascertain the number of shares of
stock of the Corporation outstanding and the voting power of each, (ii)
determine the number of shares of stock of the Corporation present in person or
by proxy at such meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
Inspectors and (v) certify their determination of the number of such shares
present in person or by proxy at such meeting and their count of all votes and
ballots. The Inspectors may appoint or retain other persons or entities to
assist them in the performance of their duties.
(c) The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by any stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the Inspectors shall be limited to an examination of the proxies, any
envelopes submitted with such proxies, any information referred to in paragraphs
(b) and (c) of Section 1.8 of these Bylaws, ballots and the regular books and
records of the Corporation, except that the Inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent
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more votes than the holder of a proxy is authorized by a stockholder of record
to cast or more votes than such stockholder holds of record. If the Inspectors
consider other reliable information for the limited purpose permitted herein,
the Inspectors, at the time they make their certification pursuant to paragraph
(b) of this Section 1.9, shall specify the precise information considered by
them, including the person or persons from whom such information was obtained,
when and the means by which such information was obtained and the basis for the
Inspectors' belief that such information is accurate and reliable.
Section 1.10. Fixing Date of Determination of Stockholders of
Record. (a) In order that the corporation may determine the stockholders
entitled (i) to notice of or to vote at any meeting of stockholders or any
adjournment thereof, (ii) to express consent to corporate action in writing
without a meeting, (iii) to receive payment of any dividend or other
distribution or allotment of any rights, (iv) to exercise any rights in respect
of any change, conversion or exchange of stock or (v) to take, receive or
participate in any other action, the Board of Directors may fix a record date,
which shall not be earlier than the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which (1) in the case of a
determination of stockholders entitled to notice of or to vote at any meeting of
stockholders or adjournment thereof, shall, unless otherwise required by law, be
not more than 50 nor less than ten days before the date of such meeting; (2) in
the case of a determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall be not more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors; and (3) in the case of any other action, shall be not
more than 50 days before such action.
(b) If no record date is fixed, (i) 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; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (iii) 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.
(c) 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, but the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.11. List of Stockholders Entitled to Vote. The Secretary
shall prepare, at least ten 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 and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination
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of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of 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. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 1.12. Action By Consent of Stockholders. (a) Unless the
power of stockholders to act by consent without a meeting is restricted or
eliminated by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of all of
outstanding stock entitled to vote thereon.
(b) Every written consent shall bear the date of signature of each
stockholder (or his, her or its proxy) signing such consent. Prompt notice of
the taking of corporate action without a meeting of stockholders by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. All such written consents shall be delivered to the
Corporation at its registered office in the State of Delaware, at its principal
place of business or to the Secretary. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. No written consent shall be effective to authorize or take
the corporate action referred to therein unless, within 60 days of the earliest
dated written consent delivered to the Corporation in the manner required by
this Section 1.12, written consents signed by a sufficient number of persons to
authorize or take such action are delivered to the Corporation at its registered
office in the State of Delaware, at its principal place of business or to the
Secretary. All such written consents shall be filed with the minutes of
proceedings of the stockholders, and actions authorized or taken under such
written consents shall have the same force and effect as those authorized or
taken pursuant to a vote of the stockholders at an annual or special meeting.
ARTICLE II
Board of Directors
Section 2.1. Number. The Board of Directors shall consist of one or
more directors, the number thereof to be determined from time to time by
resolution of the Board of Directors.
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Section 2.2. Election; Resignation; Vacancies. (a) At each annual
meeting of stockholders the stockholders shall elect directors each of whom
shall hold office until the next annual meeting of stockholders and the election
and qualification of his or her successor, or until his or her earlier death,
resignation or removal.
(b) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (b) shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the Board
of Directors may be made at a meeting of stockholders by the Board of Directors
or by any stockholder of the Corporation entitled to vote in the election of
directors at the meeting who complies with the notice procedures set forth in
this paragraph (b). Any nomination by a stockholder must be made by written
notice to the Secretary delivered or mailed to and received at the principal
executive offices of the Corporation (i) not less than 60 days nor more than 90
days prior to the meeting, or (ii) if less than 70 days' notice of the meeting
or prior public disclosure of the date of the meeting is given or made to
stockholders, not later than the close of business on the tenth day following
the day on which the notice of the meeting was mailed or, if earlier, the day on
which such public disclosure was made. A stockholder's notice to the Secretary
shall set forth (x) as to each person whom the stockholder proposes to nominate
for election or re-election as a director: (1) the name, age, business address
and residence address of such person, (2) the principal occupation or employment
of such person, (3) the class and number of shares of stock of the Corporation
which are beneficially owned by such person (for the purposes of the regulations
under Sections 13 and 14 of the Securities Exchange Act of 1934, as amended),
and (4) any other information relating to such person that would be required to
be disclosed in solicitations of proxies for the election of such person as a
director of the Corporation pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, and such person's written consent to being
named in any proxy statement as a nominee and to serving as a director if
elected; and (y) as to the stockholder giving notice (5) the name and address,
as they appear on the Corporation's records, of such stockholder and (6) the
class and number of shares of stock of the Corporation which are beneficially
owned by such stockholder (determined as provided in clause (x)(3) above). At
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. The chairman of the meeting at which a
stockholder nomination is presented shall, if the facts warrant, determine and
declare to the meeting that such nomination was not made in accordance with the
procedures prescribed by this paragraph (b), and, in such event, the defective
nomination shall be disregarded.
(c) Any director may resign at any time by giving written notice
to the Chairman of the Board, if any, the President or the Secretary. Unless
otherwise stated in a notice of resignation, it shall take effect when received
by the officer to whom it is directed, without any need for its acceptance.
(d) Any newly created directorship or any vacancy occurring in the
Board of Directors for any reason may be filled by a majority of the remaining
directors, although less than a quorum, or by a plurality of the votes cast in
the election of directors at a meeting of
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stockholders. Each director elected to replace a former director shall hold
office until the expiration of the term of office of the director whom he or she
has replaced and the election and qualification of his or her successor, or
until his or her earlier death, resignation or removal. A director elected to
fill a newly created directorship shall serve until the next annual meeting of
stockholders and the election and qualification of his or her successor, or
until his or her earlier death, resignation or removal.
Section 2.3. Regular Meetings. A regular annual meeting of the Board
of Directors shall be held, without call or notice, immediately after and at the
same place as the annual meeting of stockholders, for the purpose of organizing
the Board of Directors, electing officers and transacting any other business
that may properly come before such meeting. If the stockholders shall elect the
directors by written consent of stockholders as permitted by Section 1.12 of
these By-Laws, a special meeting of the Board of Directors shall be called as
soon as practicable after such election for the purposes described in the
preceding sentence. Additional regular meetings of the Board of Directors may be
held without call or notice at such times as shall be fixed by resolution of the
Board of Directors.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if any, the President, the
Secretary, or by any member of the Board of Directors. Notice of a special
meeting of the Board of Directors shall be given by the person or persons
calling the meeting at least twenty-four hours before the special meeting. The
purpose or purposes of a special meeting need not be stated in the call or
notice.
Section 2.5. Organization. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or if there is none or in
his or her absence, by the President, or in his or her absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting. A majority of the directors present at a meeting,
whether or not they constitute a quorum, may adjourn such meeting to any other
date, time or place without notice other than announcement at the meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. Unless the Certificate of
Incorporation or these Bylaws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 2.7. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members present at any meeting and not
disqualified from voting, whether or not a quorum, may unanimously appoint
another member of the Board
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of Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and provided in the
resolution of the Board of Directors designating such committee, or an amendment
to such resolution, 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 which may require it.
Section 2.8. Telephonic Meetings. Directors, or any committee of
directors designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such 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 participation in a meeting pursuant to this
Section 2.8 shall constitute presence in person at such meeting.
Section 2.9. Informal Action by Directors. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing (which may be in counterparts), and the written consent or consents are
filed with the minutes of proceedings of the Board of Directors or such
committee.
Section 2.10. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to this Article II of these
By-laws.
Section 2.11 Reliance upon Records. Every director, and every member
of any committee of the Board of Directors, shall, in the performance of his or
her duties, be fully protected in relying in good faith upon the records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board of Directors, or by any other person as to matters the director or member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation, including, but not limited to, such records, information, opinions,
reports or statements as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of surplus or other funds from which dividends might
properly be declared and paid, or with which the Corporation's capital stock
might properly be purchased or redeemed.
Section 2.12 Interested Directors. A director who is directly or
indirectly a party to a contract or transaction with the Corporation, or is a
director or officer of or has a financial interest in any other corporation,
partnership, association or other organization which is a party to a contract or
transaction with the Corporation, may be counted in determining whether a quorum
is present at any meeting of the Board of Directors or a committee thereof at
which such contract or transaction is considered or authorized, and such
director may participate in such
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meeting and vote on such authorization to the extent permitted by applicable
law, including Section 144 of the General Corporation Law of the State of
Delaware.
Section 2.13 Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors. The directors shall be paid their reasonable
expenses, if any, of attendance at each meeting of the Board of Directors or a
committee thereof and may be paid a fixed sum for attendance at each such
meeting and an annual retainer or salary for services as a director or committee
member. No such payment shall preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.
Section 2.14 Presumption of Assent. Unless otherwise provided by the
laws of the State of Delaware, a director who is present at a meeting of the
Board of Directors or a committee thereof at which action is taken on any matter
shall be presumed to have assented to the action taken unless his or her dissent
shall be entered in the minutes of such meeting or unless he or she shall file
his or her written dissent to such action with the person acting as secretary of
such meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of such
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
ARTICLE III
Officers
Section 3.1. Executive Officers; Election; Qualification; Term of
Office. The Board of Directors shall elect a President and may, if it so
determines, a Chairman of the Board from among its members. The Board of
Directors shall also elect a Secretary. The Board of Directors may also elect a
Chief Financial Officer, a Treasurer and one or more Vice Presidents, Assistant
Secretaries, Assistant Chief Financial Officers, and Assistant Treasurers, and
such other officers as the Board of Directors may deem necessary or appropriate
from time to time. Any number of offices may be held by the same person. Each
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or her
earlier death, resignation or removal. [As amended on June 15, 1998]
Section 3.2. Resignation; Removal; Vacancies. Any officer may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President or the Secretary. Unless otherwise stated in a notice of resignation,
it shall take effect when received by the officer to whom it is directed,
without any need for its acceptance. The Board of Directors may remove any
officer with or without cause at any time and a successor appointed by the Board
of Directors at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation. A vacancy
occurring in any office of the Corporation may be filled
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for the unexpired portion of the term thereof by the Board of Directors at any
regular or special meeting.
Section 3.3. Powers and Duties of Executive Officers. The officers
of the Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
Section 3.4. Chief Executive Officer. Unless the Board of Directors
elects a Chairman of the Board who is designated as such, the President shall be
the Chief Executive Officer of the Corporation and shall in general supervise
and control all of the business affairs of the Corporation, subject to the
direction of the Board of Directors. The President may execute, in the name and
on behalf of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors or a committee thereof has authorized
to be executed, except in cases where the execution shall have been expressly
delegated by the Board of Directors or a committee thereof to some other officer
or agent of the corporation.
Section 3.5. Secretary. In addition to such other duties, if any, as
may be assigned to the Secretary by the Board of Directors, the Chairman of the
Board, if any, or the President, the Secretary shall (i) keep the minutes of
proceedings of the stockholders, the Board of Directors and any committee of the
Board of Directors in one or more books provided for that purpose; (ii) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (iii) be the custodian of the records and seal of the
Corporation; (iv) affix or cause to be affixed the seal of the Corporation or a
facsimile thereof, and attest the seal by his or her signature, to all
certificates for shares of stock of the Corporation and to all other documents
the execution of which under seal is authorized by the Board of Directors; and
(v) unless such duties have been delegated by the Board of Directors to a
transfer agent of the Corporation, keep or cause to be kept a register of the
name and address of each stockholder, as the same shall be furnished to the
Secretary by such stockholder, and have general charge of the stock transfer
records of the Corporation.
ARTICLE IV
Stock Certificates and Transfers
Section 4.1. Certificate. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board, if any, or the President or a Vice President, and by the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any of or all the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
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registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such officer, transfer agent, or registrar continued to be
such at the date of issue.
Section 4.2. Lost, Stolen or Destroyed Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate for stock 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 such stockholder's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 4.3. Transfers of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for stock of the
Corporation duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer or, if the relevant stock certificate is
claimed to have been lost, stolen or destroyed, upon compliance with the
provisions of Section 4.2 of these Bylaws, and upon payment of applicable taxes
with respect to such transfer, and in compliance with any restrictions on
transfer applicable to such stock certificate or the shares represented thereby
of which the Corporation shall have notice and subject to such rules and
regulations as the Board of Directors may from time to time deem advisable
concerning the transfer and registration of stock certificates, the Corporation
shall issue a new certificate or certificates for such stock to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Transfers of stock shall be made only on the books of the Corporation by
the registered holder thereof or by such holder's attorney or successor duly
authorized as evidenced by documents filed with the Secretary or transfer agent
of the Corporation. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the certificate or certificates representing such stock are presented
to the Corporation for transfer, both the transferor and transferee request the
Corporation to do so.
Section 4.4 Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any stock of the Corporation as the
holder thereof and shall not be bound to recognize any equitable or other claim
to or interest in such stock on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise required by the
laws of the State of Delaware.
ARTICLE V
Notices
Section 5.1. Manner of Notice. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, whenever notice is required to
be given to any
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stockholder, director or member of any committee of the Board of Directors, such
notice may be given by personal delivery or by depositing it, in a sealed
envelope, in the United States mails, first class, postage prepaid, addressed,
or by delivering it to a telegraph company, charges prepaid, for transmission,
or by transmitting it via telecopier, to such stockholder, director or member,
either at the address of such stockholder, director or member as it appears on
the records of the Corporation or, in the case of such a director or member, at
his or her business address; and such notice shall be deemed to be given at the
time when it is thus personally delivered, deposited, delivered or transmitted,
as the case may be. Such requirement for notice shall also be deemed satisfied,
except in the case of stockholder meetings, if actual notice is received orally
or by other writing by the person entitled thereto as far in advance of the
event with respect to which notice is being given as the minimum notice period
required by law or these Bylaws.
Section 5.2. Dispensation with Notice. (a) Whenever notice is
required to be given by law, the Certificate of Incorporation or these Bylaws to
any stockholder to whom (i) notice of two consecutive annual meetings of
stockholders, and all notices of meetings of stockholders or of the taking of
action by stockholders by written consent without a meeting to such stockholder
during the period between such two consecutive annual meetings, or (ii) all, and
at least two, payments (if sent by first class mail) of dividends or interest on
securities of the Corporation during a 12-month period, have been mailed
addressed to such stockholder at the address of such stockholder as shown on the
records of the Corporation and have been returned undeliverable, the giving of
such notice to such stockholder shall not be required. Any action or meeting
which shall be taken or held without notice to such stockholder shall have the
same force and effect as if such notice had been duly given. If any such
stockholder shall deliver to the Corporation a written notice setting forth the
then current address of such stockholder, the requirement that notice be given
to such stockholder shall be reinstated.
(b) Whenever notice is required to be given by law, the
Certificate of Incorporation or these Bylaws to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required, and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given.
Section 5.3. Waivers of Notice. Any written waiver of notice, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of any regular special meeting of the stockholders, directors, or
members of a committee or directors need be specified in any written waiver of
notice.
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ARTICLE VI
General
Section 6.1. Fiscal year. The fiscal year of the Corporation shall
be determined by resolution of the Board of Directors, subject to applicable
law.
Section 6.2. Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 6.3. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.4. Amendment of Bylaws. These Bylaws may be altered or
repealed, and new Bylaws made, by the Board of Directors, but the stockholders
may make additional Bylaws and may alter and repeal any Bylaws whether adopted
by them or otherwise.
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Exhibit 10
THQ INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
(Amended as of June 15 and July 30, 1998)
I. INTRODUCTION
1.1 PURPOSES. The purposes of the 1997 Stock Option Plan (this "Plan")
of THQ Inc. (the "Company"), and its subsidiaries (individually a "Subsidiary"
and collectively the "Subsidiaries") are (i) to align the interests of the
Company's stockholders and the recipients of options under this Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success, (ii) to advance the interests of the Company by attracting and
retaining officers, other employees, consultants, advisors and well-qualified
persons who are not officers or employees of the Company for service as
directors of the Company, and (iii) to motivate such persons to act in the
long-term best interests of the Company's stockholders. For purposes of this
Plan, references to employment by the Company shall also mean employment by a
Subsidiary.
1.2 ADMINISTRATION. This Plan shall be administered either by the Board
of Directors of the Company (the "Board") or by a committee (the "Committee")
designated by the Board consisting of two or more members of the Board each of
whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (if
the Board wishes to qualify under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") an "outside director" within the meaning of
Section 162(m) of the Code. As used herein, the term "Committee" shall mean the
Board if no such committee is designated, and shall mean such committee during
such times as it is so designated.
The Committee shall, subject to the terms of this Plan, select eligible
persons for participation in this Plan and shall determine the number of shares
of Common Stock subject to each option granted hereunder, the exercise price of
such option, the time and conditions of exercise of such option and all other
terms and conditions of such option, including, without limitation, the form of
the written option agreement between the Company and the optionee that
evidences each option and sets forth the terms and conditions of such option
(the "Agreement"). The Committee shall, subject to the terms of this Plan,
interpret this Plan and the application thereof, establish such rules and
regulations it deems necessary or desirable for the administration of this Plan
and may impose, incidental to the grant of an option, conditions with respect
to the grant, such as limiting competitive employment or other activities. All
such interpretations, rules, regulations and conditions shall be final, binding
and conclusive. The Committee may, in its sole discretion and for any reason at
any time, subject to the requirements imposed under Section 162(m) of the Code
and regulations promulgated thereunder in the case of an option intended to be
qualified performance-based compensation, take action such that any or all
outstanding options shall become exercisable in part or in full.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or other executive officer of the
Company as the Committee deems appropriate; provided, however, that the
Committee may not delegate its power and authority with regard to the selection
for participation in this Plan of an officer or other person subject to Section
16 of the Exchange Act or decisions concerning the timing, pricing or amount of
an option grant to such an officer or other person.
No member of the Board of Directors or the Committee, and neither the
Chief Executive Officer nor other executive officer to whom the Committee
delegates any of its power and authority hereunder,
<PAGE> 2
shall be liable for any act, omission, interpretation, construction or
determination made in connection with this Plan in good faith, and the members
of the Board of Directors and the Committee and the Chief Executive Officer or
other executive officer shall be entitled to indemnification and reimbursement
by the Company in respect of any claim, loss, damage or expense (including
attorneys' fees) arising therefrom to the full extent permitted by law and
under any directors' and officers' liability insurance that may be in effect
from time to time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by all of the members of the Committee without a meeting.
1.3 ELIGIBILITY. Participants in this Plan shall consist of such
officers, other employees, consultants and advisors of the Company and its
Subsidiaries from time to time as the Committee in its sole discretion may
select from time to time. The Committee's selection of a person to participate
in this Plan at any time shall not require the Committee to select such person
to participate in this Plan at any other time. Non-employee directors of the
Company shall be eligible to participate in this Plan in accordance with
Section III.
1.4 SHARES AVAILABLE. Subject to adjustment as provided in Section 4.7,
1,100,000 shares of the common stock, $0.01, of the Company ("Common Stock"),
shall be available for grants of options under this Plan, reduced by the sum of
the aggregate number of shares of Common Stock which become subject to
outstanding options. To the extent that shares of Common Stock subject to an
outstanding option are not issued or delivered by reason of the expiration,
termination, cancellation or forfeiture of such option, then such shares of
Common Stock shall again be available under this Plan.
Shares of Common Stock shall be made available from authorized and
unissued shares of Common Stock, or authorized and issued shares of Common
Stock reacquired and held as treasury shares or otherwise or a combination
thereof.
II. STOCK OPTIONS
2.1 GRANTS OF STOCK OPTIONS. The Committee may, in its discretion,
grant options to purchase shares of Common Stock to such eligible persons as
may be selected by the Committee. Each option, or portion thereof, that is not
an incentive stock option, shall be a non-qualified stock option. An incentive
stock option shall mean an option to purchase shares of Common Stock that meets
the requirements of Section 422 of the Code, or any successor provision, which
is intended by the Committee to constitute an incentive stock option. Each
incentive stock option shall be granted within ten years of the effective date
of this Plan. To the extent that the aggregate Fair Market Value (determined as
of the date of grant) of shares of Common Stock with respect to which options
designated as incentive stock options are exercisable for the first time by a
participant during any calendar year (under this Plan or any other plan of the
Company, or any Subsidiary as defined in Section 424 of the Code) exceeds the
amount (currently $100,000) established by the Code, such options shall
constitute non-qualified stock options. "Fair Market Value" shall mean the
closing transaction price of a share of Common Stock as reported in the NASDAQ
National Market System, or other exchange where the Common Stock is listed, on
the date as of which such value is being determined or, if there shall be no
reported transactions on such date, on the next preceding date for which
transactions were reported; provided that if Fair Market Value for any date
cannot be determined as above provided, Fair Market Value
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shall be determined by the Committee by whatever means or method as the
Committee, in the good faith exercise of its discretion, shall at such time
deem appropriate.
2.2 TERMS OF STOCK OPTIONS. Options shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of this Plan, as the Committee shall deem
advisable:
(a) Number of Shares and Purchase Price. The number of shares of Common
Stock subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that such purchase price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date of grant of such
option; provided further, that if an incentive stock option shall be granted to
any person who, at the time such option is granted, owns capital stock
possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any Subsidiary) (a "Ten Percent
Holder"), the purchase price per share of Common Stock shall be the price
(currently 110% of Fair Market Value) required by the Code in order to
constitute an incentive stock option.
(b) Option Period and Exercisability. The period during which an option
may be exercised shall be determined by the Committee; provided, however, that
no incentive stock option shall be exercised later than ten years after its
date of grant; provided further, that if an incentive stock option shall be
granted to a Ten Percent Holder, such option shall not be exercised later than
five years after its date of grant. The Committee may, in its discretion,
establish performance measures or other criteria which shall be satisfied or
met as a condition to the grant of an option or to the exercisability of all or
a portion of an option. The Committee shall determine whether an option shall
become exercisable in cumulative or non-cumulative installments and in part or
in full at any time. An exercisable option, or portion thereof, may be
exercised only with respect to whole shares of Common Stock. Notwithstanding
Section 2.3 hereof or the provisions of any Agreement, the Committee may in its
sole and absolute discretion extend the time for the exercise of any option.
(c) Method of Exercise. An option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of Common
Stock to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Company's satisfaction) either (A) in
cash, (B) by delivery of previously owned whole shares of Common Stock (which
the optionee has held for at least six months prior to the delivery of such
shares or which the optionee has purchased on the open market and in each case
for which the optionee has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value, determined as of the date
of exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise, or (D) a combination
of (A), (B) and (C), in each case to the extent not prohibited by the Agreement
relating to the option and (ii) by executing such documents as the Company may
reasonably request; provided, however, that notwithstanding the foregoing or
anything in the Agreement relating to such option to the contrary, the Company
shall have sole discretion to disapprove of an election pursuant to clauses
(B)-(D). Any fraction of a share of Common Stock which would be required to pay
such purchase price shall be disregarded and the remaining amount due shall be
paid in cash by the optionee. No certificate representing Common Stock shall be
delivered until the full purchase price therefor has been paid (or arrangement
made for such payment to the Company's satisfaction).
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<PAGE> 4
2.3 TERMINATION OF EMPLOYMENT
(a) Total Disability. Unless otherwise specified in the Agreement
relating to an option, if an optionee's employment with the Company terminates
by reason of Total Disability, each option held by such optionee shall be
exercisable only to the extent that such option is exercisable on the effective
date of such optionee's termination of employment and may thereafter be
exercised by such optionee (or such optionee's legal representative or similar
person) until and including the earliest to occur of (i) the date which is one
year (or such other period as set forth in the Agreement relating to such
option) after the effective date of such optionee's termination of employment,
and (ii) the expiration date of the term of such option. For purposes of this
Plan, "Total Disability" shall, with respect to any optionee who at such time is
employed by the Company, mean the permanent and total disability of such
optionee as described in such optionee's written employment agreement; and
otherwise shall mean the inability of such optionee substantially to perform
such optionee's duties and responsibilities for a continuous period of six
months.
(b) Death. Unless otherwise specified in the Agreement relating to
an option, if an optionee's employment with the Company terminates by reason of
death, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the date of such optionee's death and
may thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth
in the Agreement relating such option) after the date of death and (ii) the
expiration date of the term of such option.
(c) Termination for Cause. Unless otherwise specified in the
Agreement relating to an option, if the employment of the holder of such option
is terminated by the Company for Cause, such option shall terminate
automatically on the date of such termination. For purposes of this Plan,
"Cause" shall, with respect to any optionee who at such time has a written
employment agreement with the Company, have the meaning ascribed thereto in
such agreement and (i) shall also include an optionee's termination of his
employment for any reason, but (ii) shall not include termination by reason of
an optionee's Total Disability notwithstanding any language to the contrary in
such employment agreement; and otherwise shall mean the willful and continued
failure to substantially perform the duties with the Company (other than a
failure resulting from the optionee's Total Disability), the willful engaging
in conduct is demonstrably injurious to the Company or any Subsidiary,
monetarily or otherwise, including conduct that, in the reasonably judgment of
the Company, does not conform to the standard of the Company's executives, any
act of dishonesty, commission of a felony or a significant violation of any
statutory or common law duty of loyalty to the Company, or such optionee's
termination of his employment for any reason.
(d) Other Termination. Unless otherwise specified in the Agreement
relating to an option, if an optionee's employment with the Company is
terminated by the Company for any reason other than Total Disability, death or
for Cause, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee's
termination of employment and may thereafter be exercised by such optionee (or
such optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months (or such other period
as set forth in the Agreement relating to such option) after the effective date
of such optionee's termination of employment, and (ii) the expiration date of
the term of such option; provided, however, that if the optionee's employment
with the Company is terminated by the Company within the nine-month period
following the consummation of a Transaction (as defined in Section 4.8(a)) for
any reason other than Total Disability, death or for Cause,
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<PAGE> 5
each option held by such optionee shall become fully exercisable, and may
thereafter be exercised by such holder (or such holder's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is three months after the effective date of such optionee's termination of
employment and (ii) the expiration date of the term of such option; provided
further, that if the optionee's employment with the Company is terminated by
the Company at any other time for any reason other than Total Disability, death
or for Cause, the Committee may, in its sole and absolute discretion, provide
that each option held by such optionee shall become fully exercisable and may
thereafter be exercised by such holder (or such holder's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is three months after the effective date of such optionee's termination of
employment and (ii) the expiration date of the term of such option.
(e) Death Following Termination of Employment. Unless otherwise
specified in the Agreement relating to an option, if an optionee dies during the
period set forth in Section 2.3(a) following termination of employment by reason
of Total Disability, or if an optionee dies during the period set forth in
Section 2.3(d) following termination of employment by the Company for any reason
other than Total Disability, death or for Cause, each option held by such
optionee shall be exercisable only to the extent that such option is exercisable
on the date of such optionee's death and may thereafter be exercised by such
optionee's executor, administrator, legal representative, beneficiary or similar
person, as the case may be, until and including the earliest to occur of (i) the
date which is one year (or such other period as set forth in the Agreement
relating to such option) after the date of death and (ii) the expiration date of
the term of such option.
III. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
3.1 ELIGIBILITY. Each member of the Board of Directors of the Company
who is not an employee, either full-time or part-time, of the Company or any
Subsidiary (a "non-employee director") shall be granted options to purchase
shares of Common Stock in accordance with this Section III. All options granted
under this Section III shall constitute non-qualified stock options.
3.2 GRANTS OF STOCK OPTIONS. Each non-employee director shall be granted
non-qualified stock options as follows:
(a) Time of Grant. Commencing on July 1, 1997 (or, if later, on the date
on which a person is first elected or begins to serve as a non-employee director
other than by reason of termination of employment with the Company or any
Subsidiary), and, on each January, April, July and October thereafter, each
person who is a non-employee director on such date shall be granted an option to
purchase 2,500 shares of Common Stock (which amount shall be pro-rated if such
person is first elected or begins to serve as a non-employee director on a date
other than the dates set forth above) at a purchase price per share equal to the
Fair Market Value of the Common Stock on the date of grant of such option.
(b) Option Period and Exercisability. Each option granted under this
Article III shall be fully exercisable on and after its date of grant. Each
option granted under this Article III shall expire five years after its date of
grant. An exercisable option, or portion thereof, may be exercised in whole or
in part only with respect to whole shares of Common Stock. Options granted under
this Article III shall be exercisable in accordance with Section 3.2(c).
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<PAGE> 6
(c) Termination of Directorship.
(i) Total Disability. Unless otherwise specified in the Agreement
relating to an option, if an optionee's directorship with the Company
terminates by reason of Total Disability, each option held by such optionee
shall be exercisable only to the extent that such option is exercisable on the
effective date of such optionee's termination of directorship and may thereafter
be exercised by such optionee (or such optionee's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is one year (or such other period as set forth in the Agreement relating to
such option) after the effective date of such optionee's termination of
directorship and (ii) the expiration date of the term of such option. For
purposes of this Plan, "Total Disability" of a non-employee director shall mean
the inability of such optionee substantially to perform such optionee's duties
and responsibilities as a director for a continuous period of six months.
(ii) Death. Unless otherwise specified in the Agreement relating to
an option, if an optionee's directorship with the Company terminates by reason
of death, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the date of such optionee's death and
may thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth
in the Agreement relating to such option) after the date of death and (ii) the
expiration date of the term of such option.
(iii) Termination for Cause. Unless otherwise specified in the
Agreement relating to an option, if the holder of such option is removed from
the Board of Directors for Cause, such option shall terminate automatically on
the date of such termination.
(iv) Other Termination. Unless otherwise specified in the Agreement
relating to an option, if an optionee's directorship with the Company is
terminated by the Company for any reason other than Total Disability, death or
for Cause, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee's
termination of directorship and may thereafter be exercised by such optionee
(or such optionee's legal representative or similar person) until and including
the earliest to occur of (i) the date which is three months (or such other
period as set forth in the Agreement relating to such option) after the
effective date of such optionee's termination of directorship and (ii) the
expiration date of the term of such option.
(v) Death Following Termination. Unless otherwise specified in the
Agreement relating to an option, if an optionee dies during the period set
forth in Section 3.2(c)(i) following termination of directorship by reason of
Total Disability, or if an optionee dies during the period set forth in Section
3.2(c)(iv) following termination of directorship by the Company for any other
reason other than Total Disability, for Cause of death, each option held by
such optionee shall be exercisable only to the extent that such option is
exercisable on the date of such optionee's death and may thereafter be
exercised by such optionee's executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until and including the
earliest to occur of (i) the date which is one year (or such other period as
set forth in the Agreement relating such option) after the date of death and
(ii) the expiration date of the term of such option.
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IV. GENERAL
4.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be submitted to the
stockholders of the Company for approval and, if approved by the affirmative
vote of a majority of the shares of Common Stock present in person or
represented by proxy at the 1997 annual meeting of the stockholders, shall
become effective as of March 28, 1997, the date of approval of this Plan by the
Board of Directors. No option may be exercised prior to the date of such
stockholder approval. This Plan shall terminate ten years after its effective
date, unless terminated earlier by the Board. Termination of this Plan shall not
affect the terms or conditions of any option granted prior to termination.
4.2 AMENDMENTS. The Board may amend this Plan as it shall deem
advisable, subject to any requirement of stockholder approval required by
applicable law, rule or regulation; provided, however, that no amendment shall
be made without stockholder approval if such amendment would (a) increase the
maximum number of shares of Common Stock available under this Plan (subject to
Section 4.7), or (b) extend the term of this Plan; and, provided, further, that
this Plan shall not be amended in a manner which fails to comply with Rule
16b-3(c)(2)(ii)(B) under Section 16 of the Exchange Act. No amendment may impair
the rights of a holder of an outstanding option without the consent of such
holder or effect any change inconsistent with Section 422 of the Code; provided
further, that the number of shares of Common Stock subject to an option granted
to non-employee directors pursuant to Article III, the purchase price therefor,
the date of grant of any such option, the termination provisions relating
thereto, and the category of persons eligible to be granted such options shall
not be amended more than once every six months, other than to comply with
changes in the Code and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations thereunder.
4.3 AGREEMENT. No option shall be valid until an Agreement is executed
by the Company and the optionee and, upon execution by the Company and the
optionee and delivery of the Agreement to the Company, such option shall be
effective as of the effective date set forth in the Agreement.
4.4 NON-TRANSFERABILITY. No option hereunder shall be transferable other
than (i) by will or the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as otherwise
permitted under Rule 16b-3 under the Exchange Act as set forth in the Agreement
relating to such option. Except to the extent permitted by the foregoing
sentence, each option may be exercised during the optionee's lifetime only by
the optionee or the optionee's legal representative or similar person. Except as
permitted by the second preceding sentence, no option hereunder shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option hereunder, such
option and all rights thereunder shall immediately become null and void.
4.5 TAX WITHHOLDING. The Company shall have the right to require, prior
to the issuance or delivery of any shares of Common Stock, payment by the
optionee of any Federal, state, local or other taxes which may be required to be
withheld or paid in connection with an option hereunder. Unless otherwise
provided in an Agreement relating to an option, the optionee may elect that (i)
the Company shall withhold whole shares of Common Stock which would otherwise be
delivered upon exercise of the option having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with the option (the "Tax Date") in the amount necessary to satisfy
any such obligation or (ii) the
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optionee satisfy any such obligation by any of the following means: (A) a cash
payment to the Company, (B) delivery to the Company of previously owned whole
shares of Company Stock (which the optionee has held for at least six months
prior to the delivery of such shares or which the optionee purchased on the
open market and in each case for which the optionee has good title, free and
clear of all liens and encumbrances) having an aggregate Fair Market Value
determined as of the Tax Date, equal to the amount necessary to satisfy any
such obligation, (C) a cash payment by a broker-dealer acceptable to the
Company to whom the optionee has submitted an irrevocable notice of exercise,
or (D) any combination of (A), (B) or (C), in each case to the extent not
prohibited by the Agreement relating to the option. Any fraction of a share of
Common Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the optionee;
provided, however, that the Committee shall have sole discretion to disapprove
of an election pursuant to any of clauses (B)-(D) and that in the case of an
optionee who is subject to Section 16 of the Exchange Act, the Company may
require that the method of satisfying any such obligation be in compliance with
Section 16 and the rules and regulations thereunder. Any fraction of a share of
Common Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the optionee.
4.6 RESTRICTIONS ON SHARES. Each option hereunder shall be subject
to the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any option hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
4.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option and the
purchase price per security shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding options without an
increase in the aggregate purchase price. The decision of the Committee
regarding any such adjustment shall be final and binding. If any adjustment
would result in a fractional security being (a) available under this Plan, such
fractional security shall be disregarded, or (b) subject to an option under
this Plan, the Company shall pay the optionee, in connection with the first
exercise of the option in whole or in part occurring after such adjustment, an
amount in cash determined by multiplying (A) the fraction of such security
(rounded to the nearest hundredth) by (B) the excess, if any, of (x) the Fair
Market Value on the exercise date over (y) the exercise price of the option.
4.8 EFFECT OF CERTAIN TRANSACTIONS.
(a) In the event that the Company enters into an agreement (a) to
dispose of all or substantially all of its assets, in contemplation of the
distribution of the net proceeds of such sale to the Company's shareholders, or
(b) to consummate a merger or consolidation in which the Company is not the
surviving or resulting corporation, or in the event the persons who, as of the
date of the adoption of this Plan
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by the Board of Directors, hold 60% or more of the outstanding capital stock of
the Company enter into an agreement to sell all of such stock (such
distribution, merger, consolidation or sale being hereinafter referred to as a
"Transaction"), then (unless otherwise specified in the Agreement relating to an
option), the Committee shall provide, at its election made in its sole and
absolute discretion, for one or more of the following: (i) for each outstanding
option, whether or not then exercisable, to be replaced with a comparable option
to purchase shares of capital stock of a successor purchasing corporation or
parent thereof, or (ii) for each outstanding option, whether or not then
exercisable, to be assumed by a successor or purchasing corporation or parent
thereof (and, in the event of such assumption, each outstanding option shall
continue to be exercisable, on the terms and subject to the conditions set forth
in, and in cumulative amounts at the times provided in, the Agreement relating
to such option but shall, from and after the consummation of such Transaction,
be exercisable for the capital stock, cash and/or other property received by the
common stockholders of the Company in such Transaction in an amount equal to
what the holder of such option would have received had he exercised such option
immediately prior to the consummation of such Transaction), or (iii) for each
outstanding option, whether or not then exercisable, to become exercisable
during such period prior to the scheduled consummation of such Transaction as
may be specified by the Committee; provided, however, that such elections of the
Committee shall apply identically, by their terms, to all holders of options
granted under this Plan (unless otherwise required by an Agreement). In the
event the Committee elects to cause the options not then otherwise exercisable
to become exercisable prior to such Transaction (an "Accelerated Option"), any
exercise of an Accelerated Option shall be conditioned upon, and shall be
effective only concurrently with, the consummation of such Transaction; and if
such Transaction is not consummated, the exercise of such Accelerated Options
shall be of no further force or effect (and an optionee may elect, with respect
to the exercise during such period of an option that was otherwise exercisable,
to so condition such exercise upon the consummation of the Transaction). All
options not exercised prior to the consummation of such Transaction (and which
are not being assumed by a successor or purchasing corporation or parent
thereof) shall terminate and be of no further force or effect as of the
consummation of such Transaction.
(b) With respect to any optionee who is subject to Section 16 of the
Exchange Act, (i) notwithstanding the exercise periods set forth in Section 2.3
and 3.2(c), or as set forth pursuant to such Section in any Agreement to which
such optionee is a party, and (ii) notwithstanding the expiration date of the
term of such option, in the event the Company is involved in a business
combination that is intended to be treated as a pooling of interests for
financial accounting purposes (a "Pooling Transaction") or pursuant to which
such optionee receives a substitute option to purchase securities of any
entity, including an entity directly or indirectly acquiring the Company, then
each option (or option in substitution thereof) held by such optionee shall be
exercisable to the extent set forth in the Agreement evidencing such option
until and including the latest of (x) the date set forth pursuant to the then
applicable paragraph of Section 2.3, 3.2(c) or the expiration date of the term
of the option, as the case may be, (y) the date which is six months and one day
after the consummation of such business combination and (z) the date which is
ten business days after the date of expiration of any period during which such
optionee may not dispose of a security issued in the Pooling Transaction in
order for the Pooling Transaction to be accounted for as a pooling of interests.
4.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any option granted
hereunder shall confer upon any person any right to continued employment by the
Company, any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
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4.10 RIGHTS AS STOCKHOLDER. No person shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock which are
subject to an option hereunder until such person becomes a stockholder of record
with respect to such shares of Common Stock.
4.11 DESIGNATION OF BENEFICIARY. If permitted by the Company, an
optionee may file with the Committee a written designation of one or more
persons as such optionee's beneficiary or beneficiaries (both primary and
contingent) in the event of the optionee's death. To the extent an outstanding
option granted hereunder is exercisable, such beneficiary or beneficiaries shall
be entitled to exercise such option.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the optionee's lifetime on a form prescribed
by the Committee. The spouse of a married optionee domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Committee of a new beneficiary designation
shall cancel all previously filed beneficiary designations.
If an optionee fails to designate a beneficiary, or if all designated
beneficiaries of an optionee predecease the optionee, then each outstanding
option hereunder held by such optionee, to the extent exercisable, may be
exercised by such optionee's executor, administrator, legal representative or
similar person.
4.12 GOVERNING LAW. This Plan, each option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to principles of conflicts of laws.
4.13 FOREIGN EMPLOYEES. Without amending this Plan, the Committee may
grant options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the Committee may
make such modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its Subsidiaries operates or has
employees.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS FOUND IN FORM 10-Q AS FILED WITH THE SEC
ON AUGUST 14, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,226,000
<SECURITIES> 1,081,000
<RECEIVABLES> 27,096,000
<ALLOWANCES> 857,000
<INVENTORY> 2,599,000
<CURRENT-ASSETS> 55,857,000
<PP&E> 2,032,000
<DEPRECIATION> 671,000
<TOTAL-ASSETS> 59,888,000
<CURRENT-LIABILITIES> 16,709,000
<BONDS> 0
0
0
<COMMON> 109,000
<OTHER-SE> 43,179,000
<TOTAL-LIABILITY-AND-EQUITY> 59,888,000
<SALES> 77,778,000
<TOTAL-REVENUES> 77,778,000
<CGS> 33,974,000
<TOTAL-COSTS> 33,974,000
<OTHER-EXPENSES> 38,017,000
<LOSS-PROVISION> 602,000
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 6,255,000
<INCOME-TAX> 4,111,000
<INCOME-CONTINUING> 2,144,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,144,000
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
