<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER 0-22804
ACTIVE VOICE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WASHINGTON 91-1235111
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 THIRD AVENUE, SUITE 500 98121-9800
SEATTLE, WASHINGTON (Zip Code)
(Address of principal executive offices)
</TABLE>
(206) 441-4700
(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.
<TABLE>
<S> <C>
OUTSTANDING AT
CLASS NOVEMBER 1, 1999
Common Stock, No Par Value 4,656,678
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACTIVE VOICE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)............... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 8
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders........................................ 16
Item 6. Exhibits and Reports on Form 8-K.............. 16
SIGNATURE PAGE.............................................. 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $ 20,531 $ 14,301 $ 38,707 $ 27,705
Cost of goods sold................................ 8,454 6,619 16,585 12,549
--------- --------- --------- ---------
Gross profit...................................... 12,077 7,682 22,122 15,156
Operating expenses:
Research and development........................ 3,833 3,271 7,977 6,601
Sales and marketing............................. 5,641 4,210 10,749 8,196
General and administrative...................... 2,353 2,235 4,367 4,092
--------- --------- --------- ---------
Total operating expenses...................... 11,827 9,716 23,093 18,889
--------- --------- --------- ---------
Operating income (loss)........................... 250 (2,034) (971) (3,733)
Interest expense.................................. (191) (13) (259) (33)
Interest income................................... 278 73 337 240
Impairment of strategic investment................ (1,169)
Gain on sale of technology assets................. 16,504
--------- --------- --------- ---------
Income (loss) before income taxes and minority
interest........................................ 337 (1,974) 14,442 (3,526)
Income tax benefit (provision).................... (101) 677 (4,264) 1,210
Minority interest in (earnings) loss of
consolidated subsidiary......................... (43) 2 (131) 1
--------- --------- --------- ---------
Net income (loss)................................. $ 193 $ (1,295) $ 10,047 $ (2,315)
========= ========= ========= =========
Earnings (loss) per share:
Basic........................................... $ 0.04 $ (0.28) $ 2.18 $ (0.50)
========= ========= ========= =========
Diluted......................................... $ 0.04 $ (0.28) $ 2.09 $ (0.50)
========= ========= ========= =========
Shares used in earnings (loss) per share
calculation:
Basic........................................... 4,629,071 4,672,419 4,607,158 4,668,456
========= ========= ========= =========
Diluted......................................... 4,892,466 4,672,419 4,804,512 4,668,456
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
-------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $11,788 $ 1,650
Marketable securities..................................... 6,149 1,113
Accounts receivable, less allowances...................... 15,224 13,622
Inventories............................................... 4,975 5,924
Income taxes receivable................................... 741
Deferred tax asset........................................ 2,225 1,650
Prepaid expenses and other assets......................... 1,852 3,215
------- -------
Total current assets.................................. 42,213 27,915
Marketable securities..................................... 2,508 1,701
Furniture and equipment, net.............................. 5,514 4,589
Other assets.............................................. 3,619 4,377
------- -------
Total assets.......................................... $53,854 $38,582
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,002 $ 4,983
Notes payable............................................. 4,112
Accrued compensation and benefits......................... 2,513 2,500
Other accrued expenses.................................... 2,995 2,186
Income taxes payable...................................... 1,477
------- -------
Total current liabilities............................. 13,099 9,669
Commitments.................................................
Minority interest........................................... 75 (55)
Stockholders' equity:
Preferred stock, no par value:
Authorized shares--2,000,000--none outstanding
Common stock, no par value:
Authorized shares--10,000,000
Issued shares, including repurchased
shares--4,976,933..................................... 18,490 17,314
Retained earnings......................................... 23,939 13,907
Accumulated other comprehensive income.................... 27 20
Less 326,180 repurchased shares (395,153 at March 31,
1999), at cost.......................................... (1,776) (2,273)
------- -------
Total stockholders' equity.................................. 40,680 28,968
Total liabilities and stockholders' equity............ $53,854 $38,582
======= =======
</TABLE>
Note: The consolidated balance sheet at March 31, 1999 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See notes to consolidated financial
statements.
4
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 10,047 $ (2,315)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 982 791
Provisions for accounts receivable........................ 192 191
Deferred income taxes..................................... (566) 62
Loss on disposal of equipment............................. 6 14
Minority interest in earnings (loss) of consolidated
subsidiary.............................................. 131 (1)
Gain on sale of technology assets......................... (16,504)
Changes in operating assets and liabilities:
Increase in accounts receivable......................... (1,794) (287)
Decrease in inventories................................. 949 2,218
Decrease (increase) in prepaid expenses and other
assets................................................ 3,648 (3,197)
Decrease in accounts payable............................ (2,981) (1,044)
Increase in other liabilities........................... 853 1,155
-------- --------
Net cash used in operating activities................. (5,037) (2,413)
INVESTING ACTIVITIES
Proceeds from sale of technology assets..................... 18,000
Proceeds from sale and maturity of marketable securities.... 653 718
Purchases of marketable securities.......................... (6,523)
Purchases of furniture and equipment........................ (1,799) (1,425)
-------- --------
Net cash provided by (used in) investing activities... 10,331 (707)
FINANCING ACTIVITIES
Net issuance of short term notes payable.................... 4,112 2,076
Repurchase of common stock.................................. (158)
Proceeds from employee stock option and stock purchase
plans..................................................... 708 230
-------- --------
Net cash provided by financing activities............. 4,820 2,148
Effect of exchange rate changes on cash and cash
equivalents............................................... 24 (61)
-------- --------
Increase (decrease) in cash and cash equivalents............ 10,138 (1,033)
Cash and cash equivalents at beginning of period............ 1,650 1,550
-------- --------
Cash and cash equivalents at end of period.................. $ 11,788 $ 517
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ACTIVE VOICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Active Voice
Corporation and subsidiaries (the Company) are unaudited. In the opinion of the
Company's management, the financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
financial information set forth therein. Results of operations for the three
month and six month periods ended September 30, 1999 are not necessarily
indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the year ended March 31, 1999.
2. INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
-------------- ---------
<S> <C> <C>
Computer equipment.................................... $2,349 $3,049
Custom component parts................................ 1,626 1,918
Supplies.............................................. 1,000 957
------ ------
$4,975 $5,924
====== ======
</TABLE>
3. COMPREHENSIVE INCOME
Total comprehensive income (loss) was $170,000 and $(1,365,000) for the
three month periods ended September 30, 1999 and 1998, respectively. Total
comprehensive income (loss) was $10,054,000 and $(2,386,000) for the six month
periods ended September 30, 1999 and 1998, respectively.
4. SUBSEQUENT EVENTS
On November 5, 1999, the Company's largest customer exercised a warrant and
purchased 307,692 shares of the Company's common stock at $13.00 per share. The
customer elected to pay the exercise price by canceling the outstanding $4.0
million balance on a related borrowing agreement. The customer retains the right
to purchase an additional 192,308 shares at $13.00 per share under the warrant
through May 5, 2002. The carrying amount of the debt, net of the unamortized
debt issuance cost, will be credited to common stock as of the date of the
conversion and no gain or loss will be recognized.
The Company has previously received communications from Lucent Technologies,
Inc. (Lucent) asserting that certain of the Company's products infringed upon
Lucent patents. Lucent offered to license its patents in the area of interactive
messaging and response products to the Company. The Company evaluated Lucent's
claims and concluded that the Company had substantive arguments that its
products did not infringe upon the asserted patents. The Company also asserted
that certain Lucent products infringed upon the Company's patents. In
October 1999, the Company entered into a cross-licensing agreement with Lucent
under which the parties released each other from claims of past infringement and
granted each other a five-year license to use the respective patents. The
Company paid a one-time fee of $3 million for the release, license and related
rights. The Company is currently analyzing the accounting
6
<PAGE>
treatment for this payment but expects that a portion of the payment related to
prior periods will result in a one-time charge during the quarter ending
December 31, 1999. The remaining amount will be accounted for as a prepaid
royalty and amortized to cost of goods sold over the remaining term of the
license.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except shares and per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)................................. $ 193 $ (1,295) $ 10,047 $ (2,315)
========= ========= ========= =========
Denominator:
Denominator for basic earnings (loss) per share--
weighted average shares......................... 4,629,071 4,672,419 4,607,158 4,668,456
Effect of dilutive securities:
Stock purchase warrant.......................... 62,024 42,746
Stock options................................... 201,371 154,608
--------- --------- --------- ---------
Denominator for diluted earnings (loss) per
share--adjusted weighted average shares and
assumed conversions............................. 4,892,466 4,672,419 4,804,512 4,668,456
========= ========= ========= =========
Basic earnings (loss) per share:.................. $ 0.04 $ (0.28) $ 2.18 $ (0.50)
========= ========= ========= =========
Diluted earnings (loss) per share:................ $ 0.04 $ (0.28) $ 2.09 $ (0.50)
========= ========= ========= =========
</TABLE>
The calculation of diluted earnings per share for the three month and six
month periods ended September 30, 1998 did not include the effect of 7,869 and
21,619 weighted average shares from outstanding stock options, respectively, as
their inclusion would have been antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Active Voice Corporation (the Company) is a leading manufacturer of PC-based
voice processing systems, unified messaging applications and computer-telephone
integration (CTI) products. The Company's products are sold worldwide through a
network of independent telecommunications dealers, telephone equipment
manufacturers and computer resellers. The Company's principal products consist
of: Unity, Repartee, Replay Plus, Replay, Lingo and a line of "inswitch" or
"embedded" products. Unity, the Company's most recent product introduction,
offers fully unified messaging, including single point administration for
e-mail, voice mail and fax mail user accounts, address and distribution lists,
and network configuration for the Microsoft Exchange Server. Repartee, the
Company's well-established mid-market product comes in two versions, CTI and VP.
VP offers basic messaging capability while the CTI version serves as the base
for TeLANophy, a suite of the Company's CTI modules which provides complete call
management and integrated messaging capabilities. The Company's Replay and
Replay Plus products provide basic voice processing features at a price point
attractive to the small business market. Lingo offers all basic voice processing
features in a single proprietary hardware unit, and is an affordable solution
for small businesses as it does not utilize PC hardware and requires minimal
dealer effort in its installation. Embedded products, available only to certain
of the Company's telephone equipment manufacturer partners, combine Active Voice
software with third party hardware that is bundled with the phone switch,
offering a convenient alternative to a traditional PC-based voice mail system.
7
<PAGE>
FORWARD LOOKING INFORMATION
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT (FOR EXAMPLE, STATEMENTS USING
THE EXPRESSIONS, "THE COMPANY BELIEVES" OR "THE COMPANY ANTICIPATES" AND OTHER
SIMILAR STATEMENTS) CONTAIN "FORWARD LOOKING" INFORMATION (AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) INVOLVING RISKS AND
UNCERTAINTIES, INCLUDING WITHOUT LIMITATION, PROJECTIONS FOR SALES AND
EXPENDITURES, TREND PROJECTIONS AND DEVELOPMENT SCHEDULES. ACTUAL FUTURE RESULTS
AND TRENDS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS, INCLUDING,
BUT NOT LIMITED TO, THE RISKS DISCUSSED IN DOCUMENTS FILED BY THE COMPANY WITH
THE SECURITIES AND EXCHANGE COMMISSION. INVESTORS ARE ENCOURAGED TO CONSIDER THE
RISKS DETAILED IN THOSE FILINGS. THE COMPANY ASSUMES NO OBLIGATION TO RELEASE
PUBLICLY ANY CHANGES TO THESE "FORWARD LOOKING STATEMENTS" THAT MAY ARISE FROM
THE DEVELOPMENT OF UNANTICIPATED EVENTS OR CIRCUMSTANCES THAT OCCUR AFTER THE
DATE OF THE ORIGINAL PROJECTION. (REFER TO THE SECTION ENTITLED "RISK FACTORS
AFFECTING FUTURE OPERATING RESULTS" FOR A FURTHER DISCUSSION OF SOME OF THE
INVOLVED RISKS AND UNCERTAINTIES.)
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $20,531 $14,301 43.6% $38,707 $27,705 39.7%
- --------------------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net sales to the Company's Americas dealer network during the quarter ended
September 30, 1999 increased by 28% from the comparable period in the prior
fiscal year. Net sales to the Americas dealers represented 45% of total net
sales for the three months ended September 30, 1999 compared to 50% of total net
sales for the three months ended September 30, 1998. The increase in net sales
in the Americas dealer channel was primarily attributable to revenues associated
with the Company's Year 2000 (Y2K) program, which provides discounts to dealers
who upgrade their customers' non-Y2K compliant systems to current software
versions and hardware platforms. The Company believes that approximately 30% of
its installed product base has been upgraded under the program. The Company
estimates that Y2K upgrades will begin to decline steadily during the fourth
quarter of fiscal year 2000 but is uncertain as to the rate of decline or when
the upgrade process will be substantially complete. Unity also contributed to
the increase in net sales during the quarter ended September 30, 1999. While
interest in Unity continues to exceed management's expectations, revenues
accounted for less than 10% of total Americas net sales.
Net sales to the strategic partner sales channel increased by 72% for the
three months ended September 30, 1999 over the comparable period in the prior
fiscal year. Net sales to strategic partner customers represented 37% and 31% of
total net sales for the three month periods ended September 30, 1999 and 1998,
respectively. The majority of the increase in strategic partner sales is
attributable to increased unit sales of embedded systems, primarily to the
Company's largest customer. The Company released the Unity product to the first
two strategic partner customers during the quarter ended September 30, 1999, but
revenues from Unity accounted for less than 5% of total strategic partner net
sales. The Company's largest strategic partner accounted for approximately 74%
of total strategic partner sales and approximately 28% of total net sales during
the three months ended September 30, 1999.
Net sales to international customers increased by 34% during the
three months ended September 30, 1999 in comparison to the prior year same
quarter. International sales represented 14% of total net sales for the three
month period ended September 30, 1999 and 15% of total net sales for the three
month period ended September 30, 1998. The increase in net sales to the
international channel can be attributed to continued strength in the European
market, where unit sales of the Company's Replay and Replay Plus
8
<PAGE>
products have increased with the introduction of localized versions and the
Lingo product has been successfully introduced to the UK market. The
Asia-Pacific region also improved during the three month period ended
September 30, 1999 after a prolonged economic downturn.
Other revenue increased 51% on a year over year basis during the quarter
ended September 30, 1999 and represented 4% of the Company's total net sales in
both that quarter and the comparable quarter in the prior year. The increase in
other revenue is attributable to increased sales of Visual Basic-based voice
application tools and custom application design services through the Company's
majority-owned Pronexus subsidiary.
SIX MONTHS ENDED SEPTEMBER 30, 1999
Net sales to the Company's Americas dealer network increased approximately
24% in the six months ended September 30, 1999 over the comparable period in the
prior fiscal year. Net sales to the Americas dealer channel represented
approximately 47% of total net sales for the six months ended September 30, 1999
compared to approximately 53% of total net sales for the six months ended
September 30, 1998. The majority of the increase in net sales was attributable
to the Company's Y2K upgrade program discussed above.
Net sales to the strategic partner sales channel during the six months ended
September 30, 1999 increased by approximately 63% from the comparable period in
the prior fiscal year. Net sales to strategic partners represented 34% and 29%
of total net sales for the six month periods ended September 30, 1999 and 1998,
respectively. The increase in net sales to strategic partners was primarily due
to increased unit sales of embedded systems. The largest strategic partner
customer accounted for approximately 73% of total strategic partner sales and
approximately 24% of total net sales during the six months ended September 30,
1999.
Net sales through the international channel increased by approximately 48%
during the six months ended September 30, 1999 from the comparable period in the
prior fiscal year. International sales represented 15% and 14% of total net
sales for the six month periods ended September 30, 1999 and 1998, respectively.
Sales growth was strong in all of the Company's primary international markets,
including the UK, where the Lingo product was successfully introduced and
Australia where the Company began supplying embedded product to one of its
global strategic partners.
Other revenue increased by 47% during the six months ended September 30,
1999 in comparison to the prior year same period and represented 4% of the
Company's total net sales in both periods. The increase in other sales for the
six month period ended September 30, 1999 is attributed to increased sales
through the Company's Pronexus subsidiary.
GROSS MARGIN
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Gross profit.............................. $12,077 $7,682 57.2% $22,122 $15,156 46.0%
Percentage of net sales................... 58.8% 53.7% 57.2% 54.7%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Company's gross margin varies in part depending upon the mix of
higher-margin voiceboard-and-software kit sales (offered to all customers) and
software-only sales (available only to strategic partner accounts) as opposed to
turnkey system sales (which include the cost of a PC and other related
hardware). The proportion of sales contributed by each distribution channel also
affects the overall gross margin, as international sales have historically had
higher gross margins than sales in the other distribution channels.
9
<PAGE>
The increase in overall gross margin percentage in the three month and six
month periods ended September 30, 1999 in comparison to the comparable periods
in the prior fiscal year is primarily attributable to increased sales of
software-only embedded product to the Company's strategic partners. Lower PC
hardware component costs also contributed to the increase in gross margin
percentage. In addition, the Company sold a higher proportion of software under
the Y2K upgrade program during the three months ended September 30, 1999 than in
previous quarters which also contributed to the gross margin percentage
improvement.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Research and development..................... $3,833 $3,271 17.2% $7,977 $6,601 20.8%
Percentage of net sales...................... 18.7% 22.9% 20.6% 23.8%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in research and development expenses between the three month
and six month periods ended September 30, 1999 and 1998, were attributable to an
increase in compensation-related costs. The increased compensation expense was
associated with additional engineering and development personnel and higher
engineering salaries due to the competitive nature of the labor market and the
Company's effort to attract and retain skilled employees. The increase in
engineering personnel is attributable to the development of Unity, the Company's
Windows NT-based product, as well as to the addition of quality assurance staff
leading up to the release of Unity 2.0 in March 1999. The Company's personnel
continue to add features and enhance the functionality of the Unity product. The
Company also continues to allocate substantial resources to the localization of
products for international markets and customization of products for strategic
partner accounts.
The Company believes that in order to remain competitive in a rapidly
changing technological environment, it will continue to be necessary to allocate
significant resources to the development of new products, globalization of
products for international markets and customization of products for strategic
partners. With the general release of Unity 2.0 completed in March 1999, the
Company expects the growth rate of research and development expenditures to slow
in comparison to the last two years and that these expenses as a percentage of
sales will vary from period to period.
SALES AND MARKETING
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Sales and marketing......................... $5,641 $4,210 34.0% $10,749 $8,196 31.1%
Percentage of net sales..................... 27.5% 29.4% 27.8% 29.6%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in sales and marketing expenses during the three month and six
month periods ended September 30, 1999 over the comparable periods in the prior
fiscal year were primarily attributable to increased compensation-related
expenses associated with growth in sales and marketing personnel and higher
commission expense due to increased sales levels. The increase in unit sales
volume has also caused expenses to be higher when compared to the prior year, as
more resources have been devoted to supporting a larger number of systems
operating in the field. Marketing and customer support costs related to the
Unity product have also contributed to the increase in sales and marketing
expense since the product's introduction. Sales and marketing expenses include
both costs that are essentially fixed as well as
10
<PAGE>
costs that vary relative to sales volume and thus can be expected to fluctuate
both in dollar amount and as a percentage of net sales from period to period.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
General and administrative................... $2,353 $2,235 5.3% $4,367 $4,092 6.7%
Percentage of net sales...................... 11.5% 15.6% 11.3% 14.8%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in general and administrative expense between comparable three
month and six month periods were primarily attributable to increased
compensation-related expenses due to the hiring of additional general and
administrative personnel and higher salary levels and also to higher legal
costs, primarily related to intellectual property and contract matters. General
and administrative expenses, being relatively fixed in nature, can be expected
to fluctuate as a percentage of net sales from period to period.
INTEREST EXPENSE AND INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Interest expense.............................. $(191) $(13) 1,369.2% $(259) $(33) 684.8%
Interest income............................... $ 278 $ 73 280.8% $ 337 $240 40.4%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in interest expense between the three month and six month
periods ended September 30, 1999 and 1998 is primarily attributable to
$4.0 million advanced under a borrowing agreement with a significant customer.
The increases in interest income during the three month and six month periods
ended September 30, 1999 in comparison to the corresponding periods in the prior
fiscal year were primarily attributable to higher average invested cash and
marketable security balances. Average invested cash and marketable security
balances increased due to the $18.0 million sale of technology assets on
June 30, 1999 described below. Refer to "Liquidity and Capital Resources."
GAIN ON SALE OF TECHNOLOGY ASSETS AND IMPAIRMENT OF STRATEGIC INVESTMENT
On June 30, 1999, the Company sold real-time Internet communications
technology and related assets for $18 million. Legal and compensation costs
associated with the transaction were approximately $1.5 million, resulting in a
$16.5 million gain. None of the Company's current or historical revenues were
attributable to the sold technology. In connection with the sale, six of the
Company's employees joined the staff of the acquiring company.
During the quarter ended June 30, 1999, the Company recorded a $1.2 million
impairment loss on a strategic investment. The loss represented the Company's
entire investment in a small hardware vendor. The impairment was recorded due to
the uncertain financial viability of the vendor and the Company's decision to
evaluate alternate sources for the components supplied by the vendor.
11
<PAGE>
INCOME TAX PROVISION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Income tax benefit (provision)......... $(101) $ 677 (114.9%) $(4,264) $1,210 (452.4%)
Effective tax rate..................... 30.0% 34.3% 29.5% 34.3%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Variations in the customary relationship between the income tax benefit
(provision) and the statutory income tax rate of 34% result from certain
non-deductible expenses, tax exempt investment income, research and development
tax credits, and the benefit provided by the Company's foreign sales
corporation. The Company expects the effective tax rate to fluctuate in the
future due to varying operating results and the impact of changing research and
development tax credits, tax exempt investment income, and foreign sales
corporation benefits as a percentage of taxable income. In addition, the Company
anticipates that it may fall under the jurisdiction of additional taxing
authorities as its operations expand into new geographical areas.
The Company's effective tax rate for the quarter ended September 30, 1999
was 30.0% compared to a benefit rate (as a result of the pretax loss) of 34.3%
for the quarter ended September 30, 1998. During the quarter ended June 30,
1999, the Company utilized its net operating loss (NOL) carryforward from the
prior year and the Company reversed the valuation allowance of $885,000 on
deferred tax assets due to the taxable income generated by the sale of
technology assets described above. The NOL carryforward and the reversal of the
deferred tax valuation allowance resulted in an effective tax rate of 29.5% for
the six month period ended September 30, 1999 compared to a benefit rate of
34.3% in the comparable prior year period.
NET INCOME AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 CHANGE 1999 1998 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Net income (loss)..................... $ 193 $(1,295) (114.9%) $10,047 $(2,315) (534.0%)
Percentage of net sales............... 0.9% (9.1%) 26.0% (8.4%)
Earnings (loss) per share:
Basic............................... $0.04 $ (0.28) (114.3%) $ 2.18 $ (0.50) (536.0%)
Diluted............................. $0.04 $ (0.28) (114.3%) $ 2.09 $ (0.50) (518.0%)
- -------------------------------------------------------------------------------------------------------
</TABLE>
The net income and earnings per share for the three month period ended
September 30, 1999 in comparison to the net loss and loss per share for the
corresponding period in the prior fiscal year were primarily attributable to a
greater than 40% increase in net sales combined with an improvement in gross
margin percentage from 53.7% to 58.8%. The net income and earnings per share for
the six month period ended September 30, 1999 in comparison to the net loss and
loss per share for the comparable prior year period were primarily due to the
gain associated with the sale of technology assets described above. In addition,
operating results before one-time items improved as revenue growth exceeded
growth in operating expenses. The numbers of common and common equivalent shares
outstanding were comparable in the three month and six month periods ended
September 30, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities increased to
$20.4 million or 38% of total assets at September 30, 1999 from $4.5 million or
12% of total assets at March 31, 1999. The increase
12
<PAGE>
is due primarily to the $18 million proceeds from the sale of technology assets
during the quarter ended June 30, 1999 and to a lesser extent, a $4 million
advance received under a borrowing agreement between the Company and a
significant customer (see below). Cash flow used in operations totaled
$5.0 million during the six months ended September 30, 1999. The Company had net
working capital of $29.1 million at September 30, 1999.
Accounts receivable, net of allowances, increased to $15.2 million at
September 30, 1999 from $13.6 million at March 31, 1999. The increase in
accounts receivable balances was due to higher net sales in the three months
ended September 30, 1999 compared to net sales in the three months ended
March 31, 1999. Days' sales outstanding at September 30, 1999 declined
approximately 5% from March 31, 1999 to 70 days. Inventory decreased to
$5.0 million at September 30, 1999 from $5.9 million at March 31, 1999,
reflecting the Company's continued efforts to efficiently manage component
stocking levels.
The Company made $1.8 million in capital expenditures during the six months
ended September 30, 1999, compared to $1.4 million during the comparable period
of the prior fiscal year. Approximately $1.0 million of the additions during the
six months ended September 30, 1999 represented the Company's investment in a
new accounting and manufacturing business system that was implemented on
July 1, 1999. The majority of the remaining capital expenditures during the
six months ended September 30, 1999 consisted of computer hardware and software
used to augment the Company's information systems infrastructure, as well as
additions and upgrades of computer equipment for employees. The Company
currently has no specific commitments with respect to additional capital
expenditures during the remainder of fiscal 2000, but expects to spend an
aggregate of approximately $3.0 million for the year.
The Company has a $10 million revolving credit line from a bank for
financing working capital. The line of credit is secured by the Company's
investment portfolio and expires on June 30, 2000. The Company had no borrowings
outstanding under the line of credit at September 30, 1999. In addition, the
Company has a $6.5 million borrowing commitment from a significant customer.
Borrowings under the agreement are due on May 5, 2002 and may be repaid any time
beginning May 5, 2000. At September 30, 1999, $4.0 million was outstanding under
this agreement. In connection with this agreement, the Company issued a warrant
to the customer to purchase 500,000 shares of common stock at $13.00 per share.
Refer to "Subsequent Events" footnote to consolidated financial statements for
additional information.
The Company believes that ongoing maturity of securities in its investment
portfolio, together with cash flow from operations, and the financing
arrangements described above will provide sufficient resources to finance its
operations for at least the next year.
YEAR 2000 (Y2K)
An issue affecting the Company and others is the inability of many computer
systems and applications to correctly process date data in and between the
twentieth and twenty-first centuries. The Company formed task forces to
investigate the year 2000 readiness of its products and of its internal systems.
The Company has completed its assessment of the year 2000 readiness of its
internal business process systems and applications. The Company has received
assurances from the suppliers that the Company's most critical business process
systems and applications are currently or will be year 2000 ready by December
31, 1999. The Company believes that other internal systems are also year 2000
ready. The Company intends to continue monitoring its systems through the year
2000. The Company estimates that the total cost of replacement or upgrade of
internal systems replaced solely to achieve year 2000 readiness will be less
than $100,000, the majority of which has already been incurred.
The Company has also implemented programs to assist customers with older
versions of its products in obtaining year 2000 readiness by making software
upgrades or replacement hardware available and offering programs for migrations
to current product versions. The Company estimates that the costs of creating
software patches and administering its upgrade programs for customers will be
approximately $400,000, the majority of which has already been incurred. The
financial impact to the Company of the
13
<PAGE>
development and administration of the upgrade programs has not been and is not
anticipated to be material to its financial position or results of operations in
any given year. However, the Company is dependent on its customers to take
necessary steps, and if any customers do not make necessary modifications,
conversions, migrations, or upgrades, it could have a material adverse effect on
the Company in the form of legal costs or the loss of customers.
The Company has been served with three class action lawsuits, one each in
Alabama, Indiana and Massachusetts state courts, related to the alleged
inability of the Company's Replay, Replay Plus and Repartee products released
prior to Repartee 7.44 to function properly with respect to the year 2000. The
plaintiffs in the suits seek to require the Company to remedy the alleged defect
in these products and also seek damages. The Company has filed its answers in
these suits. The Company believes that the claims stated in the cases are
without merit, that the cases are not appropriate for class action, and the
Company intends to defend itself vigorously. However, due to the preliminary
status of the proceedings, it is not possible to predict the ultimate outcome of
the cases or their financial impact on the Company.
The Company has contacted its third-party suppliers to assess and seek
reasonable assurances concerning the year 2000 readiness of their products and
has contacted its primary suppliers concerning the year 2000 readiness of their
internal systems as well. The Company has received assurances from many of its
suppliers that their products and services are year 2000 ready, but has concerns
that some suppliers may be unable to control their supply chain and may
experience year 2000 interruptions. Because the Company has no control over
third parties' products, services or internal operations, the Company cannot
ensure year 2000 readiness by its suppliers. The Company has developed
contingency plans where practicable for third-party suppliers it believes may be
at risk, including qualifying alternative suppliers and increasing inventory
levels prior to January 2000. Because some products and services are highly
proprietary, the Company cannot ensure that acceptable substitutes will be
available.
The Company has also requested and assessed any available information from
major customers concerning their internal year 2000 readiness. The Company
believes that its major customers are addressing year 2000 issues, but because
the Company has no control over third parties' products, services or internal
operations, the Company cannot ensure year 2000 readiness by its customers.
Finally, like all companies in its industry, the Company faces a number of
risks and uncertainties presented by the year 2000, including utilities
failures, transportation industry failures, the nature of government responses
to year 2000 issues, and competition for personnel trained to resolve such
issues.
Assessments of the potential effects of year 2000 issues vary widely among
different consultants, commentators, economists, governments and companies, and
it is not possible to predict what the actual impact may be. Given this
uncertainty, the Company intends to continue its monitoring and planning. The
Company believes it is taking the necessary steps to resolve year 2000 issues
with respect to matters within its reasonable control. However, the Company may
be materially adversely affected if its important suppliers, distribution
systems, public services or customers experience significant disruptions due to
year 2000 issues.
Readers are cautioned that forward looking statements contained in this Year
2000 update should be read in conjunction with the Company's disclosures under
the following heading.
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain statements contained herein are dependent upon numerous factors,
circumstances and contingencies. The following factors, while not all inclusive,
could cause actual results to differ materially from historical results or those
anticipated:
- Competitive pressure from new entrants to the marketplace, including large
software companies and telephone switch manufacturers with greater
resources, could adversely affect the Company's business. Introduction of
new products by the Company or its competitors and the extent of their
14
<PAGE>
success or failure could produce significant fluctuations in market demand
for the Company's products. New product introductions by the Company may
be delayed, resulting in lost customers or allowing competitors to gain
market share.
- Increasing price competition in the Company's marketplace could influence
the amount and timing of changes in the Company's prices to its customers,
and therefore negatively impact the Company's gross margins. Gross margins
may also either increase or decrease as a result of further shifts in
product mix depending upon the percentage of net sales contributed by
software only sales in comparison to turnkey system sales.
- The extent and timing of new product development and the need or desire to
modify existing products may cause notable increases in research and
development spending. Increasing international sales may require notable
increases in development spending associated with localization of products
for foreign markets.
- As the year 2000 approaches, new or existing customers may slow their
purchases of new computer hardware and software, including the Company's
products, in order to minimize the risk that such products may cause
additional year 2000 problems. Customers may also slow purchases of new
computer hardware and software as budgeted resources are allocated to
mitigation of year 2000 issues on existing business systems. See also
"Year 2000 (Y2K)" above.
- If the Company experiences delays in shipments (whether due to delays from
customers or as a result of the timing of new product introductions by the
Company) in a given quarter, or if new order bookings do not meet
anticipated levels, substantial fluctuations in operating results will
occur. Frequently, these developments may not become apparent to the
Company until near or at the end of the quarter. In addition, changes in
the product and channel mix, and the timing of customer orders, will
continue to affect the variability of quarterly results of operations in
future quarters.
- Dependence on continued sales to significant customers could have a
significant impact on the Company's operations as there is no assurance
that any particular customer will continue to purchase similar volumes of
the Company's products.
- Risks associated with the Company's movement into the larger end user
market, such as product acceptance and demand and failure to attract
sufficient market share, could affect the Company's future performance.
- Growth strategies involving acquisitions, strategic relationships, and
vendor relationships may encounter legal and/or unforeseeable business
risks beyond the Company's control.
- Risks associated with foreign operations such as gains and losses on the
conversion of foreign currencies to U.S. dollars; export-import
regulations; customs matters; foreign collection problems; and military,
political and transportation risks may significantly affect the company's
operating results. In addition, the Company's international sales involve
additional risks associated with governmental regulation, product
adaptation to local languages and switching systems, and uncertainties
arising from local business practices and cultural considerations.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Active Voice Corporation was held on
August 19, 1999. A total of 4,430,606 shares of the Company's common stock were
represented in person or by proxy at the meeting, which comprised 96.1% of the
total number of shares of the Company's common stock outstanding on July 1,
1999, the record date for the meeting.
At the meeting, all of the current directors of the Company, namely, Tom A.
Alberg, Douglas P. Beighle, Robert C. Greco, Harold H. Kawaguchi, and Robert L.
Richmond, were re-elected to serve as directors of the Company until the 2000
Annual Meeting of Shareholders or until their earlier retirement, resignation,
or removal. The following table sets forth information regarding the voting in
the election for directors:
<TABLE>
<CAPTION>
VOTES CAST VOTES
FOR NOMINEE WITHHELD
NOMINEE ----------- --------
<S> <C> <C>
Tom A. Alberg............................................... 4,397,081 33,525
Douglas P. Beighle.......................................... 4,396,181 34,425
Robert C. Greco............................................. 4,397,010 33,596
Harold H. Kawaguchi......................................... 4,397,081 33,525
Robert L. Richmond.......................................... 4,397,010 33,596
</TABLE>
The shareholders approved the proposal to amend the 1996 Employee Stock
Purchase Plan. The following table sets forth information regarding the voting
on the proposal:
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST BROKER & OTHER
FOR PROPOSAL AGAINST PROPOSAL ABSTENTIONS NON-VOTES
- ------------ ---------------- ----------- ---------------
<S> <C> <C> <C>
4,340,572 55,017 19,612 193,490
</TABLE>
The shareholders ratified the appointment of Ernst & Young LLP as the
Company's auditors for the fiscal year ending March 31, 2000. The following
table sets forth information regarding the voting on the proposal:
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST BROKER & OTHER
FOR PROPOSAL AGAINST PROPOSAL ABSTENTIONS NON-VOTES
- ------------ ---------------- ----------- ---------------
<S> <C> <C> <C>
3,867,399 548,214 14,993 178,085
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits
3.2 Restated Bylaws of Registrant
10.1 Patent License Agreement between Registrant and Lucent
Technologies GRL Corporation*
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K regarding the appointment of
Frank J. Costa to the Company's board of directors on
November 1, 1999.
</TABLE>
* Portions of this agreement are omitted pursuant to an application for
confidential treatment, under Rule 24b-2 of the Securities Exchange Act of
1934, filed separately with the Securities and Exchange Commission.
16
<PAGE>
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.
<TABLE>
<S> <C> <C>
Active Voice Corporation
(Registrant)
Date: November 12, 1999 By: /s/ JOSE S. DAVID
-----------------------------------------
Jose S. David
CHIEF FINANCIAL OFFICER
Signing on behalf of registrant and
as principal financial officer
</TABLE>
17
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
OF
ACTIVE VOICE CORPORATION
<PAGE>
RESTATED BYLAWS
OF
ACTIVE VOICE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I..................................................................................1
1.1 ANNUAL MEETING...........................................................1
1.1.1 TIME AND PLACE OF MEETING.........................................1
1.1.2 BUSINESS CONDUCTED AT MEETING.....................................1
1.2 SPECIAL MEETINGS.........................................................2
1.3 NOTICE OF MEETINGS.......................................................3
1.3.1 NOTICE OF SPECIAL MEETING.........................................3
1.3.2 PROPOSED ARTICLES OF AMENDMENT, MERGER, EXCHANGE,
SALE, LEASE, OR DISPOSITION......................................3
1.3.3 PROPOSED DISSOLUTION..............................................3
1.3.4 DECLARATION OF MAILING............................................4
1.3.5 WAIVER OF NOTICE..................................................4
1.4 QUORUM; VOTE REQUIREMENT.................................................4
1.5 ADJOURNED MEETINGS.......................................................4
1.6 FIXING RECORD DATE.......................................................5
1.7 SHAREHOLDERS' LIST FOR MEETING...........................................5
1.8 RATIFICATION.............................................................5
1.9 ACTION BY SHAREHOLDERS WITHOUT A MEETING.................................5
1.10 TELEPHONIC MEETINGS......................................................6
ARTICLE II.................................................................................6
2.1 RESPONSIBILITY OF BOARD OF DIRECTORS.....................................6
2.2 NUMBER OF DIRECTORS; QUALIFICATION.......................................6
2.3 ELECTION OF DIRECTORS; NOMINATIONS.......................................7
2.3.1 ELECTION AND TERM OF OFFICE.......................................7
2.3.2 NOMINATIONS FOR DIRECTORS.........................................7
2.4 VACANCIES................................................................8
2.5 REMOVAL..................................................................8
2.6 RESIGNATION..............................................................9
2.7 ANNUAL MEETING...........................................................9
2.8 REGULAR MEETINGS.........................................................9
2.9 SPECIAL MEETINGS.........................................................9
2.10 NOTICE OF MEETING........................................................9
2.11 QUORUM OF DIRECTORS.....................................................10
2.12 DISSENT BY DIRECTORS....................................................10
2.13 ACTION BY DIRECTORS WITHOUT A MEETING...................................10
2.14 TELEPHONIC MEETINGS.....................................................11
2.15 COMPENSATION............................................................11
2.16 COMMITTEES..............................................................11
ARTICLE III...............................................................................12
3.1 APPOINTMENT.............................................................12
<PAGE>
3.2 QUALIFICATION...........................................................12
3.3 OFFICERS ENUMERATED.....................................................12
3.3.1 CHAIRMAN OF THE BOARD............................................12
3.3.2 PRESIDENT........................................................12
3.3.3 VICE PRESIDENTS..................................................13
3.3.4 SECRETARY........................................................13
3.3.5 TREASURER........................................................13
3.4 DELEGATION..............................................................14
3.5 RESIGNATION.............................................................14
3.6 REMOVAL.................................................................14
3.7 VACANCIES...............................................................14
3.8 OTHER OFFICERS AND AGENTS...............................................14
3.9 COMPENSATION............................................................14
3.10 GENERAL STANDARDS FOR OFFICERS..........................................15
ARTICLE IV................................................................................15
4.1 CONTRACTS...............................................................15
4.2 CHECKS, DRAFTS, ETC.....................................................15
4.3 DEPOSITS................................................................15
ARTICLE V.................................................................................15
5.1 ISSUANCE OF SHARES......................................................15
5.2 CERTIFICATES OF STOCK...................................................15
5.3 STOCK RECORDS...........................................................16
5.4 RESTRICTIONS ON TRANSFER................................................17
5.5 TRANSFERS...............................................................17
ARTICLE VI................................................................................18
ARTICLE VII...............................................................................18
ARTICLE VIII..............................................................................18
ARTICLE IX................................................................................18
ARTICLE X.................................................................................18
10.1 DEFINITIONS.............................................................18
10.2 MANDATORY INDEMNIFICATION...............................................18
10.3 INSURANCE...............................................................19
10.4 CHANGES IN LAW..........................................................19
10.5 EXCLUSIVITY; NATURE OF RIGHTS; AMENDMENT................................19
ARTICLE XI................................................................................19
11.1 COMMUNICATIONS BY FACSIMILE.............................................19
11.2 INSPECTOR OF ELECTIONS..................................................19
11.3 RULES OF ORDER..........................................................20
11.4 CONSTRUCTION............................................................21
11.5 SEVERABILITY............................................................21
ARTICLE XII...............................................................................21
ARTICLE XIII..............................................................................21
</TABLE>
<PAGE>
RESTATED BYLAWS
OF
ACTIVE VOICE CORPORATION
These Bylaws are promulgated pursuant to the Washington Business
Corporation Act, as set forth in Title 23B of the Revised Code of Washington
(the "Act").
ARTICLE I
SHAREHOLDERS
1.1 ANNUAL MEETING.
1.1.1 TIME AND PLACE OF MEETING. The annual meeting of the
shareholders of the corporation for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held each year at a place, day, and time to be set by the Board of Directors.
1.1.2 BUSINESS CONDUCTED AT MEETING.
(a) At an annual meeting of shareholders, an item of
business may be conducted, and a proposal may be considered and acted upon, only
if such item or proposal is brought before the annual meeting (i) by, or at the
direction of, the Board of Directors, or (ii) by any shareholder of the
corporation who is entitled to vote at the meeting and who complies with the
procedures set forth in the remainder of this Section 1.1.2. This Section 1.1.2
shall not apply to matters of procedure that, pursuant to Section 11.3(a) of
these Bylaws, are subject to the authority of the chairman of the meeting.
(b) For an item of business or proposal to be brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to, or mailed and received at,
the principal office of the corporation (a) not less than one hundred twenty
(120) days prior to the first anniversary of the date that the corporation's
proxy statement was first released to shareholders in connection with the
previous year's annual meeting; or (b) a reasonable time before the corporation
begins to print and mail its proxy materials if the date of the current year's
annual meeting has been changed by more than thirty (30) days from the date of
the previous year's meeting.
(c) A shareholder's notice to the Secretary under
Section 1.1.2(b) shall set forth, as to each item of business or proposal the
shareholder intends to bring before the annual meeting (i) a brief description
of the item of business or proposal and the reasons for bringing it before the
annual meeting, (ii) the name and address, as they appear on the corporation's
books, of the shareholder and of any other shareholders that the shareholder
knows or anticipates will support the item of business or proposal, (iii) the
number and class of shares of stock of the corporation that are beneficially
owned on the date of such notice by the shareholder and by any such other
shareholders, and (iv) any financial interest of the shareholder or any such
other shareholders in such item of business or proposal.
<PAGE>
(d) The Board of Directors, or a designated committee
thereof, may reject a shareholder's notice that is not timely given in
accordance with the terms of Section 1.1.2(b). If the Board of Directors, or a
designated committee thereof, determines that the information provided in a
shareholder's notice does not satisfy the requirements of Section 1.1.2(c) in
any material respect, the Secretary of the corporation shall notify the
shareholder of the deficiency in the notice. The shareholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five (5) days from the date
such deficiency notice is given to the shareholder, as the Board of Directors or
such committee shall reasonably determine. If the deficiency is not cured within
such period, or if the Board of Directors or such committee determines that the
additional information provided by the shareholder, together with information
previously provided, does not satisfy the requirements of Section 1.1.2(c) in
any material respect, then the Board of Directors or such committee may reject
the shareholder's notice.
(e) Notwithstanding the procedures set forth in
Section 1.1.2(d), if a shareholder desires to bring an item of business or
proposal before an annual meeting, and neither the Board of Directors nor any
committee thereof has made a prior determination of whether the shareholder has
complied with the procedures set forth in this Section 1.1.2 in connection with
such item of business or proposal, then the chairman of the annual meeting shall
determine and declare at the annual meeting whether the shareholder has so
complied. If the chairman determines that the shareholder has so complied, then
the chairman shall so state and ballots shall be provided for use at the meeting
with respect to such item of business or proposal. If the chairman determines
that the shareholder has not so complied, then, unless the chairman, in his sole
and absolute discretion, determines to waive such compliance, the chairman shall
state that the shareholder has not so complied and the item of business or
proposal shall not be brought before the annual meeting.
(f) This Section 1.1.2 shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of Directors, but, in connection
with such reports, no item of business may be conducted, and no proposal may be
considered and acted upon, unless there has been compliance with the procedures
set forth in this Section 1.1.2 in connection therewith.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the Board of Directors or by
the Chairman of the Board (if one be appointed) or by the President or by one or
more shareholders holding shares representing not less than one-tenth (1/10) of
all the votes entitled to be cast on any issue proposed to be considered at that
meeting, to be held at such time and place as the Board or the Chairman (if one
be appointed) or the President may prescribe; provided, that, at any time when
the corporation is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), special meetings of the
shareholders for any purpose or purposes may be called at any time only by the
Board of Directors or the Chairman of the Board (if one be appointed) or the
President or one or more shareholders holding shares representing not less than
twenty-five percent (25%) of all the votes entitled to be cast on any issue
proposed to be considered at that meeting.
-2-
<PAGE>
If a special meeting is called by any person or persons other than the
Board of Directors or the Chairman of the Board (if one be appointed) or the
President, then a written demand, describing with reasonable clarity the purpose
or purposes for which the meeting is called and specifying the general nature of
the business proposed to be transacted, shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Secretary of the corporation. Upon receipt of such a demand, the Secretary shall
cause notice of such meeting to be given, within thirty (30) days after the date
the demand was delivered to the Secretary, to the shareholders entitled to vote,
in accordance with the provisions of Section 1.3 of these Bylaws.
1.3 NOTICE OF MEETINGS. Except as otherwise provided below, the
Secretary, Assistant Secretary, or any transfer agent of the corporation shall
give, in any manner permitted by law, not less than ten (10) nor more than sixty
(60) days before the date of any meeting of shareholders, written notice stating
the place, day, and time of the meeting to each shareholder of record entitled
to vote at such meeting. If mailed, notice to a shareholder with first-class
postage prepaid, correctly addressed to the shareholder at the shareholder's
address as it appears on the current record of shareholders of the corporation,
shall be effective when mailed. Otherwise, written notice shall be effective at
the earliest of the following: (a) when received, (b) five (5) days after its
deposit in the United States mail, as evidenced by the postmark, if mailed with
first-class postage prepaid and correctly addressed, or (c) on the date shown on
the return receipt, if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee.
1.3.1 NOTICE OF SPECIAL MEETING. In the case of a special
meeting, the written notice shall also state with reasonable clarity the purpose
or purposes for which the meeting is called and the general nature of the
business proposed to be transacted at the meeting. No business other than that
within the purpose or purposes specified in the notice may be transacted at a
special meeting.
1.3.2 PROPOSED ARTICLES OF AMENDMENT, MERGER, EXCHANGE, SALE,
LEASE, OR DISPOSITION. If the business to be conducted at any meeting includes
any proposed amendment to the Articles of Incorporation or any proposed merger
or exchange of shares, or any proposed sale, lease, exchange, or other
disposition of all or substantially all of the property and assets (with or
without the goodwill) of the corporation not in the usual or regular course of
its business, then the written notice shall state that the purpose or one of the
purposes is to consider the proposed amendment or plan of merger, exchange of
shares, sale, lease, exchange, or other disposition, as the case may be, shall
describe the proposed action with reasonable clarity, and shall be accompanied
by a copy of the proposed amendment or plan. Written notice of such meeting
shall be given to each shareholder of record, whether or not entitled to vote at
such meeting, not less than twenty (20) days before such meeting, in the manner
provided in Section 1.3 above.
1.3.3 PROPOSED DISSOLUTION. If the business to be conducted at
any meeting includes the proposed voluntary dissolution of the corporation, then
the written notice shall state that the purpose or one of the purposes is to
consider the advisability thereof. Written notice of such meeting shall be given
to each shareholder of record, whether or not entitled to vote at such
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meeting, not less than twenty (20) days before such meeting, in the manner
provided in Section 1.3 above.
1.3.4 DECLARATION OF MAILING. A declaration of the mailing or
other means of giving any notice of any shareholders' meeting, executed by the
Secretary, Assistant Secretary, or any transfer or other agent of the
corporation giving notice on its behalf, shall be prima facie evidence of the
giving of such notice.
1.3.5 WAIVER OF NOTICE. A shareholder may waive notice of any
meeting at any time, either before or after such meeting. Except as provided
below, the waiver must be in writing, be signed by the shareholder entitled to
the notice, and be delivered to the corporation for inclusion in the minutes or
filing with the corporate records. A shareholder's attendance at a meeting in
person or by proxy waives objection to lack of notice or defective notice of the
meeting unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting on the ground that
the meeting is not lawfully called or convened. In the case of a special
meeting, or an annual meeting at which fundamental corporate changes are
considered, a shareholder waives objection to consideration of a particular
matter that is not within the purpose or purposes described in the meeting
notice unless the shareholder objects to considering the matter when it is
presented.
1.4 QUORUM; VOTE REQUIREMENT. A quorum shall exist at any meeting of
shareholders if a majority of the votes entitled to be cast is represented in
person or by proxy. Once a share is represented for any purpose at a meeting
other than solely to object to holding the meeting or transacting business at
the meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting. Subject to the foregoing, the
determination of the voting groups entitled to vote (as required by law), and
the quorum and voting requirements applicable thereto, must be made separately
for each matter being considered at a meeting. In the case of any meeting of
shareholders that is adjourned more than once because of the failure of a quorum
to attend, those who attend the third convening of such meeting, although less
than a quorum, shall nevertheless constitute a quorum for the purpose of
electing directors, provided that the percentage of shares represented at the
third convening of such meeting shall not be less than one-third of the shares
entitled to vote.
If a quorum exists, action on a matter (other than the election of
directors) is approved by a voting group if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action unless a greater number of affirmative votes is required by law or by
the Articles of Incorporation.
1.5 ADJOURNED MEETINGS. An adjournment or adjournments of any
shareholders' meeting, whether by reason of the failure of a quorum to attend or
otherwise, may be taken to such date, time, and place as the chairman of the
meeting may determine without new notice being given if the date, time, and
place are announced at the meeting at which the adjournment is taken. However,
if the adjournment is for more than one hundred twenty (120) days from the date
set for the original meeting, a new record date for the adjourned meeting shall
be fixed and a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting, in accordance
with the provisions of Section 1.3 of these Bylaws. At
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any adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. Any meeting at which directors are
to be elected shall be adjourned only from day to day until such directors are
elected.
1.6 FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders (or, subject to
Section 1.5 above, any adjournment thereof), the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy (70) days prior to the
meeting. If no such record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, then the day
before the first notice is delivered to shareholders shall be the record date
for such determination of shareholders. If no notice is given because all
shareholders entitled to notice have waived notice, then the record date for the
determination of shareholders entitled to notice of or to vote at a meeting
shall be the date on which the last such waiver of notice was obtained. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof, except as provided in Section 1.5 of these Bylaws. If no
notice is given because all shareholders entitled to notice have signed a
consent as described in Section 1.9 below, the record date for determining
shareholders entitled to take action without a meeting is the date the first
shareholder signs the consent.
1.7 SHAREHOLDERS' LIST FOR MEETING. The corporation shall cause to be
prepared an alphabetical list of the names of all of its shareholders on the
record date who are entitled to notice of a shareholders' meeting or any
adjournment thereof. The list must be arranged by voting group (and within each
voting group by class or series of shares) and show the address of and the
number of shares held by each shareholder. The shareholders' list must be
available for inspection by any shareholder, beginning ten (10) days prior to
the meeting and continuing through the meeting, at the principal office of the
corporation or at a place identified in the meeting notice in the city where the
meeting will be held. Such list shall be produced and kept open at the time and
place of the meeting. During such ten-day period, and during the whole time of
the meeting, the shareholders' list shall be subject to the inspection of any
shareholder, or the shareholder's agent or attorney. In cases where the record
date is fewer than ten (10) days prior to the meeting because notice has been
waived by all shareholders, the Secretary shall keep such record available for a
period from the date the first waiver of notice was delivered to the date of the
meeting. Failure to comply with the requirements of this section shall not
affect the validity of any action taken at the meeting.
1.8 RATIFICATION. Subject to the requirements of RCW 23B.08.730,
23B.17.020, and 23B.19.040, any contract, transaction, or act of the corporation
or of any director or officer of the corporation that shall be authorized,
approved, or ratified by the affirmative vote of a majority of shares
represented at a meeting at which a quorum is present shall, insofar as
permitted by law, be as valid and as binding as though ratified by every
shareholder of the corporation.
1.9 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action which may be or
which is required by law to be taken at any meeting of shareholders may be
taken, without a meeting or notice of a meeting, if one or more consents in
writing, setting forth the action so taken, are signed by all of the
shareholders entitled to vote or, in the place of any one or more of such
shareholders, by a person holding a valid proxy to vote with respect to the
subject matter thereof,
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and are delivered to the corporation for inclusion in the minutes or filing with
the corporate records. If notice of the proposed action to be taken by unanimous
consent of the voting shareholders is required by law to be given to nonvoting
shareholders, the corporation must give its nonvoting shareholders written
notice of the proposed action at least ten (10) days before the action is taken.
The notice must contain or be accompanied by the same material that, by law,
would have been required to be sent to nonvoting shareholders in a notice of
meeting at which the proposed action would have been submitted to such
shareholders for action. Action taken by unanimous written consent is effective
when all consents are in possession of the corporation, unless the consent
specifies a later effective date. Such consent shall have the same force and
effect as a meeting vote of shareholders and may be described as such in any
articles or other document filed with the Secretary of State of the State of
Washington.
1.10 TELEPHONIC MEETINGS. Shareholders may participate in a meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1 RESPONSIBILITY OF BOARD OF DIRECTORS. The business and affairs and
property of the corporation shall be managed under the direction of a Board of
Directors. A director shall discharge the duties of a director, including duties
as a member of a committee, in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances, and in a
manner the director reasonably believes to be in the best interests of the
corporation. In discharging the duties of a director, a director is entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by: (a) one or
more officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented; (b) legal
counsel, public accountants, or other persons as to matters the director
reasonably believes are within the person's professional or expert competence;
or (c) a committee of the Board of Directors of which the director is not a
member, if the director reasonably believes the committee merits confidence. A
director is not acting in good faith if the director has knowledge concerning
the matter in question that makes reliance otherwise permitted above
unwarranted. The creation of, delegation of authority to, or action by a
committee does not alone constitute compliance by a director with the standards
of conduct imposed by law upon directors. A director is not liable for any
action taken as a director, or any failure to take any action, if the director
performed the duties of the director's office in compliance with this section.
2.2 NUMBER OF DIRECTORS; QUALIFICATION. The exact number of directors of
the corporation shall be six (6) until amended in accordance with these Bylaws.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If a
greater or lesser number of directors than is specified in this section is
elected by the shareholders, then election of that number shall automatically be
deemed to constitute an amendment to these Bylaws. No director need be a
shareholder of the corporation or a resident of Washington. Each director must
be at least eighteen (18) years of age.
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2.3 ELECTION OF DIRECTORS; NOMINATIONS.
2.3.1 ELECTION AND TERM OF OFFICE. At each annual meeting of
shareholders, the shareholders shall elect directors. Each director shall hold
office until the next succeeding annual meeting or, in the case of staggered
terms as permitted by RCW 23B.08.060, for the term for which he is elected, and
in each case until his successor shall have been elected and qualified.
2.3.2 NOMINATIONS FOR DIRECTORS.
(a) Nominations of candidates for election as
directors at an annual meeting of shareholders may only be made (i) by, or at
the direction of, the Board of Directors, or (ii) by any shareholder of the
corporation who is entitled to vote at the meeting and who complies with the
procedures set forth in the remainder of this Section 2.3.2.
(b) If a shareholder proposes to nominate one or more
candidates for election as directors at an annual meeting, the shareholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal office of the corporation (i) not less than one
hundred twenty (120) days prior to the first anniversary of the date that the
corporation's proxy statement was first released to shareholders in connection
with the previous year's annual meeting; or (ii) a reasonable time before the
corporation begins to print and mail its proxy materials if the date of the
current year's annual meeting has been changed by more than thirty (30) days
from the date of the previous year's meeting.
(c) A shareholder's notice to the Secretary under
Section 2.3.2(b) shall set forth, as to each person whom the shareholder
proposes to nominate for election as a director (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the number and class of shares of stock of the
corporation that are beneficially owned on the date of such notice by such
person, and (iv) if the corporation at such time has any security registered
pursuant to Section 12 of the Exchange Act, any other information relating to
such person required to be disclosed in solicitations of proxies with respect to
nominees for election as directors pursuant to Regulation 14A under the Exchange
Act, including but not limited to information required to be disclosed by
Schedule 14A of Regulation 14A, and any other information that the shareholder
would be required to file with the Securities and Exchange Commission in
connection with the shareholder's nomination of such person as a candidate for
director or the shareholder's opposition to any candidate for director nominated
by, or at the direction of, the Board of Directors. In addition to the above
information, a shareholder's notice to the Secretary under Section 2.3.2(b)
shall (A) set forth (i) the name and address, as they appear on the
corporation's books, of the shareholder and of any other shareholders that the
shareholder knows or anticipates will support any candidate or candidates
nominated by the shareholder, and (ii) the number and class of shares of stock
of the corporation that are beneficially owned on the date of such notice by the
shareholder and by any such other shareholders, and (B) be accompanied by a
written statement, signed and acknowledged by each candidate nominated by the
shareholder, that the candidate agrees to be so nominated and to serve as a
director of the corporation if elected at the annual meeting.
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(d) The Board of Directors, or a designated committee
thereof, may reject any shareholder's nomination of one or more candidates for
election as directors if the nomination is not made pursuant to a shareholder's
notice timely given in accordance with the terms of Section 2.3.2(b). If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a shareholder's notice does not satisfy the requirements
of Section 2.3.2(c) in any material respect, the Secretary of the corporation
shall notify the shareholder of the deficiency in the notice. The shareholder
shall have an opportunity to cure the deficiency by providing additional
information to the Secretary within such period of time, not to exceed five (5)
days from the date such deficiency notice is given to the shareholder, as the
Board of Directors or such committee shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee determines that the additional information provided by the
shareholder, together with information previously provided, does not satisfy the
requirements of Section 2.3.2(c) in any material respect, then the Board of
Directors or such committee may reject the shareholder's notice.
(e) Notwithstanding the procedures set forth in
Section 2.3.2(d), if a shareholder proposes to nominate one or more candidates
for election as directors at an annual meeting, and neither the Board of
Directors nor any committee thereof has made a prior determination of whether
the shareholder has complied with the procedures set forth in this Section 2.3.2
in connection with such nomination, then the chairman of the annual meeting
shall determine and declare at the annual meeting whether the shareholder has so
complied. If the chairman determines that the shareholder has so complied, then
the chairman shall so state and ballots shall be provided for use at the meeting
with respect to such nomination. If the chairman determines that the shareholder
has not so complied, then, unless the chairman, in his sole and absolute
discretion, determines to waive such compliance, the chairman shall state that
the shareholder has not so complied and the defective nomination shall be
disregard.
2.4 VACANCIES. Except as otherwise provided by law, any vacancy
occurring in the Board of Directors (whether caused by resignation, death, or
otherwise) may be filled by the affirmative vote of a majority of the directors
present at a meeting of the Board at which a quorum is present, or, if the
directors in office constitute less than a quorum, by the affirmative vote of a
majority of all of the directors in office. Notice shall be given to all of the
remaining directors that such vacancy will be filled at the meeting. However, if
the vacant office was held by a director elected by a voting group composed of
less than all of the voting shareholders, then the Board of Directors shall not
have the power to fill such vacancy. A director elected to fill any vacancy
shall hold office until the next meeting of shareholders at which directors are
elected, and until his successor shall have been elected and qualified.
2.5 REMOVAL. One or more members of the Board of Directors (including
the entire Board) may be removed, with or without cause, at a special meeting of
shareholders called expressly for that purpose. A director (or the entire Board)
may be removed if the number of votes cast in favor of removing such director
(or the entire Board) exceeds the number of votes cast against removal; provided
that, if a director (or the entire Board) has been elected by one or more voting
groups, only those voting groups may participate in the vote as to removal.
However, if the Articles of Incorporation grant shareholders the right to
cumulate their votes in the election of directors, a director may not be removed
if a number of votes sufficient to elect
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such director under cumulative voting (computed on the basis of the number of
votes actually cast at the meeting on the question of removal) is cast against
such director's removal.
2.6 RESIGNATION. A director may resign at any time by delivering written
notice to the Board of Directors, its Chairman, the President, or the Secretary.
A resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
2.7 ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof and shall be held without
notice immediately after the annual shareholders' meeting or any special
shareholders' meeting at which a Board is elected. Such meeting shall be held at
the same place as such shareholders' meeting unless some other place shall be
specified by resolution of the shareholders.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held at such place, day, and time as shall from time to time be fixed by
resolution of the Board without notice other than the delivery of such
resolution as provided in Section 2.10 below.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the President or the Chairman of the Board (if one be appointed) or
any two or more directors, to be held at such place, day, and time as specified
by the person or persons calling the meeting.
2.10 NOTICE OF MEETING. Notice of the place, day, and time of any
meeting of the Board of Directors for which notice is required shall be given,
at least two (2) days preceding the day on which the meeting is to be held, by
the Secretary or an Assistant Secretary, or by the person calling the meeting,
in any manner permitted by law, including orally. Any oral notice given by
personal communication over the telephone or otherwise may be communicated
either to the director or to a person at the office of the director who, the
person giving the notice has reason to believe, will promptly communicate it to
the director. Notice shall be deemed to have been given on the earliest of (a)
the day of actual receipt, (b) five (5) days after the day on which written
notice is deposited in the United States mail, as evidenced by the postmark,
with first-class postage prepaid and correctly addressed, or (c) on the date
shown on the return receipt, if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the addressee.
No notice of any regular meeting need be given if the place, day, and
time thereof have been fixed by resolution of the Board of Directors and a copy
of such resolution has been given to each director, either by personally
delivering the copy to the director at least two (2) days, or by depositing the
copy in the United States mail with first-class postage prepaid and correctly
addressed to the director at the director's address as it appears on the records
of the corporation at least five (5) days (as evidenced by the postmark), prior
to the day of the first meeting held in pursuance thereof.
Notice of a meeting of the Board of Directors need not be given to any
director if it is waived by the director in writing, whether before or after
such meeting is held. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting unless required by law, the
Articles of Incorporation, or these Bylaws.
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A director's attendance at or participation in a meeting shall
constitute a waiver of notice of such meeting except when a director attends or
participates in a meeting for the express purpose of objecting on legal grounds
prior to or at the beginning of the meeting (or promptly upon the director's
arrival) to the holding of the meeting or the transaction of any business and
does not thereafter vote for or assent to action taken at the meeting. Any
meeting of the Board of Directors shall be a legal meeting without any notice
thereof having been given if all of the directors have received valid notice
thereof, are present without objecting, or waive notice thereof, or any
combination thereof.
2.11 QUORUM OF DIRECTORS. Except in particular situations where a lesser
number is expressly permitted by law, and unless a greater number is required by
the Articles of Incorporation, a majority of the number of directors specified
in or fixed in accordance with these Bylaws shall constitute a quorum for the
transaction of business, and the affirmative 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. If the number of directors in office at any time is less than the
number specified in or fixed in accordance with these Bylaws, then a quorum
shall consist of a majority of the number of directors in office; provided that
in no event shall a quorum consist of fewer than one-third of the number
specified in or fixed in accordance with these Bylaws.
Directors at a meeting of the Board of Directors at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided such withdrawal does not reduce the number of
directors attending the meeting below the level of a quorum.
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the Board of Directors to another time and
place. If the meeting is adjourned for more than forty-eight (48) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 2.10 of these
Bylaws, to the directors who were not present at the time of the adjournment.
2.12 DISSENT BY DIRECTORS. Any director who is present at any meeting of
the Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless the director objects at the
beginning of the meeting (or promptly upon the director's arrival) to the
holding of, or the transaction of business at, the meeting; or unless the
director's dissent or abstention shall be entered in the minutes of the meeting;
or unless the director delivers written notice of the director's dissent or
abstention to the presiding officer of the meeting before the adjournment
thereof or to the corporation within a reasonable time after the adjournment of
the meeting. Such right to dissent or abstention shall not be available to any
director who votes in favor of such action.
2.13 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required by law
to be taken or which may be taken at a meeting of the Board of Directors may be
taken without a meeting if one or more consents in writing, setting forth the
action so taken, shall be signed either before or after the action so taken by
all of the directors and delivered to the corporation for inclusion in the
minutes or filing with the corporate records. Such consent shall have the same
effect as a meeting vote. Action taken under this section is effective when the
last director signs the consent, unless the consent specifies a later effective
date.
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2.14 TELEPHONIC MEETINGS. Except as may be otherwise restricted by the
Articles of Incorporation, members of the Board of Directors may participate
in a meeting of the Board by any means of communication by which all directors
participating in the meeting may simultaneously hear each other during the
meeting. Participation by such means shall constitute presence in person at a
meeting.
2.15 COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, and may be paid a fixed sum or a
stated salary as a director, for attendance at each meeting of the Board. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
2.16 COMMITTEES. The Board of Directors, by resolution adopted by the
greater of (a) a majority of all of the directors in office, or (b) the number
of directors required by the Articles of Incorporation or these Bylaws to take
action may from time to time create, and appoint individuals to, one or more
committees, each of which must have at least two (2) members. If a committee is
formed for the purpose of exercising functions of the Board, the committee must
consist solely of directors. If the only function of a committee is to study and
make recommendations for action by the full Board, the committee need not
consist of directors. Members of a committee composed solely of directors, in
fulfilling their standard of conduct, may rely upon Section 2.1 above.
Committees of directors may exercise the authority of the Board of Directors to
the extent specified by such resolution or in the Articles of Incorporation or
these Bylaws. However, no committee shall:
(a) authorize or approve a distribution (as defined in RCW
23B.01.400) except according to a general formula or method prescribed by the
Board of Directors;
(b) approve or propose to shareholders action that by law is
required to be approved by shareholders;
(c) fill vacancies on the Board of Directors or on any of its
committees;
(d) amend the Articles of Incorporation;
(e) adopt, amend, or repeal Bylaws;
(f) approve a plan of merger not requiring shareholder
approval; or
(g) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee of directors (or a senior executive officer
of the corporation) to do so within limits specifically prescribed by the Board
of Directors.
Committees shall be governed by the same provisions as govern the
meetings, actions without meetings, notice and waiver of notice, quorum and
voting requirements, and standards of conduct of the Board of Directors. The
Executive Committee (if one be established) shall meet periodically between
meetings of the full Board. All committees shall keep regular minutes of
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their meetings and shall cause them to be recorded in books kept for that
purpose at the office of the corporation.
ARTICLE III
OFFICERS
3.1 APPOINTMENT. The officers of the corporation shall be appointed
annually by the Board of Directors at its annual meeting held after the annual
meeting of the shareholders. If the appointment of officers is not held at such
meeting, such appointment shall be held as soon thereafter as a Board meeting
conveniently may be held. Except in the case of death, resignation, or removal,
each officer shall hold office until the next annual meeting of the Board and
until his successor is appointed and qualified.
3.2 QUALIFICATION. None of the officers of the corporation need be a
director, except as specified below. Any two or more of the corporate offices
may be held by the same person.
3.3 OFFICERS ENUMERATED. Except as otherwise provided by resolution of
the Board of Directors, the officers of the corporation and their respective
powers and duties shall be as follows:
3.3.1 CHAIRMAN OF THE BOARD. The Chairman of the Board (if
such an officer be appointed) shall be a director and shall perform such duties
as shall be assigned to him by the Board of Directors and in any employment
agreement. The Chairman shall preside at all meetings of the shareholders and at
all meetings of the Board at which he is present. The Chairman may sign deeds,
mortgages, bonds, contracts, and other instruments, except when the signing
thereof has been expressly delegated by the Board or by these Bylaws to some
other officer or agent of the corporation or is otherwise required by law to be
signed by some other officer or in some other manner. If the President dies or
becomes unable to act, the Chairman shall perform the duties of the President,
except as may be limited by resolution of the Board of Directors, with all the
powers of and subject to all the restrictions upon the President.
3.3.2 PRESIDENT. Subject to such supervisory powers as may be
given by the Board of Directors to the Chairman of the Board (if such an officer
be appointed), the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board and, subject
to the control of the Board and the Executive Committee (if one be established),
shall supervise and control all of the assets, business, and affairs of the
corporation. If no Chairman of the Board has been appointed, the President shall
be a director. The President may sign certificates for shares of the
corporation, deeds, mortgages, bonds, contracts, and other instruments, except
when the signing thereof has been expressly delegated by the Board or by these
Bylaws to some other officer or agent of the corporation or is otherwise
required by law to be signed by some other officer or in some other manner. The
President shall vote the shares owned by the corporation in other corporations,
domestic or foreign, unless otherwise prescribed by law or resolution of the
Board. In general, the President shall perform all duties incident to the office
of President and such other duties as may be prescribed by the Board from time
to time. In the absence of the Chairman of the Board, the President, if a
director, shall preside over all meetings of the shareholders and over all
meetings of the Board of Directors. The President
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shall have the authority to appoint one or more Assistant Secretaries and
Assistant Treasurers, as he deems necessary.
3.3.3 VICE PRESIDENTS. If no Chairman of the Board has been
appointed, in the absence or disability of the President, the Vice Presidents,
if any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board shall perform all the duties of
the President and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President; provided that no such Vice President
shall assume the authority to preside as Chairman of meetings of the Board
unless such Vice President is a member of the Board. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
respectively prescribed for them by the Board, these Bylaws, the President, or
the Chairman of the Board (if one be appointed).
3.3.4 SECRETARY. The Secretary shall:
(a) have responsibility for preparing minutes of
meetings of the shareholders and the Board of Directors and for
authenticating records of the corporation;
(b) see that all notices are duly given in accordance
with the provisions of Sections 1.3, 1.5, 2.8, and 2.10 of these
Bylaws and as required by law;
(c) be custodian of the corporate records and seal of
the corporation, if one be adopted;
(d) keep a register of the post office address of
each shareholder and director;
(e) attest certificates for shares of the corporation;
(f) have general charge of the stock transfer books
of the corporation;
(g) when required by law or authorized by resolution
of the Board of Directors, sign with the President, or other officer
authorized by the President or the Board, deeds, mortgages, bonds,
contracts, and other instruments; and
(h) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be
assigned by the President or the Board of Directors.
In the absence of the Secretary, an Assistant Secretary may perform the
duties of the Secretary.
3.3.5 TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board shall determine. The
Treasurer shall:
(a) have charge and custody of and be responsible for
all funds and securities of the corporation;
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(b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever and deposit all
such moneys in the name of the corporation in banks, trust companies, or
other depositories selected in accordance with the provisions of these
Bylaws; and
(c) in general, perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may
be assigned by the President or the Board of Directors.
In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.
3.4 DELEGATION. In case of the absence or inability to act of any
officer of the corporation and of each person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers and
duties of such officer to any other officer or other person whom it may select.
3.5 RESIGNATION. Any officer may resign at any time by delivering notice
to the corporation. Any such resignation shall take effect at the time the
notice is delivered unless the notice specifies a later effective date. Unless
otherwise specified therein, acceptance of such resignation by the corporation
shall not be necessary to make it effective. Any resignation shall be without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party.
3.6 REMOVAL. Any officer or agent may be removed by the Board with or
without cause. An officer empowered to appoint another officer or assistant
officer also has the power to remove any officer he would have the power to
appoint whenever in his judgment the best interests of the corporation would be
served thereby. The removal of an officer or agent shall be without prejudice to
the contract rights, if any, of the corporation or the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
3.7 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office, or any other cause may be
filled by the Board of Directors for the unexpired portion of the term or for a
new term established by the Board.
3.8 OTHER OFFICERS AND AGENTS. One or more Vice Presidents and such
other officers and assistant officers as may be deemed necessary or advisable
may be appointed by the Board of Directors or, to the extent provided in Section
3.3.2 above, by the President. Such other officers and assistant officers shall
hold office for such periods, have such authorities, and perform such duties as
are provided in these Bylaws or as may be provided by resolution of the Board.
Any officer may be assigned by the Board any additional title that the Board
deems appropriate. The Board may delegate to any officer or agent the power to
appoint any such assistant officers or agents and to prescribe their respective
terms of office, authorities, and duties.
3.9 COMPENSATION. Compensation, if any, for officers and other agents
and employees of the corporation shall be determined by the Board of Directors,
or by the President to the extent such authority may be delegated to him by the
Board. No officer shall be prevented from
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receiving compensation in such capacity by reason of the fact that he is also a
director of the corporation.
3.10 GENERAL STANDARDS FOR OFFICERS. Officers with discretionary
authority shall discharge their duties under that authority in accordance with
the same standards of conduct applicable to directors as specified in Section
2.1 above (except for subsection (c) thereof).
ARTICLE IV
CONTRACTS, CHECKS AND DRAFTS
4.1 CONTRACTS. The Board of Directors may authorize any officer or
officers or agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation. Such authority
may be general or confined to specific instances.
Subject to the limitations set forth in RCW 23B.08.700 through
23B.08.730, 23B.17.020, and 23B.19.040, to the extent applicable:
(a) The corporation may enter into contracts and otherwise
transact business as vendor, purchaser, lender, borrower, or otherwise with its
directors and shareholders and with corporations, associations, firms, and
entities in which they are or may be or become interested as directors,
officers, shareholders, members, or otherwise.
(b) Any such contract or transaction shall not be affected or
invalidated or give rise to liability by reason of the director's or
shareholder's having an interest in the contract or transaction.
4.2 CHECKS, DRAFTS, ETC. All checks, drafts, and other orders for the
payment of money, notes, and other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers or agent or
agents of the corporation and in such manner as may be determined from time to
time by resolution of the Board of Directors.
4.3 DEPOSITS. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Treasurer, subject to the
direction of the Board of Directors, may select.
ARTICLE V
STOCK
5.1 ISSUANCE OF SHARES. No shares of the corporation shall be issued
unless authorized by the Board of Directors, which authorization shall include
the maximum number of shares to be issued, the consideration to be received for
each share, and, if the consideration is in a form other than cash, the
determination of the value of the consideration.
5.2 CERTIFICATES OF STOCK. All shares of the corporation shall be
represented by certificates in such form, not inconsistent with the Articles of
Incorporation, as the Board of Directors may from time to time prescribe.
Certificates of stock shall be issued in numerical order and shall be signed by
the President or a Vice President, attested to by the Secretary or an
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Assistant Secretary, and sealed with the corporate seal, if any. If any
certificate is manually signed by a transfer agent or a transfer clerk and by a
registrar, the signatures of the President, Vice President, Secretary or
Assistant Secretary upon that certificate may be facsimiles that are engraved or
printed. If any person who has signed or whose facsimile signature has been
placed on a certificate no longer is an officer when the certificate is issued,
the certificate may nevertheless be issued with the same effect as if the person
were still an officer at the time of its issue. Every certificate of stock shall
state:
(a) The state of incorporation;
(b) The name of the registered holder of the shares
represented thereby;
(c) The number and class of shares, and the designation of the
series, if any, which such certificate represents;
(d) If the corporation is authorized to issue different
classes of shares or different series within a class, either a summary of (on
the face or back of the certificate), or a statement that the corporation will
furnish to any shareholder upon written request and without charge a summary of,
the designations, relative rights, preferences, and limitations applicable to
each class and the variations in rights, preferences and limitations determined
for each series, and the authority of the Board of Directors to determine
variations for future series; and
(e) If the shares are subject to transfer or other
restrictions under applicable securities laws or contracts with the corporation,
either a complete description of or a reference to the existence and general
nature of such restrictions on the face or back of the certificate.
5.3 STOCK RECORDS. The corporation or its agent shall maintain at the
registered office or principal office of the corporation, or at the office of
the transfer agent or registrar of the corporation, if one be designated by the
Board of Directors, a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares showing the number and class of shares
held by each. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
5.4 RESTRICTIONS ON TRANSFER. The Board of Directors shall have the
authority to ISSUE SHARES OF THE CAPITal stock of this corporation and the
certificates therefor subject to such transfer restrictions and other
limitations as it may deem necessary to promote compliance with applicable
federal and state securities laws, and to regulate the transfer thereof in such
manner as may be calculated to promote such compliance or to further any other
reasonable purpose. Except to the extent that the corporation has obtained an
opinion of counsel acceptable to the corporation that transfer restrictions are
not required under applicable securities laws, all certificates representing
shares of the corporation shall bear the following legend (or a legend of
substantially the same import) on the face of the certificate or on the reverse
of the certificate if a reference to the legend is contained on the face:
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NOTICE: RESTRICTIONS ON TRANSFER
The securities represented by this certificate have not been
registered under the Securities Act of 1933, or any state
securities laws, and may not be offered, sold, transferred,
encumbered, or otherwise disposed of except upon satisfaction
of certain conditions. Information concerning these
restrictions may be obtained from the corporation or its legal
counsel. Any offer or disposition of these securities without
satisfaction of said conditions will be wrongful and will not
entitle the transferee to register ownership of the securities
with the corporation.
5.5 TRANSFERS. Shares of stock may be transferred by delivery of the
certificates therefor, accompanied by:
(a) an assignment in writing on the back of the certificate,
or an assignment separate from certificate, or a written power of attorney to
sell, assign, and transfer the same, signed by the record holder of the
certificate; and
(b) such additional documents, instruments, and other items of
evidence as may be reasonably necessary to satisfy the requirements of any
transfer restrictions applicable to such shares, whether arising under
applicable securities or other laws, or by contract, or otherwise.
Except as otherwise specifically provided in these Bylaws, no shares of
stock shall be transferred on the books of the corporation until the outstanding
certificate therefor has been surrendered to the corporation. All certificates
surrendered to the corporation for transfer shall be canceled, and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that, in case of a lost,
destroyed, or mutilated certificate, a new one may be issued therefor upon such
terms (including indemnity to the corporation) as the Board of Directors may
prescribe.
ARTICLE VI
RECORDS OF CORPORATE MEETINGS
The corporation shall keep, as permanent records, minutes of all
meetings of its shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors exercising the
authority of the Board of Directors on behalf of the corporation. The
corporation shall keep at its principal office a copy of the minutes of all
shareholders' meetings that have occurred, and records of all action taken by
shareholders without a meeting, within the past three (3) years. Any person
dealing with the corporation may rely upon a copy of any of the records of the
proceedings, resolutions, or votes of the Board or shareholders when certified
by the President or Secretary.
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ARTICLE VII
FINANCIAL MATTERS
The corporation shall maintain appropriate accounting records at its
principal office and shall prepare the annual financial statements required by
RCW 23B.16.200. Except to the extent otherwise expressly determined by the Board
of Directors or otherwise required by law, the accounting records of the
corporation shall be kept and prepared in accordance with generally accepted
accounting principles applied on a consistent basis from period to period. The
fiscal year of the corporation shall be the calendar year unless otherwise
expressly determined by the Board of Directors.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may from time to time authorize, and the
corporation may make, distributions (as defined in RCW 23B.01.400) to its
shareholders to the extent permitted by RCW 23B.06.400, subject to any
limitation in the Articles of Incorporation. A director who votes for or assents
to a distribution made in violation of RCW 23B.06.400 is personally liable to
the corporation for the amount of the distribution that exceeds that which could
have been distributed without violating RCW 23B.06.400 if it is established that
the director did not perform the director's duties in compliance with Section
2.1 above.
ARTICLE IX
CORPORATE SEAL
The Board of Directors may, but shall not be required to, adopt a
corporate seal for the corporation in such form and with such inscription as the
Board may determine. If such a corporate seal shall at any time be so adopted,
the application of or the failure to apply such seal to any document or
instrument shall have no effect upon the validity or invalidity of such document
or instrument under otherwise applicable principles of law.
ARTICLE X
INDEMNIFICATION
As provided by Article IV, Section Fourth, of the Articles of
Incorporation:
10.1 DEFINITIONS. The capitalized terms in this Article X shall have the
meanings set forth in RCW 23B.08.500.
10.2 MANDATORY INDEMNIFICATION. The Corporation shall indemnify and hold
harmless each individual who is or was serving as a Director or officer of the
Corporation or who, while serving as a Director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any and all Liability incurred with respect to any Proceeding to which
the individual is or is threatened to be made a Party because of such service,
and shall make advances of reasonable
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<PAGE>
Expenses with respect to such Proceeding, to the fullest extent permitted by
law, without regard to the limitations in RCW 23B.08.510 through 23B.08.550;
provided that no such indemnity shall indemnify any Director or officer from or
on account of (a) acts or omissions of the Director or officer finally adjudged
to be intentional misconduct or a knowing violation of law; (b) conduct of the
Director or officer finally adjudged to be in violation of RCW 23B.08.310; or
(c) any transaction with respect to which it was finally adjudged that such
Director or officer personally received a benefit in money, property, or
services to which the Director or officer was not legally entitled.
10.3 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee, or agent of
the Corporation or, who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against Liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the Corporation would have power to indemnify
the individual against such Liability under RCW 23B.08.510 or 23B.08.520.
10.4 CHANGES IN LAW. If, after the effective date of this Article X, the
Act is amended to authorize further indemnification of Directors or officers,
then Directors and officers of the Corporation shall be indemnified to the
fullest extent permitted by the Act as so amended.
10.5 EXCLUSIVITY; NATURE OF RIGHTS; AMENDMENT. To the extent permitted
by law, the rights to indemnification and advance of reasonable Expenses
conferred in this Article X shall not be exclusive of any other right which any
individual may have or hereafter acquire under any statute, provision of the
Bylaws, agreement, vote of shareholders or disinterested directors, or
otherwise. The right to indemnification conferred in this Article X shall be a
contract right upon which each Director or officer shall be presumed to have
relied in determining to serve or to continue to serve as such. Any amendment to
or repeal of this Article X shall not adversely affect any right or protection
of a Director or officer of the Corporation for or with respect to any acts or
omissions of such Director or officer occurring prior to such amendment or
repeal.
ARTICLE XI
MISCELLANY
11.1 COMMUNICATIONS BY FACSIMILE. Whenever these Bylaws require notice,
consent, or other communication to be delivered for any purpose, transmission by
phone, wire, or wireless equipment which transmits a facsimile of such
communication shall constitute sufficient delivery for such purpose. Such
communication shall be deemed to have been received by or in the possession of
the addressee upon completion of the transmission.
11.2 INSPECTOR OF ELECTIONS. Before any annual meeting of shareholders,
the Board of Directors may appoint an inspector of elections to act at the
meeting and any adjournment thereof. If no inspector of elections is so
appointed by the Board, then the chairman of the meeting may appoint an
inspector of elections to act at the meeting. If any person appointed as
inspector fails to appear or fails or refuses to act, then the chairman of the
meeting may, and
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upon the request of any shareholder or a shareholder's proxy shall, appoint a
person to fill that vacancy.
Such inspector of elections shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and, with the advice of legal counsel to the corporation, the
authenticity, validity, and effect of proxies pursuant to RCW 23B.07.220 and
23B.07.240 and any procedure adopted by the Board of Directors pursuant to RCW
23B.07.230;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine the result; and
(f) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
11.3 RULES OF ORDER. The rules contained in the most recent edition of
Robert's Rules of Order, Revised, shall govern all meetings of shareholders and
directors where those rules are not inconsistent with the Articles of
Incorporation or Bylaws, subject to the following:
(a) The chairman of the meeting shall have absolute authority
over matters of procedure, and there shall be no appeal from the ruling of the
chairman. If the chairman in his absolute discretion deems it advisable to
dispense with the rules of parliamentary procedure for any meeting or any part
thereof, the chairman shall so state and shall clearly state the rules under
which the meeting or appropriate part thereof shall be conducted.
(b) If disorder should arise which prevents continuation of
the legitimate business of the meeting, the chairman may quit the chair and
announce the adjournment of the meeting; upon so doing, the meeting shall be
deemed immediately adjourned, subject to being reconvened in accordance with
Section 1.5 or 2.11 of these Bylaws, as the case may be.
(c) The chairman may ask or require that anyone not a bona
fide shareholder or proxy leave the meeting of shareholders.
(d) A resolution or motion at a meeting of shareholders shall
be considered for vote only if proposed by a shareholder or duly authorized
proxy and seconded by an individual who is a shareholder or duly authorized
proxy other than the individual who proposed the resolution or motion.
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11.4 CONSTRUCTION. Within these Bylaws, words of any gender shall be
construed to include any other gender, and words in the singular or plural
number shall be construed to include the plural or singular, respectively,
unless the context otherwise requires.
11.5 SEVERABILITY. If any provision of these Bylaws or any application
thereof shall be invalid, unenforceable, or contrary to applicable law, the
remainder of these Bylaws, and the application of such provisions to individuals
or circumstances other than those as to which it is held invalid, unenforceable,
or contrary to applicable law, shall not be affected thereby.
ARTICLE XII
AMENDMENT OF BYLAWS
Subject to the requirements of RCW 23B.10.210 relating to supermajority
quorum provisions for the Board of Directors, the Bylaws of the corporation may
be amended or repealed, or new Bylaws may be adopted, by: (a) the shareholders,
even though the Bylaws may also be amended or repealed, or new Bylaws may also
be adopted, by the Board of Directors; or (b) subject to the power of the
shareholders of the corporation to change or repeal the Bylaws, the Board of
Directors, unless such power is reserved, by the Articles of Incorporation or by
law, exclusively to the shareholders in whole or in part, or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the Board of Directors may not amend or repeal that bylaw.
ARTICLE XIII
AUTHENTICATION
The foregoing Amended and Restated Bylaws were read, approved, and duly
adopted by the Board of Directors of Active Voice Corporation on the 21st day of
October, 1999, and the President and Secretary of the corporation were empowered
to authenticate such Bylaws by their signatures below.
/s/ Frank J. Costa
-----------------------------------
Frank J. Costa, President
ATTEST:
/s/ Jose S. David
- ----------------------------------
Jose S. David, Secretary
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ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99 EXHIBIT 10.1
LUCENT GRL PROPRIETARY & CONFIDENTIAL
PATENT LICENSE AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES GRL CORPORATION
AND
ACTIVE VOICE CORPORATION
RELATING TO INTERACTIVE MESSAGING AND RESPONSE PRODUCTS
Portions of this agreement are omitted pursuant to an application for
confidential treatment, under Rule 24b-2 of the Securities Exchange Act of
1934, filed separately with the Securities Exchange Commission.
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - GRANTS OF LICENSES
1.01 Grant
1.02 Duration and Extent
1.03 Scope
1.04 Ability to Provide Licenses
1.05 Joint Inventions
1.06 Publicity
ARTICLE II - ROYALTY AND PAYMENTS
2.01 Royalty Calculations & Initial Fee
2.02 Running Royalty on Excess Net Gross Revenues
2.03 Accrual
2.04 Records and Adjustments
2.05 Reports and Payments
ARTICLE III - TERMINATION
3.01 Breach
3.02 Voluntary Termination
3.03 Survival
ARTICLE IV - MISCELLANEOUS PROVISIONS
4.01 Disclaimer
4.02 Limited Assignability; Mergers and Acquisitions
4.03 Addresses
4.04 Taxes
4.05 Choice of Law
4.06 Integration
4.07 Outside the United States
4.08 Dispute Resolution
4.09 Releases
4.10 Counterparts
DEFINITIONS APPENDIX
APPENDIX A LIST OF COMPANIES IN LITIGATION WITH LUCENT ET AL.
i
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99 EXHIBIT 10.1
LUCENT GRL PROPRIETARY & CONFIDENTIAL
PATENT LICENSE AGREEMENT
THIS AGREEMENT, effective upon signing of both Parties (the "Effective Date"),
is between LUCENT TECHNOLOGIES GRL CORPORATION, a Delaware corporation ("LUCENT
GRL"), having an office at Suite 105, 14645 N.W. 77th Avenue, Miami Lakes,
Florida 33014, and ACTIVE VOICE CORPORATION ("ACTIVE VOICE"), a Washington
corporation, having an office at 2901 Third Avenue, Seattle, Washington 98121.
The Parties agree as follows:*
ARTICLE I
GRANTS OF LICENSES
1.01 GRANT
(a) LUCENT GRL grants to ACTIVE VOICE under LUCENT GRL's PATENTS
personal, worldwide, nonexclusive and non-transferable licenses for:
INTERACTIVE MESSAGING AND RESPONSE PRODUCTS
(b) ACTIVE VOICE grants to LUCENT GRL under ACTIVE VOICE's PATENTS
personal, worldwide, nonexclusive, royalty-free and non-transferable licenses
for:
COMMUNICATIONS PRODUCTS
1.02 DURATION AND EXTENT
All licenses granted herein under any patent shall terminate on the earlier of
such patent's expiration or the end of the LIMITED PERIOD. If, upon the
Effective Date hereof, the grantor has less than full rights, with respect to
any of its patents, the license granted herein under such patent shall be
limited to that which the grantor has the right to grant.
- --------
*ANY TERM IN CAPITAL LETTERS WHICH IS DEFINED IN THE DEFINITIONS APPENDIX SHALL
HAVE THE MEANING SPECIFIED THEREIN.
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
1.03 SCOPE
(a) The licenses granted herein are licenses (i) to make, have made, use,
lease, sell and import LICENSED PRODUCTS; (ii) make, have made, use and import
machines, tools, materials and other instrumentalities, insofar as such
machines, tools, materials and other instrumentalities are involved in or
incidental to the development, manufacture, testing or repair of LICENSED
PRODUCTS which are or have been made, used, leased, owned, sold or imported by
the grantee of such license; and (iii) convey to any customer of the grantee,
whether directly or through an intermediate dealer or OEM (subject to Sections
1.03(d), (e) and (f) and any other provisions in this Agreement), with respect
to any LICENSED PRODUCT which is sold or leased by such grantee to such
customer, rights to use and resell such LICENSED PRODUCT as sold or leased by
such grantee (whether or not as part of a larger combination); provided,
however, that no rights may be conveyed to customers with respect to any
invention which is directed to (1) a combination of such LICENSED PRODUCT (as
sold or leased) with any other product, (2) a method or process which is other
than the inherent use of such LICENSED PRODUCT itself (as sold or leased), or
(3) a method or process involving the use of a LICENSED PRODUCT to manufacture
(including associated testing) any other product. The rights granted herein to
either Party to this Agreement do not include licenses for products manufactured
by a third party and sold by a Party to this Agreement where such sales do not
meet a legitimate business purpose but are merely for the purpose of
sublicensing a Parties' patents to the third party. It is understood that such
limitation is not intended to restrict either Party's or their RELATED
COMPANIES' bona fide business transactions of the type entered into by them in
the course of their current business practices.
(b) Licenses granted herein are not to be construed either (i) as consent
by the grantor to any act which may be performed by the grantee, except to the
extent impacted by a patent licensed herein to the grantee, or (ii) to include
licenses to contributorily infringe or induce infringement under U.S. law or a
foreign equivalent thereof. Notwithstanding the foregoing, for the duration of
this Agreement, each Party agrees for itself and its RELATED COMPANIES that they
shall not bring suit or otherwise exercise any of their other remedies under the
patents licensed herein against the other Party or its RELATED COMPANIES for
contributory infringement or inducing infringement unless they first settle or
exhaust all remedies under their patents against the direct infringer for the
activities which give rise to such contributory or inducing infringement.
(c) The grant of each license hereunder includes the right to grant
sublicenses within the scope of such license to a Party's RELATED COMPANIES for
so long as they remain its RELATED COMPANIES. Any such sublicense may
2
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
be made effective retroactively, but not prior to the Effective Date hereof, nor
prior to the sublicensee's becoming a RELATED COMPANY of such Party.
(d) With respect to ACTIVE VOICE in Section 1.03(a), no rights may be or
are conveyed to non-end user customers of LICENSED PRODUCTS:
(1) with respect to any function or feature of such INTERACTIVE
MESSAGING AND RESPONSE PRODUCT or a larger combination that is not
enumerated within the definition of INTERACTIVE MESSAGING AND
RESPONSE PRODUCT or not a function or feature provided by ACTIVE
VOICE; or
(2) with respect to a component part of an INTERACTIVE MESSAGING AND
RESPONSE PRODUCT or any larger combination, which component part
was manufactured or supplied by such customer and is not required
to implement an INTERACTIVE MESSAGING AND RESPONSE PRODUCT using
software made, sold, licensed or leased by ACTIVE VOICE, (such as
a voice board or general purpose personal computer) and to the
extent such component or combination is required, then only those
rights essential to the performance of functions or features of an
INTERACTIVE MESSAGING AND RESPONSE PRODUCT provided by ACTIVE
VOICE may be conveyed to the customer.
(e) In accordance with rights and licenses provided under the provisions
of this Section 1.03 and Section 1.01, in the event ACTIVE VOICE sells an
INTERACTIVE MESSAGING AND RESPONSE PRODUCT in the form of software to an
intermediary customer (such as an Original Equipment Manufacturer or
distributor), other than directly to an end user, such customer shall be
restricted from making more than one copy of the software, other than for
archival purposes, unless such intermediary customer is provided with a master
copy (i.e., a golden copy for which more than one copy can be made) for the
purpose of making limited copies of the software for loading onto hardware
devices sold by the intermediary customer or for resale directly to an end-user,
in which case:
(1) any copies of the ACTIVE VOICE software made by any such
intermediary customer, including the master copy, not sold as
of the date of any termination of this Agreement, shall cease
to be licensed by LUCENT GRL herein;
(2) the intermediary customer shall be restricted from further
passing on rights to further intermediary customers to make
additional copies of
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ACTIVE VOICE software or modifications other than for archival
purposes; and
(3) if the ACTIVE VOICE software is bundled with any other
software, not provided by ACTIVE VOICE, such other software
shall not be licensed herein under LUCENT GRL's PATENTS.
(f) ACTIVE VOICE shall restrict its customers, as described in Section
1.03(e)(2) by including provisions in their software license agreements to
enable enforcement of the restrictions provided therein.
1.04 ABILITY TO PROVIDE LICENSES
(a) Both Parties represent and warrant that they have received the rights
to grant the licenses and releases under their respective patents herein granted
to each other. LUCENT GRL represents and warrants that the releases and licenses
granted are sufficient to cover the utility patents of LUCENT GRL's PATENTS
owned or applied for, as of the Effective Date, by LUCENT GRL and its RELATED
COMPANIES that claim INTERACTIVE MESSAGING AND RESPONSE PRODUCTS of ACTIVE
VOICE.
(b) A Party's failure to meet any obligation hereunder, due to the
assignment of title to any invention or patent, or the granting of any licenses,
to the United States Government or any agency or designee thereof pursuant to a
statute or regulation of, or contract with, such Government or agency, shall not
constitute a breach of this Agreement.
1.05 JOINT INVENTIONS
(a) There are countries (not including the United States) which require
the express consent of all inventors or their assignees to the grant of licenses
or rights under patents issued in such countries for joint inventions.
(b) Each Party shall give such consent, or shall obtain such consent from
its RELATED COMPANIES, its employees or employees of any of its RELATED
COMPANIES, as required to make full and effective any such licenses and rights
respecting any joint invention granted to the grantee hereunder by such Party
and by another licensor of such grantee.
(c) Each Party shall take steps which are reasonable under the
circumstances to obtain from third parties whatever other consents are necessary
to make full and effective such licenses and rights respecting any joint
invention purported to be granted by it hereunder. If, in spite of such
reasonable steps, such Party is unable to obtain the requisite consents from
such third parties, the
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resulting inability of such Party to make full and effective its purported grant
of such licenses and rights shall not be considered to be a breach of this
Agreement.
1.06 PUBLICITY
(a) Nothing in this Agreement shall be construed as conferring upon
either Party or its RELATED COMPANIES any right to include in advertising,
packaging or other commercial activities related to a LICENSED PRODUCT, any
reference to the other Party (or any of its RELATED COMPANIES), its trade names,
trademarks or service marks in a manner which would be likely to cause confusion
or to indicate that such LICENSED PRODUCT is in any way certified by the other
Party hereto or its RELATED COMPANIES.
(b) Both Parties agree to keep the terms and conditions of this Agreement
confidential, except either Party may acknowledge the existence of this
Agreement. Both Parties shall have the right to make disclosure of the terms and
conditions of this Agreement if required by law or if such disclosure is in
response to an order of a court or an order or regulation of another
governmental body provided, however, that either Party prior to such disclosure
pursuant to such law, order or regulation shall first have promptly informed the
other Party of such law, order or regulation and made reasonable efforts to
obtain a protective order and/or appropriate confidentiality provisions
requiring that such information to be disclosed be used only for the purpose for
which such law, order or regulation was issued.
(c) The Parties shall not issue any press releases relating to this
Agreement unless there is a mutual written agreement by both of the Parties.
ARTICLE II
ROYALTY AND PAYMENTS
2.01 ROYALTY CALCULATION & INITIAL FEE
(a) In payment for the licenses, rights, and releases granted hereunder
to Active Voice and its RELATED COMPANIES by LUCENT GRL, ACTIVE VOICE shall pay
to LUCENT GRL at the address specified in Section 4.03(b), in aggregate, the
following nonrefundable lump sums totaling Three Million U.S. dollars (U.S.
$3,000,000.00), within five (5) days of execution of this Agreement by both
Parties:
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(i) For the releases granted in Section 4.09(a), the total amount
of [*] U.S. dollars ($[*]); and
(ii) For the licenses and rights granted under Sections 1.01 and
1.03 by LUCENT GRL, total royalties in the amount of
[*] U.S. dollars (U.S.$[*]).
(b) The payment in Section 2.01(a) shall not be creditable with respect
to any additional payments due under Section 2.02 and in no event shall such fee
or any portion thereof be refunded to ACTIVE VOICE.
2.02 RUNNING ROYALTY ON EXCESS NET GROSS REVENUES
(a) The provisions of this Section 2.02 shall apply if and only if ACTIVE
VOICE is acquired or merged into a third party and remains as a separately
identifiable business. Retention of the name ACTIVE VOICE after such merger or
acquisition is not a requirement for being separately identifiable.
(b) If, but only if, ACTIVE VOICE is acquired by or merged into a third
party and exists as a separately identifiable business, then a royalty shall be
payable to LUCENT by the acquired, separately identifiable business and/or
acquiring company for the period following acquisition/merger until the end of
the LIMITED PERIOD or for so long as the separately identifiable business
continues to exist, whichever is shorter. This royalty shall be paid for each
annual period ending on an anniversary of the end of the SEMIANNUAL PERIOD that
precedes and ends closest to the acquisition/merger date. The amount of annual
royalty shall be determined by multiplying a royalty rate of [*] percent ([*]%)
to the excess of the NET GROSS REVENUES of the separately identifiable business
for each annual period over a threshold NET GROSS REVENUES for that annual
period. The threshold NET GROSS REVENUES for the first annual period shall be
equal to the NET GROSS REVENUES for the full two (2) SEMIANNUAL PERIODS
immediately preceding the date of acquisition/merger multiplied by [*].
Thereafter, each annual period after the first shall have a threshold NET GROSS
REVENUES equal to the NET GROSS REVENUES for the immediately preceding annual
period times [*]. The royalty payable for the first annual period ending after
the LIMITED PERIOD shall be pro-rated to the end of the LIMITED PERIOD. In
effect, therefore, there shall be no royalty payable under this Section so long
as the NET GROSS REVENUES after acquisition/merger is less than [*] percent
([*]%) annual growth compounded annually. NET GROSS REVENUES and threshold NET
GROSS REVENUES shall be calculated for the separately identifiable, acquired
business including all of its RELATED COMPANIES.
* Confidential Treatment Requested
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2.03 ACCRUAL
(a) Royalty shall accrue and become payable under Section 2.02 upon the
receipt of revenues for products and/or services in excess of [*] percent
([*]%) pursuant to Section 2.02(b). Obligations to pay royalties under Section
2.02 for time periods prior to any termination of licenses and rights pursuant
to Article III shall survive such termination and the expiration of any patent.
(b) Royalties which have accrued under Section 2.02 but have not been
paid for any company which is a RELATED COMPANY of the acquired, separately
identifiable business and then ceases to be the same, shall become payable with
the next scheduled royalty payment under Section 2.02.
(c) Notwithstanding any other provisions hereunder, royalty shall accrue
and be payable only to the extent that enforcement of the obligation to pay such
royalty would not be prohibited by applicable law.
2.04 RECORDS AND ADJUSTMENTS
(a) Any entity potentially obligated to pay royalties under Section 2.02,
hereinafter referred to as "the Entity", shall keep full, clear and accurate
records so as to enable LUCENT GRL to ascertain the proper royalty due
thereunder. The Entity shall retain such records with respect to each product
for at least five (5) years from the sale, lease or putting into use of such
product. LUCENT GRL shall have the right through an independent, nationally
recognized accounting firm (hereinafter "auditors") to make an examination,
during normal business hours, but upon at least fourteen (14) calendar days
notice, of all records and accounts bearing upon the amount of royalty payable
to it under Section 2.02. LUCENT GRL's right to have auditors inspect the
Entity's records and accounts shall be limited to one audit per calendar year,
unless the immediately previous audit revealed an underpayment by the Entity of
at least ten percent (10%) for the audited period. Prompt adjustment shall be
made to compensate for any errors or omissions disclosed by such examination.
(b) Independent of any such examination, LUCENT GRL will credit the
Entity against future royalty payments, provided there are any, the amount of
any overpayment of royalties made in error which is identified and fully
explained in a written notice to LUCENT GRL delivered within one (1) year after
the due date of the payment which included such alleged overpayment, provided
that LUCENT GRL is able to verify, to its own satisfaction, the existence and
extent of the overpayment.
(c) No refund, credit or other adjustment of royalty payments shall be
made by LUCENT GRL except as provided in this Section 2.04. Rights conferred by
this
* Confidential Treatment Requested
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Section 2.04 shall not be affected by any statement appearing on any check or
other document, except to the extent that any such right is expressly waived or
surrendered by a party having such right and signing such statement.
2.05 REPORTS AND PAYMENTS
(a) The provisions of Section 2.05 shall apply if and only if ACTIVE
VOICE is acquired or merged into a third party and remains as a separately
identifiable business.
(b) Within sixty (60) days after each anniversary date of the end of the
SEMIANNUAL PERIOD that precedes and ends closest to the acquisition/merger date
and continuing on each such anniversary date thereafter up to and including the
first anniversary date that ends after the LIMITED PERIOD, the separately
identifiable, acquired business or acquiring business shall furnish to LUCENT
GRL, at the address specified in Section 4.03, a statement certified by a
responsible official of the business furnishing the statement showing in a
manner acceptable to LUCENT GRL:
(i) all revenues on products and services for the twelve-month
period preceding the anniversary date for the separately
identifiable, acquired business and all of its RELATED
COMPANIES;
(ii) the amount of all returns and warranty claims on products
and services during the twelve-month period in (i) for the
separately identifiable, acquired business and all of its
RELATED COMPANIES;
(iii) the threshold NET GROSS REVENUES for the twelve-month period
in (i) for the separately identifiable, acquired business
and all of its RELATED COMPANIES; and
(iv) the amount of royalty, if any, payable for the twelve-month
period in (i).
If there are no NET GROSS REVENUES for the twelve-month period, the statement
shall show that fact.
(c) Within such sixty (60) days the acquired, separately identifiable
business or the acquiring company shall pay in United States dollars to LUCENT
GRL at the address specified in Section 4.03 the royalties payable in accordance
with such statement. Any conversion to United States dollars shall be at the
prevailing rate for bank cable transfers as quoted for the last day of such
semiannual period by leading United States banks in New York City dealing in the
foreign exchange market.
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(d) If payment for a semiannual period is overdue, such payment shall be
subject to a late payment charge calculated at an annual rate of three
percentage points (3%) over the prime rate or successive prime rates quoted for
the last day of such semiannual period by leading U.S. banks in New York City
during delinquency. If the amount of such charge exceeds the maximum permitted
by law, such charge shall be reduced to such maximum.
ARTICLE III
TERMINATION
3.01 BREACH
(a) In the event of a breach of this Agreement by either Party, the other
Party may, in addition to any other remedies that it may have, at any time
terminate all licenses and rights granted by it hereunder by not less than two
(2) months written notice specifying such breach, unless within the period of
such notice all breaches specified therein shall have been remedied.
3.02 VOLUNTARY TERMINATION
By written notice to the other Party, either Party may voluntarily terminate all
or a specified portion of the licenses and rights granted to it hereunder. Such
notice shall specify the effective date (not more than six (6) months prior to
the giving of said notice) of such termination and shall clearly specify any
affected patent, invention or product.
3.03 SURVIVAL
(a) If a company ceases to be a RELATED COMPANY of a Party, licenses and
rights granted hereunder with respect to patents of such company on inventions
made prior to the date of such cessation, shall not be affected by such
cessation.
(b) Any termination of licenses and rights of a Party under the
provisions of this Article III shall not affect such Party's licenses, rights
and obligations with respect to any LICENSED PRODUCT made prior to such
termination, and shall not affect the other Party's licenses and rights (and
obligations related thereto) hereunder.
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ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 DISCLAIMER
NEITHER PARTY NOR ANY OF ITS RELATED COMPANIES MAKES ANY REPRESENTATIONS,
EXTENDS ANY WARRANTIES OF ANY KIND, ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS
WHATEVER, OR CONFERS ANY RIGHT BY IMPLICATION, ESTOPPEL OR OTHERWISE, OTHER THAN
THE LICENSES, RIGHTS AND WARRANTIES HEREIN EXPRESSLY GRANTED.
4.02 LIMITED ASSIGNABILITY; MERGERS AND ACQUISITIONS
(a) LUCENT GRL has entered into this Agreement in contemplation of
personal performance by ACTIVE VOICE and it is LUCENT GRL's intention that a
transfer of ACTIVE VOICE's licenses or rights not occur without LUCENT GRL's
express written consent, except as otherwise permitted in Section 4.02(d).
(b) Neither this Agreement nor any licenses or rights hereunder, in whole
or in part, shall be assignable or transferable by ACTIVE VOICE (by operation of
law or otherwise) without LUCENT GRL's express written consent, except as
otherwise permitted in Section 4.02(d).
(c) All of LUCENT GRL's rights, title and interest in this Agreement and
licenses and rights granted to it hereunder may be assigned to any direct or
indirect successor to the business of LUCENT GRL, as the result of any
reorganization, which successor shall thereafter be deemed substituted for
LUCENT GRL as a party hereto, effective upon such assignment. Additionally,
LUCENT GRL may assign its rights, licenses, title and interest in this Agreement
and any licenses and rights granted to it hereunder, to any RELATED COMPANY
without ACTIVE VOICE's consent. If any such assignment occurs, however, the
licenses granted herein and any obligations shall remain the same and be
enforceable by either Party to this Agreement.
(d) If during the LIMITED PERIOD, a third party acquires ACTIVE VOICE
and ACTIVE VOICE continues to remain a separately, identifiable business
continuing to make and sell INTERACTIVE MESSAGING AND RESPONSE PRODUCTS, as
defined herein, under LUCENT GRL's PATENTS, the third party shall acquire
ACTIVE VOICE's licenses and rights under LUCENT GRL's
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PATENTS for INTERACTIVE MESSAGING AND RESPONSE PRODUCTS, (unless the third
party is involved in patent litigation with LUCENT GRL or any of its RELATED
COMPANIES for the term of such litigation and the third party is listed in
Appendix A, in which case neither this Agreement nor any licenses or rights
granted hereunder is assignable or transferable, in whole or in part),
subject to the following:
(i) for the LIMITED PERIOD the licenses will continue to
apply to INTERACTIVE MESSAGING AND RESPONSE PRODUCTS
of the separate identifiable business (including all
enhancements, improvements, new releases, and new
versions to or of such INTERACTIVE MESSAGING AND
RESPONSE PRODUCTS sold by ACTIVE VOICE and its
RELATED COMPANIES at the time such acquisition is
publicly announced) and will not extend to any other
products of the third party (acquirer/assignee);
(ii) the third party notifies LUCENT GRL that it agrees to
be bound by the terms and conditions of this
Agreement without any restrictions;
(iii) the third party shall pay royalties and report, as
set forth in Sections 2.02 through 2.05, only if,
annual growth of such separately identifiable
business and its RELATED COMPANIES exceed the
specified growth rate as described in Section 2.02;
and
(iv) ACTIVE VOICE (or the named entity agreeing to be
substituted for ACTIVE VOICE in accordance with
Section 4.02(d)(ii)) shall be deemed a "separately
identifiable business" for so long as the third party
maintains separate books and records for such
business, and does not, after the acquisition,
commingle designs of products in existence prior to
such acquisition being publicly announced.
(e) Any purported assignment or transfer of this Agreement or licenses or
rights hereunder by ACTIVE VOICE without LUCENT GRL's necessary consent shall be
void (without affecting any other licenses or rights hereunder).
4.03 ADDRESSES
(a) Any notice or other communication hereunder shall be sufficiently
given to ACTIVE VOICE when sent by certified mail addressed to 2901 Third
Avenue,
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Seattle Washington 98121, or to LUCENT GRL when sent by certified mail addressed
to Contract Administrator, Intellectual Property Business, LUCENT Technologies
GRL Corporation, at the address specified in the first paragraph of this
Agreement. Changes in such addresses may be specified by written notice.
(b) Payments by ACTIVE VOICE shall be made to Lucent Technologies GRL
Corporation, Chase Manhattan Bank, N.A., General Post Office, P.O. Box 6219, New
York, New York 10087-6219, USA. Alternatively, payments to LUCENT GRL may be
made by bank wire transfers to LUCENT Technologies GRL Corporation, at Chase
Manhattan Bank, Account Number 323857752, ABA code: 021000021, Swift Code:
CHASUS33. Changes in such address or account may be specified by written notice.
4.04 TAXES
ACTIVE VOICE shall pay any tax, duty, levy, customs fee, or similar charge
("taxes"), including interest and penalties thereon, however designated, imposed
as a result of the operation or existence of this Agreement, including taxes
which ACTIVE VOICE is required to withhold or deduct from payments to LUCENT
GRL, except (i) net income taxes imposed upon LUCENT GRL by any governmental
entity within the United States (the fifty (50) states and the District of
Columbia), and (ii) net income taxes imposed upon LUCENT GRL by jurisdictions
outside the United States which are allowable as a credit against the United
States Federal income tax of LUCENT GRL or any of its RELATED COMPANIES. In
order for the exception in (ii) to be effective, ACTIVE VOICE must furnish to
LUCENT GRL evidence sufficient to satisfy the United States taxing authorities
that such taxes have been paid. Such evidence must be furnished to LUCENT GRL
within thirty (30) days of issuance by the local taxing authority.
4.05 CHOICE OF LAW
The Parties are familiar with the principles of New York commercial law, and
agree that the law of New York exclusive of its conflict of laws provisions
shall apply in any dispute arising with respect to this Agreement.
4.06 INTEGRATION
This Agreement sets forth the entire agreement and understanding between the
Parties as to the subject matter hereof and merges all prior discussions between
them. Neither of the Parties shall be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or in a writing signed with or subsequent to execution hereof by
an authorized representative of the Party to be bound thereby.
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4.07 OUTSIDE THE UNITED STATES
(a) There are countries in which the owner of an invention is entitled to
compensation, damages or other monetary award for another's unlicensed
manufacture, sale, lease, use or importation involving such invention prior to
the date of issuance of a patent for such invention but on or after a certain
earlier date, hereinafter referred to as the invention's "protection
commencement date" (e.g., the date of publication of allowed claims or the date
of publication or "laying open" of the filed patent application). In some
instances, other conditions precedent must also be fulfilled (e.g., knowledge or
actual notification of the filed patent application). The Parties agree that (i)
an invention which has a protection commencement date in any such country may be
used in such country pursuant to the terms of this Agreement on and after any
such date, and (ii) all such conditions precedent are deemed satisfied by this
Agreement.
(b) There may be countries in which a Party hereto may have, as a
consequence of this Agreement, rights against infringers of the other Party's
patents licensed hereunder. Each Party hereby waives any such right it may have
by reason of any third Party's infringement or alleged infringement of any such
patents.
(c) ACTIVE VOICE hereby agrees to register or cause to be registered, to
the extent required by applicable law, and without expense to LUCENT GRL or any
of its RELATED COMPANIES, any agreements wherein sublicenses are granted by it
under LUCENT GRL's PATENTS. ACTIVE VOICE hereby waives any and all claims or
defenses, arising by virtue of the absence of such registration, that might
otherwise limit or affect its obligations to LUCENT GRL.
4.08 DISPUTE RESOLUTION
(a) If a dispute arises out of or relates to this Agreement, or the
breach, termination or validity thereof, the Parties agree to submit the dispute
to a sole mediator selected by the Parties or, at any time at the option of a
Party, to mediation by the American Arbitration Association ("AAA"). If not thus
resolved, it shall be referred to a sole arbitrator selected by the Parties
within thirty (30) days of the mediation, or in the absence of such selection,
to AAA arbitration which shall be governed by the United States Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or
against a Party and affording such remedy as is deemed equitable, just and
within the scope of the agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other
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than patent disputes) include injunctive relief; (iv) shall be made within four
(4) months of the appointment of the arbitrator; and (v) may be entered in any
court.
(c) The requirement for mediation and arbitration shall not be deemed a
waiver of any right of termination under this Agreement and the arbitrator is
not empowered to act or make any award other than based solely on the rights and
obligations of the Parties prior to any such termination.
(d) The arbitrator shall be knowledgeable in the legal and technical
aspects of this Agreement and shall determine issues of arbitrability but may
not limit, expand or otherwise modify the terms of the agreement.
(e) The place of mediation and arbitration shall be Chicago, Illinois.
(f) Each Party shall bear its own expenses but those related to the
compensation and expenses of the mediator and arbitrator shall be borne equally.
(g) A request by a Party to a court for interim measures shall not be
deemed a waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or other
damages in excess of compensatory damages and each Party irrevocably waives any
claim thereto.
(i) The Parties, their representatives, other participants and the
mediator and arbitrator shall hold the existence, content and result of
mediation and arbitration in confidence.
4.09 RELEASES
(a) In consideration of the sum of [*] United States dollars ($U.S. [*]),
and other good and valuable consideration paid by ACTIVE VOICE to LUCENT
GRL in accordance with Section 2.01 of this Agreement, and subject to the
receipt thereof and to Section 4.09(c), LUCENT GRL, for itself and for its
present RELATED COMPANIES, hereby releases ACTIVE VOICE, its present RELATED
COMPANIES, as of the Effective Date, from all claims, demands and rights of
action which LUCENT GRL or any of its present RELATED COMPANIES may have on
account of any infringement or alleged infringement of any patent in any
country of the world by reason of the manufacture or any past or future use,
lease, offer for sale, sale or importation of any products of the kind
licensed herein which, prior to the Effective Date hereof, were used or
furnished by ACTIVE VOICE or any of its present RELATED COMPANIES.
* Confidential Treatment Requested
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(b) Subject to Section 4.09(c), ACTIVE VOICE, for itself and for its
present RELATED COMPANIES, hereby releases LUCENT GRL, and its present RELATED
COMPANIES (for the purposes of this Section 4.09(b) the RELATED COMPANY, "Lucent
Technologies Inc." ("Lucent"), means Lucent as it presently exists and as it
formerly existed as the equipment/manufacturing entity of AT&T Corp.), from all
claims, demands and rights of action which ACTIVE VOICE or any of its present
RELATED COMPANIES may have on account of any infringement or alleged
infringement of any patent in any country of the world by reason of the
manufacture or any past or future use, lease, offer for sale, sale or
importation of any products of the kind licensed hereunder which, prior to the
Effective Date hereof, were manufactured by or for, or used, furnished or
imported by, LUCENT GRL or any of its present RELATED COMPANIES including such
activities conducted by those business units of AT&T Corp. which ceased to be
part of AT&T and became part of Lucent.
(c) LUCENT GRL, for itself and its present RELATED COMPANIES, hereby
releases customers (purchasers and users) of products of the kind licensed
herein sold to such customers by ACTIVE VOICE and its present RELATED COMPANIES
from all claims, demands and rights of action which LUCENT GRL or any of its
present RELATED COMPANIES may have as of the effective date hereof on account of
infringement or alleged infringement of any LUCENT GRL PATENT, other than for
contributory or induced infringement, issued in any country of the world by
reason of the use, lease, offer for sale, sale or importation of any such
products. ACTIVE VOICE, for itself and its present RELATED COMPANIES, hereby
releases customers (purchasers and users) of products of the kind licensed
herein sold to such customers by LUCENT GRL and its present RELATED COMPANIES
from all claims, demands and rights of action which ACTIVE VOICE or any of its
present RELATED COMPANIES may have as of the effective date hereof on account of
infringement or alleged infringement other than for contributory or induced
infringement, of any ACTIVE VOICE PATENT, issued in any country of the world by
reason of the use, lease, offer for sale, sale or importation of any such
products. Such releases do not extend to any claim of any patent which is
directed to (1) a combination of such products (as sold or leased) with any
other product, (2) a method or process which is other than the inherent use of
such products itself (as sold or leased), or (3) a method or process involving
the use of such products to manufacture (including associated testing) any other
product.
(d) Notwithstanding Sections 4.09(a), (b) and (c), LUCENT GRL, does not
release ACTIVE VOICE under any of its obligations, under any prior agreements
between ACTIVE VOICE and LUCENT GRL and/or any of its RELATED COMPANIES
including ACTIVE VOICE's obligations under two Patent License Agreements between
VMX, Inc. and ACTIVE VOICE both dated October 27, 1993, entitled: (1) AUTOMATED
ATTENDANT PATENT AGREEMENT and (2)
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VOICE MAIL PATENT LICENSE AGREEMENT; and any settlement of disputes under such
agreements.
4.10 COUNTERPARTS
This Patent License Agreement may be executed by the Parties in identical
counterparts, all of which together shall constitute the final agreement.
Executed counterparts may be exchanged by facsimile transmission.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
LUCENT TECHNOLOGIES GRL CORPORATION
By: /s/ G. G. Partlow
-------------------------------------------------------------------
G. G. Partlow
Chairman of the Board
Date: October 1, 1999
-----------------------------------------------------------------
ACTIVE VOICE CORPORATION
By: /s/ Robert L. Richmond
-------------------------------------------------------------------
Robert L. Richmond
Chairman of the Board
Date: September 30, 1999
-----------------------------------------------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES.
17
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
DEFINITIONS APPENDIX
GENERAL DEFINITIONS:
ACTIVE VOICE'S PATENTS means all worldwide patents (including utility models but
excluding design patents and design registrations) claiming a COMMUNICATIONS
PRODUCT, issuing on or claiming priority from a patent application filed in any
country of the world prior to the end of the LIMITED PERIOD, which is owned or
controlled by ACTIVE VOICE or any of its RELATED COMPANIES at any time during
the term of this Agreement, and with respect to which and to the extent ACTIVE
VOICE or any of its RELATED COMPANIES has the right to grant the licenses
specified herein.
COMMUNICATIONS PRODUCTS means any, instrumentality or aggregate of
instrumentalities (including software) of a design primarily adapted to compute,
classify, process, transmit, receive, retrieve, originate, switch, store,
display, service, manifest, measure, detect, record, reproduce or handle any
form of information, intelligence or data. The term includes products associated
with the administration, maintenance or use of any such COMMUNICATIONS PRODUCT
and materials used in the manufacture of any such instrumentality or aggregate
thereof. The term further includes all services relating to any such products
and components therefor.
INTERACTIVE MESSAGING AND RESPONSE PRODUCTS means all messaging and response
type products and services or software therefor, which automate the processing
of telecommunication transactions under customer-specific application control
(which may include a system designed to be modified for the specific customer or
otherwise, to achieve customer-specific application control) and the operations
in support thereof (collectively, "Telecommunications Transactions"). Such
systems may include subsystems under application control which, without
limitation, gather, generate, manipulate, route, switch, store, communicate or
reproduce calls or data. Such subsystems may also include, without limitation,
automatic speech understanding (meaning the ability to recognize spoken words
based on prompted questions by the system), automated attendant, message
notification capabilities, and text message summarization audio-to text and text
to speech conversion. Telecommunication Transactions may contain, without
limitation, audio, video, images, facsimile, other media and other types of
information (and any combination thereof) communicated over any public or
private networks, including, but not restricted to, paging systems, internet or
intranet networks, whether with delay, such as by e-mail, or without delay, such
as by telephone.
18
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
LICENSED PRODUCT means, as to any grantee, any product listed for such grantee
in Section 1.01.
LIMITED PERIOD means the period commencing on the Effective Date of this
Agreement and having a duration of five (5) years.
LUCENT GRL'S PATENTS means all worldwide patents (including utility models but
excluding design patents and design registrations) claiming an INTERACTIVE
MESSAGING AND RESPONSE PRODUCT, issuing on or claiming priority from a patent
application filed in any country of the world prior to the end of the LIMITED
PERIOD, which is owned or controlled by LUCENT GRL or any of its RELATED
COMPANIES at any time during the term of this Agreement, and with respect to
which and to the extent LUCENT GRL or any of its RELATED COMPANIES has the right
to grant the licenses specified herein. Any patents licensed under two Patent
License Agreements between VMX, Inc. and ACTIVE VOICE both dated October 27,
1993, entitled: (1) Automated Attendant Patent Agreement and (2) Voice Mail
Patent License Agreement (the "Patent Agreements"), are excluded from the
definition of LUCENT GRL's PATENTS.
NET GROSS REVENUES means all revenues on all LICENSED PRODUCTS, as well as all
services related to those LICENSED PRODUCTS, less revenues refunded to customers
due to returns and/or warranty claims. It is expected that NET GROSS REVENUES
will typically be equal to a party's total net reported revenues, excluding
investment income (i.e., interest, dividends and other returns on financial
investments). In calculating NET GROSS REVENUES, in no event will any lease,
transfer, sale or disposition of LICENSED PRODUCTS be valued at less than the
fair market value of such LICENSED PRODUCTS. "Fair market value" means with
respect to any LICENSED PRODUCT transferred, sold, leased or put into use, the
greater of (i) the selling price which a seller would realize from an
unaffiliated buyer in an arm's length sale of an identical product in the same
quantity and at the same time and place as such sale, lease or putting into use;
or (ii) the selling price actually obtained for such LICENSED PRODUCT in the
form in which it is sold, whether or not assembled (and without excluding
therefrom any components or subassemblies thereof which are included in such
selling price.)
RELATED COMPANIES of LUCENT GRL are Lucent Technologies Inc., SUBSIDIARIES of
Lucent Technologies Inc. (other than LUCENT GRL), and any other company so
designated in writing signed by LUCENT GRL and ACTIVE VOICE.
RELATED COMPANIES of ACTIVE VOICE are SUBSIDIARIES of ACTIVE VOICE and any other
company so designated in writing signed by LUCENT GRL and ACTIVE VOICE.
19
<PAGE>
ACTIVE VOICE-BILAT-PLA-RRA - 9/30/99
LUCENT GRL PROPRIETARY & CONFIDENTIAL
SEMIANNUAL PERIOD of any year means an interval of two consecutive calendar
quarters.
SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) which does not have outstanding
shares or securities but the majority of whose ownership interest representing
the right to manage such corporation or other legal entity is now or hereafter
owned and controlled by such company either directly or indirectly; but any such
corporation or other legal entity shall be deemed to be a SUBSIDIARY of such
company only as long as such control or ownership and control exists.
20
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